Co-op Marketing vs. Market Development Funds: What's the Difference?
Posted at Aug 2, 2018 1:12:00 PM by thatagency | Share
Iconic brand creator Henry Ford once said, "Stopping marketing to save money is like stopping your watch to save time." Ford wasn't wrong. You can't just quit marketing your products or services, even when it seems like advertising dollars are harder to come by all of the time.
Some companies turn to co-op marketing and market development funds to add a little cushion to their marketing budgets. The key to making the best use of these resources, though, is to understand the difference between the two types of funding and apply it appropriately.
Aren't They the Same?
One quick online search for these two terms will reveal a common misconception - that co-op marketing and market development funds are synonymous. That simply is not true, though. These are two distinct mechanisms.
1. Co-op marketing is when a manufacturer offers you marketing money based on a percentage of your sales. They are rewarding you for prior performance. Typically, these funds come with some strings attached. You not only have to look for opportunities to take advantage of those co-op funds, but you also generally need to obtain ad preapproval. Sometimes you must go as far as utilizing a template, then proving that you published the ad by submitting receipts and other documentation and showing the manufacturer that you did, in fact, obtain preapproval.
2. Market development funds (or MDF) are funds that are given to you in advance of any sales performance. The idea here is that you'll be rewarded with the money based on the sales numbers that they expect to come out of your company.
The one spot these two are similar is that both often go unused. There are a two reasons for that. One is that many manufacturers just don't preconfigure their marketing programs correctly to get the opt-in for either. The other is that the reimbursement process, if there is one, is so cumbersome, it isn't worth the time and hassle.
Applying the Difference
So, where does each fit within the marketing puzzle? Co-op funds tend to be a bit more stable than MDF. They can allow for long term planning based on sales numbers. They do, however, typically require reimbursement instead of providing cash upfront. MDF, though, tends to be discretionary. They're perfect in markets that are changing fast and where influence is everything.
If past sales history isn't quite as important as getting that product out there as early as possible, MDF is the way to go. Sales isn't the key with this one. Instead, creating some traction within the market as soon as a product hits is critical, and that's why MDF works so well. These are sometimes given even before the promotion takes hold in the market.
While you can't stop marketing your product to save a bit of cash, just as Henry Ford said, making a little extra money with co-op marketing funds and MDF may provide the cushion you need.