Catalogers Cash in on Corporate TradingWhen we were kids, trading baseball cards or dolls for merchandise of equal or more personally meaningful value was the most natural thing in the world. Barter was the original form of trade, predating currency and serving as the building block for what evolved into today's economic system.
Yet corporate trading, or barter, makes some brand marketers hesitate. For some companies, corporate trading remains a bit mysterious. It need not be. Trading merchandise and services for advertising and other goods has become an important tool for thousands of companies.
Some major names in the catalog business have used corporate trading to great advantage in recent years. Blair Corp., the multichannel direct marketer of women's, men's and home fashions, sold some slower-moving merchandise for asset purchase credits. Blair used more than $5 million in credits for multiyear printing contracts on its catalogs.
Lillian Vernon, the well-known DMer of housewares, also converted slow-moving merchandise into cash savings by using credits obtained in a sale toward a multimillion-dollar purchase of corrugated and other packaging supplies. Rather than discarding old merchandise, Lillian Vernon used it in lieu of cash for expenditures it needed to make.
To use corporate trading effectively, companies should ask two questions:
· When is barter right for my company?
· What is the process?
Some background. Industry evidence indicates that 75 percent of Fortune 500 companies have used corporate trading at one time or another since its inception in the late 1950s. According to the International Reciprocal Trade Association, the corporate trading industry generates more than $7.5 billion in sales annually. Using trading credits for media time and space is the most popular type, with more than $1 billion in media time and space purchased annually through corporate trading.
So when is corporate trading right for my company? There are several situations in which it can be ideal:
· You have excess or slow-moving inventory from which you want to derive value.
· You have outdated inventory on which you likely will take a loss.
· You have a building or other real estate, or capital equipment, that you wish to sell but that isn't worth today what you paid for it originally.
Here's how corporate trading might work for you: The trading company meets with the client and researches the true market value of the asset. It prepares a purchase proposal detailing how much it is willing to pay for the merchandise, building, etc., and in what form - whether it be all trade credits or part cash and part trade credits.
The client and trading company agree on any restrictions the client has in the reselling of the asset. Once price and terms are agreed upon, the trading company prepares a purchase agreement. When signed, the client is paid and title, or title and possession of the goods, passes to the trading company.
Using your trade credits. Let's say the client plans to spend its credits for advertising. The trading company receives a media plan from the client or agency of record complete with the rates, and negotiates the trade credit acceptance as part of the buy with the respective media vendors. It submits the media buy with the cash and trade detail to the client or agency of record for approval. Once approved, the media buy is executed and the trading company provides industry standard post delivery.
Though we focused on barter for media in our example, barter credits can be used for raw materials, capital equipment, shipping, warehouse supplies, printing, travel, long-distance services, roofing services, hotels and myriad other business needs.
Here are some questions to ask a trading company when you are seeking a partner:
· Ask the company's media buying staff about their credentials. This is no different than hiring a media buying firm. You want to know that you will be dealing with media professionals who are agency trained, not people who are simply trying to move the media they might own regardless of your marketing goals.
· Ask for examples of the media available to you to ensure that quality options are available for consideration.
· Ask for client references and case studies. You don't want to be a guinea pig.
· How willing is the trading company to involve your agency in the process? The barter firm should be 100 percent willing to review media schedules with your agency.
The firm should be willing to guarantee the buy it will make for you and offer proof-of-performance verification.
The trading firm/ad agency dynamic is sometimes sensitive. Many agencies initially resist trading, seeing it as a threat to commissions or as a loss of control in the relationship. The client must ensure that the agency understands the decision to use trading. Only then can the process achieve your goals.
Today, media services are contracted a la carte. You may choose agencies under different corporate umbrellas because you are confident that each will provide the best expertise. The same is true when selecting a trading company. The trading company is not replacing the agency. It is simply bringing different skills to the table.
Beyond the credit use itself, there is another important question. What happens after your goods are acquired by the trading company? Find out where the company plans to sell your merchandise. This is an often-overlooked element, but an important one because you do not want to denigrate your brand. All reputable trading companies will stipulate in writing that they will adhere to your guidelines concerning remarketing your goods.
As we intuitively knew when we were kids, trading is a logical and beneficial tool to get something that you can use in exchange for something you cannot. Corporate trading need not be much more complicated or mysterious than trading baseball cards or dolls, if you know the right questions to ask.