Vertical cooperative advertisingtypically, when an upstream channel member pays a portion of the advertising/promotional expenses of a downstream member such as an automobile manufacturer and its car dealerships, or a manufacturer and a direct marketer of his productscan be extremely profitable to both parties. It is obvious that the downstream partner is better off when the upstream member volunteers to pay part of its advertising expenses. What is not so obvious is the great potential benefit to the upstream member who "volunteers" to pay this portion. The latter is likely to not be simply acting altruistically! More likely, the channel member understands the monetary benefit that it will receive from this volunteeringor else, it would not do so! This article discusses and demonstrates just how this "magic" occurshow both channel members benefit, potentially dramatically, from this process.

Since the 1930s, people have understood the concept of cooperative advertising (Lyon, 1932). This cooperation may be "horizontal cooperative advertising", when, for example, a group of "small" stores band together and jointly take out an advertisement. A popular current manifestation of this would be a large number of retail stores/businesses combining their coupons in one envelope that is often mass mailed to a specific geographical area; one example would be Valpak, of Largo, Florida, a US national direct marketing firm.

Of more interest, due to the opportunities it allows, is "vertical cooperative advertising". This occurs when one (typically upstream) channel member pays part of the advertising or promotional expense of another (typically downstream) channel member. For example, an automobile manufacturer may pay part of the local advertising (promotional) expenses of a car dealership. Or, PepsiCo may pay part of the local advertising expenses of the Pepsi bottler. Or, a clothing manufacturer may pay part of the advertising expenses of a department store that is selling the manufacturer's clothing. Or, a manufacturer may pay some of the mailing cost of a direct marketer/mailer who is selling the manufacturer's products. In every one of these examples, the upstream channel member benefits directly if the downstream channel member increases its sales. Thus, it is natural that such cooperation (sometimes called an "integration strategy") may occur. Indeed, we will show that it can be "more than natural"; it can be profitable for both channel members.

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