BARTER and CORPORATE TRADE

LEADERSHIP: WHAT I HAVE LEARNED

2011-06-03T06:56:00.002-07:00

Good leadership manages down, not up.

Good leadership avoids unnecessary process and hierarchy.

Good leadership knows it's business does not make money making something, only selling something.

Good leadership sees how bureaucracy can strangle understanding, process and action.

Good leadership knows it is not always right. Good leaders understand how far removed they often are from the front lines.

Good leadership understands volatility doesn’t equal risk…that risk is a chance of permanent loss.

Good leadership writes well and often. Good leadership reads and responds always.

Good leadership listens carefully to other's views...nuggets of wisdom can come from the most unexpected dialogues.

Good leadership dedicates time with their managers to understand how they view their roles and yours.

Good leadership is not about being right…it’s about winning.

Adding Barter Resources to The Agency's Tool Box

2011-03-10T07:46:00.000-08:00

CONSIDERATION FOR AGENCY ALLIANCES: ADDING CORPORATE TRADE TO THE AGENCY TOOL BOX.

You have a shilling. I have a shilling. We swap. Now you have my shilling and I have your shilling. Nothing has changed. You have an idea and I have an idea. We swap. Now you have two ideas and I have two ideas. We have increased the capital of our ideas by 100%.

OVERVIEW

In determining how best to illustrate the benefit of incorporating the resource of corporate trade within a media agency’s new business pitch, we must first examine how a media agency presents its wares and works to differentiate itself from its competition. The product of a media agency, or in more modern terms, a communications agency, is strategy; strategy built from insights garnered from research. Typically, these insights are a result of melding internal, proprietary client data with outside and/or customized research. This information is fed into what the agencies refer to as their tool box (proprietary technology formats), affording the client the ability to expand its communications platforms, while managing pricing. In short, allow the client to optimize its communications investments, and contribute to the branding process by leveraging media strategy and media placement.

In the pitch, the agency must demonstrate how technology, especially their technology, is changing market research by making available certain types of consumer behavior and attitude information that previously was inaccessible. The agency, with its framework, is selling the idea that it can enable clients of marketing research and media strategy to make critical business decisions in a timelier manner, as well as, have the best opportunity to stay ahead of the curve.

The pitch discussion, outside of answering specific pre-issued client questions, will generally cover the following topics:

• The Big Picture
• Drivers of Change
• The New World
• Building Brands, Building Business
• The Path to the Future

The pitch will also include very specific case studies to illustrate how the agency’s process, technology, category experience, brain trust and scale was able to take another client from point A to point B, and what that journey represented in terms of new sales, higher levels of awareness and/or competitive positioning.

ISSUES

Agencies, because of the economy and critically, because of continued consolidation within major media driven industries, have fewer potential client candidates, are subject to greater risk in retaining current business and are faced with shrinking margins from competitive fees, retainers, cost plus and performance based compensation plans, as well as, the increased costs of research.

ENTER THE BARTER ORGANIZATION

What if an agency, in presenting its capabilities, its tool box so to speak, could add a business component that would benefit the potential client’s financial picture, provide solutions to challenges outside of its communications needs and create cash flows to help fund its media procurement? What if the agency could bring to the table a new tool that would allow it to actually expand its resource to the client over and above its perceived media deliverables, and help it to outflank its competition in the pitch?

Would the addition of a corporate trade component answer the “BIG 3” questions every important client uses to measure the agencies competing for its business:

• What can be achieved now, that could not have been done before?
• Is it accountable and measureable?
• Is it a good price?

The resources and assets of the Barter business model, when positioned as a time tested and scalable trade strategy, that can work hand in hand with the agency’s management team, to help clients achieve new efficiencies, value creation for impaired assets and near term cash flows can be a very powerful, competitive statement.

Corporate Trade’s value in an agency’s pitch is the “potential” benefit the agency can help the client realize without any compromise to the quality and efficiency the agency is bringing to the communications process. Importantly, a large barter organizaton, because of its multi-market footprint, may be able to help a potential client far beyond the domestic capability of the agency, as well as, bring investment opportunities to the table that would bolster the agency’s media plan strategy, but would otherwise be unaffordable within the client’s budget.

