Barter instead of procurement – did you know you can swap stuff for TV Ads?

(We’re delighted to feature a guest post from Emma Kenny, a Partner in procurement consulting and outsourcing firm Occleve).

Emma Kenny, Partner at Occleve

... In fact, you can ‘swap’ all sorts of underperforming or obsolete corporate assets for other things too such as on-line or print advertising; hotel rooms and conference facilities; print runs, flights, car rental or cargo space, and the list is growing all the time.

Most large businesses should be considering corporate barter if they do not already use it – particularly those with a substantial advertising budget, but also anyone that regularly purchases a ‘perishable’ commodity such as media, travel or cargo space or on a regular and fairly predictable basis.

It works like this: a specialised barter firm ‘forward buys’ a quantity of a perishable commodity, say TV advertising space, which appreciates over time. The client has an asset it doesn’t need – surprisingly this could be almost anything such as property, obsolete plant and equipment, surplus stock, unsold hotel rooms, a portfolio of debt-laden accounts or a sponsorship deal that no longer reflects the brand values the client wishes to communicate.

The barter firm agrees to buy the unwanted asset – often at book value but definitely at a higher price than the client could get on the open market, and the client agrees, in this case, to buy TV advertising (from the barter firm) at the same price and in the same way it would have done anyway. The client gains because it gets a higher price for the unwanted asset, and the barter firm makes an arbitrage margin on the TV advertising it forward bought some years before. Plus it recovers some money by disposing of the client’s asset. It is a ”win win”, limited only by the inventiveness of the corporate barter firm and its clients.

Of course, it can all go badly wrong: clients have been left holding barter credits for things they now don’t want to buy, or have found last year’s surplus designer stock being sold off cheaply in markets or through channels they now want to exploit themselves.  However, as in so many things, success depends on thorough research, getting the details right and thinking about the ‘what if’s before jumping in with both feet.

Doing the due diligence to find the right barter company, and making sure that you structure the deal properly are clearly crucial, but so is making sure that everyone within the organisation understands and is signed up to what is going on ....the person who is disposing of the underperforming asset is usually not the same person who controls the media or travel budget, and the two parties are likely to have very different perspectives on what constitutes a ‘good deal’.

That said, although we are not a business barter firm ourselves, we have helped clients unlock significant value using this technique. For example, we helped a client in the hospitality sector trade the 2 remaining years of a golf sponsorship deal for barter credits which were ultimately used to pay for advertising.  We would advise anyone who has not tried it yet to test the potential with a small transaction – and if it works, you can take it from there.

Voices (4)

  1. Matthew Harding:

    I have used a barter company called Bartercard (www.bartercard.co.uk) who have helped me pay for many items including Couriers, exhibition stands, printing and an answering service. I allow them to “sell” my product to thier other users in return of the spending I do – As a smaller business (not corporate) this has really helped my cashflow and has introduced new customers to me.

  2. PlanBee:

    Ha ha ha

    We did try it, experience showed it didnt work, and I said that maybe in the internet world it might work now.

    Where is the closed mind in that?

    An analogy…… I banged my head against a brick wall. Experience showed me it really hurt my head. I wont try it again. Closed mind or learning from experience?

  3. stephen ashcroft:

    and plan bee exemplifies why Procurement is so often seen as the ‘handbrake’ by other departments.

    Sometime in the 1980′s Rev. Erwin M. Soukup (Archdeacon of Chicago) compiled “The Seven Steps to Stagnation”:

    1. We’ve never done it that way before.
    2. We’re not ready for that.
    3. We are doing all right without trying that.
    4. We tried it once before.
    5. We don’t have money for that.
    6. That’s not our job.
    7. Something like that can’t work.

    Barterning may well not be the answer but the mindset open to new ideas certainly is.

  4. PlanBee:

    Tried it years ago, was left with a whole load of barter credits that we couldnt exchange for anything more useful than crate loads of out of date Ribena.

    It may well be that with the net it can operate better these days (god I’m old) but without the live marketplace, very difficult to get it to work

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