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CORPORATE BARTER |
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While most people know what barter in its simplest sense is - the exchange of one product or service for some other product or service - not as many are familiar with corporate barter. Barter itself has probably been around since the dawn of mankind - a Cro-Magnon good at cultivating grain who traded part of his crop for a basket constructed by an expert early weaver. Or, Peter Minuit exchanging $24 worth of beads and trinkets in 1626 to purchase what is now Manhattan. Retail barter exchanges today allow small businesses and individuals to trade products and services with each other, with the exchange receiving a transaction fee for acting as a clearinghouse. By comparison, corporate barter transactions can involve millions of dollars worth of goods or services, and are primarily conducted on behalf of large companies—in many cases, publicly traded companies. The corporate barter company helps companies use their under- or non-performing assets (obsolete or excess inventory, under-utilized plant capacity, unwanted real estate, etc.) to finance all or part of the cost of products or services (e.g., advertising) they need. For example, a company that wants to sell its excess inventory ... whether it's tuna fish or lipstick ... relies on the corporate barter company to purchase the inventory with trade credits and subsequently fulfill the credits by providing needed products and services. A corporate barter company buys and sells for its own account, acting as a principal in the barter transaction, taking title to the goods and being obligated to fulfill the trade credits it issues. One of the most famous international barter transactions was PepsiCo's marketing of Pepsi-Cola in the U.S.S.R. in exchange for Russian vodka, which ultimately became one of the best selling brands in the U.S. under the name Stolichnaya. |
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But corporate barter as it exists today traces its origins to the late 1950s. By the early 1970s a U.S. recession found many major companies with excess inventories and manufacturing capacity, and limited cash resources. Ad budgets were squeezed, leaving TV, radio stations and print media with unsold advertising time and space. Ad time and space are, of course, "perishable" products ... as are airline seats, cruise ship berths, and hotel rooms. An unsold "perishable product" is revenue that s gone forever. Several early entrepreneurs made their start bartering excess goods and services for "perishable" products such as these. Today, the corporate barter business is far more sophisticated and ubiquitous ... it has become a worldwide fact of life. Corporate barter companies are experts in acquiring billions in media and other products and services to trade to corporations with excess inventories and/or surplus capacity. The Corporate Barter Council, Inc. estimates that, from 1975-1996, corporate barter in North America increased an average of 11.1% a year, from $850 million in 1975, to $7.7 billion in 1996. Modern corporate barter is essentially: • A financial solution • A marketing tool When the corporate barter industry emerged in the 1970s, it was primarily a financial tool: a way for companies with obsolete or excess inventories to get anywhere from cost recovery up to full wholesale value for those inventories in advertising media credits or other goods and services for which they normally would have paid cash. Even then, corporate barter was valuable: it was - and still is - a profitable alternative to traditional costly markdowns or liquidation, in which the company gets just pennies on the dollar for its merchandise. Corporate barter enables a company to get more for its products - often providing full wholesales or book value. But today, corporate barter has become a whole lot more than a way to dispose of distressed goods. It not only provides innovative financial solutions to corporate problems, it can expand a company's advertising and marketing clout. Corporate barter companies today enjoy widespread acceptance in the media community because they acquire on trade millions of dollars of advertising media, and help the media offset heavy costs by providing millions of dollars of goods and services for which the media would normally have to pay cash. The corporate barter industry today can fulfill virtually any media plan the client and its ad agency or media buying service deem appropriate. More importantly, the leverage enjoyed by the corporate barter industry means that it's more profitable to barter than to pay all cash for one's media or other goods and services. For example, if one is manufacturing chairs for a cost of $25 and selling those chairs wholesale for $50 - by purchasing one's ad space or other goods and services with chairs, one is already paying half price. Simply put, leverage is the ratio of the value received when buying with a million dollars worth of goods compared to the value received if you spend a million dollars in cash. Corporations and their advertising agencies increasingly see corporate barter as a way to maintain or expand advertising budgets. Often corporate barter is a way of protecting the media budget when a client's sales are not as strong as anticipated, and cuts to the ad budget are threatened. Agencies are finding that corporate barter can often solve that problem, and know that, in most cases, the agency's commission is protected. And, they know that today's sophisticated corporate barter companies use the same state-of-the-art software systems and research (from companies like Columbine JDS, Nielsen, Arbitron, Simmons, etc.) the agencies employ to ensure measured media performance. Corporate barter is also valuable if one wishes to operate in foreign countries that simply do not have the hard currency to pay for the goods and services they need, but have goods and services to exchange. |