HOW BEST TO GET THIS VALUE ADD CONCIOUSNESS TO RESONATE WITH THE AGENCY?

• The Barter organization must continue in its efforts to educate, and socialize with, agency management at the highest levels, both on an individual and holding company basis.

• The Barter organization needs to build and promote its brand in the business community, as opposed to the advertising community; so that its brand is not foreign to any client the agency may care to introduce us to.

• The Barter team must be prepared to deliver to the agency multiple and flexible options it can use to integrate barter services into the agency pitch, and, that allows the agency to be totally confident and comfortable in its representation of corporate trade within its pitch process.

CONCLUSION

The Barter company understands the benefits it can provide to an agency pitching business against competitive agencies that do not have any trade resources or whose trade resources are limited at best. The Barter resourse needs an understandable strategy to bring to the agencies that enhance their capabilities, and that will provide total assurance the public recognition of the Agency's strategic communications attributes will not be marginalized.

Barter Considerations for Regional Advertising Agencies

2011-01-31T10:27:00.000-08:00

Like many regionally focused communications and advertising firms, you may be facing shrinking budgets and billings from your key accounts. Further, your marketing and media teams are mandated to reduce costs, while still having to retain revenue goals internally and externally. Importantly, for clients whose sales are media driven and faced with the inflationary nature of marketing costs, your agency is required to be more aggressive in its pursuit of cost savings, and be a larger contributor to your clients’ profit picture.

The message here is clear... you want, need and demand partnerships and strategic alliances that will increase client cash flows without impacting the scope or quality of your work.

It may be of value for your team to gain a greater understanding of the corporate trading model in general and of the resources and case histories of particular barter companies in particular. To that end, regional agencies should concentrate on(1) what can be achieved in a corporate trade transaction that could not have occurred before, (2) how process can be measured in terms of performance and (3) the mechanisms built in to assure financial accountability.

Barter transactions fill this role for many national and regional marketers.
Earnings pressures created by marketplace conditions and competition have moved these companies to explore and implement corporate trading programs as a formidable financial tool to achieve greater values for their non-performing assets. Using these assets to create incremental funding (or, help replace diminished media budgets) to outflank competition in the procurement of media.

Barter organizations work in alliance with agencies to expand their resource to their clients by helping them create greater value for the client’s under performing assets. Those assets can, with the agency’s stewardship, be reinvested on a cash equivalent basis, to help fund client media and communications needs.
The barter trading model, and process for working with the agency community, provides the technological sophistication, quality control and accountability required assure target audience delivery and schedule quality. Such transactions are being executed for national, regional and local media campaigns.

Agencies serving the needs of smaller and large regional clients should ask for presentations from the various barter and corporate trading companies to gain a better understanding of the business model to explore how they might bring greater value to their clients.

Barter Transactions: Impact on Profit

2010-01-28T08:09:00.000-08:00

Corporate Barter’s
Impact On Marketing Efficiencies

By
Elliot DeBear
Senior Vice President
Active International
edebear@activeinternational.com

Today, most CEO’s, along with their procurement teams, are faced with the mandate of reducing costs, while still having to retain revenue goals. For companies whose sales are media driven, and faced with the inflationary nature of marketing costs, this can present a formidable hurdle. Companies across the board have a greater need for their marketing partners to be more aggressive in their pursuit of cost savings, and therefore a larger contributor to the profit picture.

The message here is clear, that today’s CEO’s want, need and demand partnerships that measure marketing cash outlays in terms of profit impact.

Because of these financial pressures, many marketers and their advertising agencies are growing their utilization of corporate trading, or barter arrangements, to meet these critical needs. Specifically, by using their under performing assets to help fund their advertising and communications investments, as well as, off set their capital outlays for retail marketing needs, meeting planning and freight & logistics. In doing so, these companies can and do achieve a higher internal rate of return than these assets would otherwise deliver in the liquidation marketplace.

