As a procurement manager, you’re faced with one of the most challenging assignments in the industry … find me the best, most talented and creative agency partners in the business. Oh, and make sure to negotiate a savings while you’re at it. For an increasing number of procurement executives, the combination of a top-notch AOR and a corporate trade (barter) company is the best way to achieve that.
At Active, the largest independent barter company, we recently won a piece of business following an extensive RFP. One element that helped tip the scales in our favor was the procurement lead’s understanding of corporate trade. She not only communicated our value to her marketing organization but to the rest of the company stakeholders as well.
Unfortunately, that’s not always the case.
Early in my career, while on the agency side of the business, I was introduced to corporate trade by one such person, whose resistance stemmed from a lack of exposure and understanding. Now at Active, one of my favorite responsibilities is that of educator; working with brands and their agencies to help them discover unrealized value in their assets and their marketing.
So how does barter work? Why do so many companies quietly use it?
It may come as some surprise that well over half (65%) of companies listed on the New York Stock Exchange and nearly one-third of small businesses, incorporate bartering of some sort in their business dealings. Strictly defined, barter is the one-for-one trade of goods or services, without currency. That concept has evolved today into corporate trade (also called corporate barter, and yes, just barter): a process whereby a company can turn underperforming assets (product, real estate, equipment, etc.) into amplified buying power, typically in the area of advertising media spend. Cash is still the dominant currency, but a portion of the expense—typically anywhere from 10% to 25%— is paid for with the compromised asset, via trade credits.
So why is it that media providers across the advertising spectrum are willing to accept trade credits?
Media providers work with corporate trade companies like Active because we’re making capital investments with them in the form of commitments to buy media, infrastructure investments, and anything else they need to increase profitability. In return, they accept trade credits as partial payment on media we place for our clients — the same media that would have been placed by the agency at the same cost with the same value-added components. The media companies then use those trade credits to offset the cost of services they purchase from Active.
To sum up: the forward investments in media and other services allow a corporate trade company to pay more than current market value for a distressed asset. Once this program is set up, it delivers meaningful value to the company’s bottom line, year to year.
Why are more companies including corporate trade in their agency searches?
Procurement executives tasked with driving savings are typically intrigued by corporate trade. More and more are RFP-ing barter companies either while they are conducting an Agency of Record (AOR) RFP, or immediately after. They are also finding that receptivity can be mixed, both internally and externally. Why?
- A corporate trade initiative requires consensus among sales, supply chain, finance, procurement and marketing. In particular, marketing—typically the end user of the trade credit—must be comfortable with the guarantee that there will be no unauthorized change to their advertising/media plans.
- Ad agencies—accustomed to driving the lowest media pricing via their considerable leverage—are sometimes uncertain or skeptical about a corporate trade company’s ability to create a lower cash requirement. And they are concerned that their stewardship of a client’s media spend—their primary responsibility- will be compromised by the involvement of a third party.
Ultimately, the challenges to implementing a corporate trade program are overcome with education, transparency, and patience. All constituents need to be given an opportunity to ask questions and get comfortable with the corporate trade model. Give us a call and we can help you lay out a plan.