Cooperative advertising plans feature prominently in marketing programs in conventional channels and make up the majority of marketing funds in some product categories. Available data show that cooperative plans vary greatly with respect to their principal feature: the participation rate offered by manufacturers (the fraction of the reseller's advertising costs that the manufacturers pick up). The authors develop two formal models to study the effects of advertising “spillovers,” differentiation across competing retailers, and differentiation across competing manufacturers on the participation rate. The models show that more generous participation rates are called for with less targetable media, less differentiated retailers, more differentiated brands, and more upscale products within a category. The authors sketch out a managerial decision framework that incorporates these findings and offer some suggestions for empirical research.
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