Corporate Barter provides customized strategies to restore value from a company's non-performing assets. These assets can include excess, impaired or obsolete inventories, short dated goods, real estate, debt, and capital equipment to name a few. The barter company typically purchases these assets with its own currency known as a "trade credit." The credit is then used in lieu of cash to help fund the purchase of various goods and services, most predominately media, based on the client's own established benchmark pricing and qualitative specifications. It essential that the barter company comply with the marketer’s own established pricing benchmarks and buying guidelines to assure the trade credit is being employed on a true cash equivalent value. By using its trade credits in the procurement of these goods and services (that would otherwise be purchased for 100% cash), the client, through its corporate trade transaction restores the value to its asset, and is afforded a measureable cash flow benefit (every trade credit utilized in the funding of these goods and services replaces a dollar in cash outlay).

In the case of media, Corporate Trade and Barter organizations differentiate their business models from those of mainstream advertising and media agencies, by investing their own capital resources to form long-term financial partnerships with major media providers. These partnerships allow the Barter organization to work with marketers and their agencies to provide unique financial and efficiency benefits in the employ of their media investments. Key components of working with a barter company are the protocols and mechanisms set up for accountability. The client should retain control and authority in the delivery of its media specifications, and have a clear expectation of the Barter company’s media buying units to provide timely and detailed post documentation of its media buying activities on its behalf.

For many Fortune 500 companies Corporate Trade has provided a valuable financial tool to help control cash outlays for traditional and digital media, event marketing & sales incentives, retail marketing programs and freight & logistics needs. In these cases, the Barter partner has had to demonstrate technological sophistication, marketplace savvy, quality controls and accountability to assure the required target audience delivery and schedule quality defined in these companies’ media planning specifications. Such transactions are being executed on a regional, national and global level.

In considering a corporate barter transaction, financial and procurement management should ask four key questions:

• What can such a transaction accomplish that could not have been done before?

• What measurements do we use to gauge efficiency advantages?

• Is the transaction accountable?

• How will such a transaction help me outflank my competition?

With the correct amount of due diligence, corporate trade transactions can deliver substantial financial benefits while maintaining the quality and pricing standards required to meet a marketer’s business needs.
Corporate Barter, that was once an under the radar media buying hybrid, is now a mainstream financial solutions industry, focused on finding new ways for media driven marketers to create value within and outside their companies.

Account Management For Communications & Media Companies

2008-02-04T10:59:00.000-08:00

Account Management Overview
For
Communications & Media Companies

January, 2008

Elliot DeBear

MANAGEMENT DISCUSSION

· Account Management Overview

· Account Management Objectives

· Account Management Client Goals

· Critical Issues

· Creating a Client Centric Approach

· The Communication Equation

· Self Evaluation

· Strategy In Management Of Expectations

· Client Identification

Account Management Overview

It is important for account managers and directors to consider a client management structure that is tied to the daily workings of each major account. Traditional advertising agencies have account directors on each account who are responsible for both day-to-day operations of the account, and growth of the account inside the agency.
In today’s environment that is stewarded in large part by client side procurement management, company’s require client solutions teams that can act among other things as a business growth units. This should be a team of high level, senior executives who, over time and increased knowledge of a client’s business can carry new strategies to further benefit the client’s business and increase their organization’s sales.

Most sales forces function in a somewhat “siloed” manner, generally seeking business from new clients, rather than focusing on existing ones. Client and agency management teams must be able to look at the big picture or the “integrated strategic picture” for the existing business base. While most traditional client services departments do this on a piecemeal basis, they were generally not formed for this particular function, do not have a defined protocols for conducting business and, importantly, do not have a continuity of business & formal media/multi-platform communications skill sets throughout its ranks.

Account Management Objectives

Develop client relationships at the highest levels to enable your organization to have access to and understand client needs

Provide neutral, integrated solutions focused on meeting identified client needs

Create platforms to evidence your company’s qualifications and competencies in delivering reliable solutions on time and to specification

The business proposition of a client account management team is to create better ways to build revenue…to transact client relationships in an efficient manner to maximize profitability.