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Today, corporate barter has evolved to where it not only can solve a variety of financial problems, but is a powerful marketing tool, as well. In addition to obtaining full value for obsolete or surplus goods, corporate barter can be the answer to: • Minimizing losses from perishable goods; • Reducing storage costs for old inventory; • Extending geographic distribution; • Entering new markets; • Generating incremental sales; • Decreasing negative cash flow and generating positive cash flow; • Utilizing excess production capacity; • Expanding marketing/advertising budgets; • Tapping into illiquid assets; • Reducing corporate purchasing costs; • Obtaining equipment and capital assets; • Acquiring or divesting owned or leased real estate; • Increasing export business. |
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There are many different ways in which barter deals can work, the simplest being a straight exchange of goods/services for trade credits that can be used to purchase advertising media and/or other available goods and services (such as travel, hotel rooms, airfreight, long distance telephone, etc.). A computer company wants to reward its top salespeople with an incentive trip, but budgets are tight. Working with a corporate barter company, the computer firm is able to pay for a cruise vacation with excess computers that are piled up in its warehouses. Or, an audiotape manufacturer has 100,000 excess tapes worth $1 .00 each wholesale. Instead of liquidating them for 10 cents on the dollar, the manufacturer is paid $100,000 in trade credits, thus receiving his full wholesale price. These credits are used to pay for his company's annual sales meeting at a resort and convention center. A wine company has a glut of product, but doesn't want to damage its brand image with price discounts. At the same time, they’d like to run ads to boost their sales. A corporate barter company agrees to market some of the wine bottled under a private label and pay for it with trade credits. The vintner uses his trade credits to run advertising to support sales of his core brand. |
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One key to making corporate barter work for your company is dear communications: be sure the barter company understands any remarketing guidelines up front. There are many ways corporate barter companies can remarket goods: there is bound to be an option that works for you. Some of the most common remarketing channels include: • Close-out chains • Mass merchandisers • PX and military supply outlets • Institutions: prisons, nursing homes • TV shopping networks • Direct response to consumers • Premium and incentive houses • Company stores • Overseas export • Private label This flexibility means your corporate barter company can avoid any conflicts with or disruption of your normal chain of distribution. |
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The Four A's (American Association of Advertising Agencies) has told its members that a sensible approach to bartering media can play an important role in the marketing and media activities of some clients. They have established a checklist guide for selecting a reputable barter company, and recommend that the following criteria be met: 1. The corporate barter company must have a professional, in-house media buying staff with agency trained personnel. 2. The corporate barter company should welcome the participation of the client's agency in planning or reviewing media schedules and is prepared to provide for full agency compensation on gross media. 3. The corporate barter company should have a track record of successful performance with major clients for at least five years and will furnish client, agency and financial references. 4. The corporate barter company buys in accordance with agency/client-approved plans rather than pushing pre-owned syndicated shows or time bank inventory, and can deliver any required market, daypart or weight level. 5. The corporate barter company can track the media buy while the flight is in progress to assure full delivery of media weight. Any preemptions are made good during the same flight with spots of equal or greater value. 6. The corporate barter company should demonstrate the ability to buy and deliver requested schedules during second and fourth quarters as well as first and third. It should also demonstrate the ability to buy and deliver network and affiliated stations, as well as independents, particularly in the top 50 markets. 7. The corporate barter company can calculate media costs based on negotiated rates (Media Market Guide, SQAD, or agency cost-per-point) rather than on Standard Rate, Card Rate or other arbitrary cost data. 8. The corporate barter company is willing to commit in writing to delivering the specific media schedule agreed upon, not merely to offer "best efforts." 9. The corporate barter company has demonstrated the ability to market merchandise to end-users, not merely closeout companies. This is vital in controlling distribution of bartered products so they won't conflict with the client's present marketing activities. Members of the Corporate Barter Council applaud the 4A’s guidelines, but would like to add a few more of their own: Communicate: Treat your corporate barter company as your marketing partner. Tell them everything they might need to know to make the best deal for you. Be specific about your goals and expectations. Be Flexible: Instead of beginning with a pre-conceived notion of what the "best deal" might be for you, let them exercise their creativity. They may come up with something far better than you would have imagined. Examine the Trade Credit Spending Plan: Make sure that the corporate barter company is offering media, merchandise and services that you really need - and that you'll be able to use up your trade credits in a timely manner. Ask Questions: If you have not used corporate barter before, ask all the questions you can think of, and don't do business until you're sure you understand the process, are satisfied with the answers to your questions and are clear about how your transaction will work. Don't Compare Deals Strictly by Numbers: Judged solely by the gross number of trade credits promised, a deal that looks better up front may not offer the greatest value. You may be promised a lot of credits, but need to ask how long it will take you to redeem them, and does the company you're considering commit to results? Will you maintain control over their remarketing efforts? Are they protecting your current distribution channels? Check With the Corporate Barter Council: Before you engage a corporate barter company, call us for a reference. Our unique-to-the-industry code of ethics and peer review discipline system means we can tell you if the company you are considering has ever been found guilty of an infraction or disciplined by our Ethics Policy Committee. |