Account Management GOALS

· Increase emphasis on client loyalty, retention and growth within a scale of capabilities

· Achieve a more comprehensive level of customer loyalty and long term client relationships based on a team effort

· Foster greater involvement in each customer’s business to identify future needs

· Expand the customer’s diversity of experience throughout your company’s business units

· Mitigate barriers in the renewal process

· Make your company’s services more valuable in the customer’s supply chain and procurement process

· Create an environment that encourages your organization’s deliverables be measured in terms of excellence in each client engagement

The Account Management Solution

With particular regard to research, communications strategies and media execution, an agency’s largest business components, Account Management should ideally be able to quickly determine how a client defines its agency relationship, the agency’s capabilities by strategic discipline, its understandings of corporate business and marketing goals and be able to develop credible, “on the same page” relationships with agency gatekeepers at the highest levels. At the same time, the client management directors must work to assemble a client side team to convey the scale & scope of the company’s media and non-media needs that fall into its portfolio of services.

This approach requires two primary business components. First, a day-to-day operations and service experience enabling team directors to conceptualize how a strategy for incremental business can work. And secondly, salesmanship; the ability to ascertain the relevant information required to bundle media and non-media services into larger responses and solutions. These two components combine the most important aspects of a traditional agency account director and specialty strategic business development director. Importantly, when viewed in this way, provides a familiar operating logistic to the client…again, keeping a “same page mentality” for the account management team to accomplish its tasks.

Critical Issues

Responsiveness
Competence
Cost Factors

Creating a Client Centric Approach

The Account Team should view itself as a Client Management Solutions Group, working with the client and internally to articulate:

· What goals must be served by whatever action is taken
· Which goals have the highest priority
· What solutions groups, individually and collectively, will achieve the desired goals
· Which choices seem best for the client

The Communication Equation

Account Management working as a solutions group must be able to reinforce on a continuing basis:

· Skill sets in the various research, strategic planning and buying offerings represented
· Analytical skills
· Technology & reporting resources
· Subject matter expertise
· Creativity
· Dedication to the client needs and respect for client agency relationships

Self-Evaluation

Account Management must work to educate all areas of the company in the client’s business, culture and needs. Conversely seek ideas from all areas of their organization to best meet client needs effectively and rapidly.

· Do we understand the client’s needs?
· Are we approaching our relationship with the client as a partnership?
· Are we offering substantive recommendations based on a good understanding of the client’s business functions?
· Are our recommendations specific?
· Are our recommendations new, different, creative and unique solutions?
· Are our recommendations being presented in a clear, concise and persuasive manner?
· Will the client understand the “payoff” from our actions?

Consistent Strategy in Management of Expectations

The Account Management team must help all divisions of Active to approach and present client centric solutions from a “position of strength”

· Cost Strategy – highest value response
· Quality Strategy – most reliable response
· Technical Strategy – most flexible response
· Competitive Strategy – most unique response based on Active’s points of differentiation

Client Identification

Over time and a greater understanding of the client’s business, Account Management teams must identify the client’s business environment at any point in time, so that the team may adjust its strategies accordingly. This will present the greatest opportunity to win back or grow the client’s business.

Examples:

Growth Company
· Definition: Sales driven
· Need: Efficiency and profit
· Strategy: Decreased operating costs (cash outlays) to increase profitability

Company In Decline
· Definition: Cost driven
· Need: Improving balance sheet
· Strategy: Provide greater internal value to non-performing assets

Stable Company
· Definition: Defined cost/sales relationships
· Need: Contain costs, maintain share, do not disturb status quo
· Strategy: Provide positive results from unique attributes

Definition of "Brand"

2007-11-21T11:34:00.001-08:00

Brand

A set of promises and management of experiences that engage the consumer and create a set of expectations for the consumer so a premium price will be paid for your product or service.