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Members of the Corporate Barter Council (CBC) include all of the largest corporate barter companies in the world. Corporate Barter Council members have agreed to adhere to a strict code of ethics and to be subject to a peer review system of self-regulation - the only one in the industry. This is why you should always make sure the company you choose for your corporate barter needs is a CBC member. |
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All members of the Corporate Barter Council have agreed to adhere to this Code of Ethics. l. Industry members shall continually strive to maintain a high level of esteem and respect for the reciprocal trade industry, the services it performs, and its member practitioners, colleagues, employees and associates. No industry member shall speak ill of, or impugn the character of any other member or firm. II. Fairness and honor shall characterize all dealing among members of the reciprocal trade industry and industry members shall, in their business dealings, uphold the same standard for clients, suppliers, remarketers, liquidators and others who do business with the industry. III. Industry members shall comply with all laws, regulations, rules, and ordinances of any governmental body, or agency having jurisdiction over member activities. IV. All advertisements, publicity, public or private statements and written or visual communications of industry members shall be factual and straightforward, and shall comply in letter and spirit with all applicable laws and regulations, and with basic standards of fairness, truth and honor. V. Industry members shall provide full and accurate disclosure of all information considered material to a business relationship with prospective clients and others such as suppliers, trade companies, etc. at a reasonable time prior to the execution of any binding agreement. All written materials shall clearly set forth the terms, conditions, and obligations of all parties to the agreement. Truth and accuracy shall characterize all business solicitations and dealings. Information considered proprietary and confidential to the parties in any transaction may be withheld provided the other party is made aware of said withholding. VI. Reciprocal Trade Companies shall establish client business relationships only with those organizations that, upon reasonable investigation, appear to possess the capability which will enable them to appropriately utilize the trade spending availabilities the Trade Company possesses, or can obtain. No Trade Company shall issue trade credits entailing a "best efforts" obligation to obtain products or services for a client without::
VII. Reciprocal Trade Companies shall, at all times, refrain from offering more than they can deliver, or exaggerate, in any way, the availability of goods and services beyond their capability to deliver during the fulfillment duration of a client contract. VIII. Reciprocal Trade Companies shall enter into a transaction with a client only when they are reasonably sure that they will not violate the client's restrictions on distribution of his merchandise. If distribution restrictions are required by any client, said restrictions shall be made a formal written part of the contract between the client and the Reciprocal Trade Company and shall be strictly adhered to. The Trade Company shall further, formally and in writing, inform prospective buyers of said restrictions and take all necessary steps to assure that restrictions are adhered to by a buyer. lX. Reciprocal Trade Companies shall establish business relationships only with individuals, corporations, and firms who, upon reasonable investigation, appear able to fulfill their agreements and deliver required products and services. Reciprocal Trade Companies shall only utilize fulfillment services of companies who operate in an ethical and professional manner with the Trade Company's clients and with the public at large. X. Industry members shall not discriminate on the basis of race, color, national origin, religion or sex in hiring employees, acceptance of clients, or establishment of any other business relationship. XI. Association members shall cooperate in the establishment of professional and ethical standards and in the resolution of any disputes between Trade Companies and clients, suppliers, or other Trade Companies. XII. Industry members shall establish internal rules, procedures, and practices in their business operations that will serve the best interests of the public and XIII. Industry members shall provide appropriate guidance and supervision over the activities of their employees for the purpose of ensuring truth and accuracy in public communications, statements made to clients, and adherence to the requirements of this code in all business dealings with suppliers, clients, the public and other industry members. XIV. Any alleged violation of this Code by a Reciprocal Trade Company, or any other party involved in a business transaction with an industry member, shall be addressed, investigated and resolved through due process. |
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