A company does not build a brand, but rather manages their brand through strategy to build its business.

Elliot's Resume

2007-11-21T11:31:00.000-08:00

Elliot DeBear is a senior corporate trading executive experienced in change management, corporate strategy, sales and customer relationship management. Elliot is a communications strategy and marketing veteran, and media entrepreneur.

ACTIVE INTERNATIONAL January 2002-Present
Senior Vice President

Manages client and agency relationships for primary accounts of a $1.5 billion corporate trading company. Within this, craft corporate sales strategies, business development and fulfillment solutions across a suite of corporate offerings to facilitate value creation in our clients’ financial transactions. Works with sales, corporate development, media and business services teams to employ accountability and best practices in meeting profitability goals and generate renewal business. Responsibilities are heavily focused on client retention, growth and new market creation. Involved in all forms of trade and asset transactions inclusive of trade credit, cash cross purchase, cost reduction, reclamation of asset impairment and client directed trade agreements. Manages corporate policy for marketing, trade associations and independent media audit reviews. Works with client side financial, marketing, sales and supply chain management teams.

Account Responsibilities: MARS, IBM, Carrier Corporation (UTC), Scotts Miracle-Gro, AkzoNobel/Glidden, ACH Foods, Pioneer Electronics,Mitsubishi Motors, Bacardi, Ace Hardware.

INDEPENDENT MEDIA SERVICES INC. October, 2000-November, 2001
Sr. Executive Vice President and Chief Marketing Officer

Member of three-person executive committee (CEO, DeBear, Director of National Broadcast) charged with management of the company day to day and long range strategic planning. Direct oversight responsibilities for all media planning and buying for all clients ($170 million). As Chief Marketing Officer, had key responsibility of expanding business beyond core media specialties for movie studios, cable TV networks and publishing companies.

MEDIA PLANNING GROUP/HAVAS (formally SFM Media Corp) June, 1996-Sept,2000
Senior Vice President, Director Business Development

From 1998 to 2000, directed all US new business activities for this $3.5 billion global media management company reporting directly to the CEO of North America. Member of US Executive Management Review Board that oversaw MPG business development and reviewed quality & direction of its clients’ programs.

Won $220 million in media billings from the following national accounts:
Office Depot
AstraZeneca Pharmaceuticals Prilosec
Outback Steakhouse
LifeMinders.com
Haggar Clothing Co.
Comedy Central Network,
Casual Corner Stores

Worked internationally with MPG’s European and Latin American offices developing new business presentations and presented in various overseas new business pitches.

THE MEDIA DEPARTMENT, INC. New York,N.Y. 1980-1996
Partner

Launched and built this media planning and buying service that grew sales to $50 million in annual billings. Key clients: Del Pharmaceuticals, Perillo Tours, Bally's Casino Hotels, and TimeWarner Wireless.

Grew the company around a strategy of identifying smaller advertisers who would benefit from the media disciplines used by the world’s largest advertisers. These strategies included brand development and category indexing, research for regional marketing initiatives, efficiency analysis to facilitate geographic sales expansion and accountability via post analysis.

INTERESTS
Avid Golfer, Jazz & Blues Enthusiast, Youth Coaching: Basketball, Local Community Affairs

Association of National Advertisers Financial & Procurement Management Conference Panel on Corporate Barter

2007-11-21T11:25:00.000-08:00

Media Barter: The Good, the Bad, and the Ugly
Media barter, also called corporate trading, is a growing trend in the media / advertising business. This usually involves using an excess, non-monetary asset to purchase goods and services (in this case media) that otherwise would be purchased with 100% cash. Barter companies such as Active and Magna Global Trading serve as intermediaries who transfer the sale of assets and expand the availability of trading partners. While barter has many advantages, navigating the waters of the barter world can be very tricky and there are clearly some "watchouts" to consider.
Explain the process of media barter - how does it work?
Elliot DeBear: Corporate Trade is a financial transaction, the goal of which is to deliver to a client a higher value to non-performing assets than could otherwise be achieved in the open marketplace. Non-performing assets are defined as excess inventories, dated goods, real estate, capital equipment, debt and factory capacity to name some key ones.
How does a typical transaction work? Active purchases these assets at book or close to book value using its own currency, an Active Trade Credit (or in some cases, cash and/or a combination of TC and cash). The Trade Credit is employed by the client to help fund the procurement of needed goods and services normally purchase for 100% cash. These purchases are executed through Active and done so at the client's historical benchmark costs and qualitative specifications. This assures the client a cash equivalent use of its credits, and, accountability in the deliverables. The corporate trade model is based on the concept that for each trade credit dollar used, a dollar of cash savings is created. The most common area of trade credit retirement is media buying. However, in the case of Active, other services are also available such as travel and meeting planning, freight logistics, printing, displays and fixtures and premiums to name a few.
Brian McMahon: Barter is the exchange of impaired assets for media credits which are then utilized to partly fund media budgets. Typically the credits are utilized with a combination of cash. The underlying structure is simply a math exercise - the key to success is in creating a threshold of performance on both the media deliverables and the remarketing of the product.
David Smith: Media barter involves trading goods or credits for media instead of paying cash. It involves two deals, not one. The first deal is the valuation that is given for the goods or services that the company trades to the barter company. The second is the basis for valuation of the media that is being utilized to burn off the barter balance. For instance, one basis could be rate card, another could be some definition of market price, and a third could be an agency's planning costs.
How does the trading company make its money?
Elliot DeBear: At Active, we put our own capital at risk by purchasing goods and services. We invest in the media's needs and in return are paid in capacity rather than cash. We do this to create cost advantaged positions relative to the marketplace. By acting as a principal rather than as an agent, like traditional mainstream cash media buyers, Active's investments reduce the cost basis below prevailing rates. In the course of these capital investments, the media vendors know they will be involved in a trade and their pricing will not be compromised or exposed.
How big is the barter business? Is it growing, flat, declining?
Elliot DeBear: There is no official rating service to determine the actual amount of corporate trade that is being conducted on a global basis. However, the growth potential is large. Active expects a continued growth of 20% per year. Estimates of non-performing consumer goods in the world today, those that are held by manufacturers, in independent warehouses and on ships, range from $350 billion to $1 trillion. This does not include real estate, debt or under employed factory capacities. Even at the low end of the range, one can see that the potential for corporate trade is immense.
Brian McMahon: Barter is declining dramatically at privately held large barter companies. Five short years ago there were over ten privately held barter companies. With the exception of one, Active International, they have either gone bankrupt or disappeared. In many cases, these defunct companies left huge payables to the clients as well as to the media companies. Conversely, barter is growing dramatically within media agencies as they open internal barter divisions which provide a barter solution as a client service. Omnicom has ICON, Carat has Carat Trading and IPG has MAGNA. Other large agency groups are currently exploring this option as well.
David Smith: It is growing, as are almost all forms of the media business.
There's a perception that finance or purchasing, rather than marketing, is often the point of entry for barter. True or false?
Elliot DeBear: Finance and Procurement management are the trading company's first lines of communication with a candidate for corporate trade. This is because it is these areas that can best define a company's non-performing assets, as well as, identify those areas of their company's spends that are in line with the trading company's portfolio of fulfillment services. Further, it is financial and procurement management that can best define the potential size of the transaction based on their company's ability to use its trade credits and in what timelines.
It is important to remember that the product of the trading company is not a marketing discipline, but rather value creation resulting from a client's use of its trade credits. Marketing disciplines, media buying in particular, are the primary vehicles for trade credit retirement but not the primary reason to enter such a transaction.
Brian McMahon: True - we see that most barter companies go through the CFO and then the media folks get "stuck" with the credits - sometimes having little or no input structuring the deal. Our model is dramatically different - Media, Marketing, Procurement, and Finance must be involved at the outset - to ensure that all parties are comfortable with deliverables and the value proposition.
David Smith: True. Barter usually starts with an asset that a company wants to dispose of. This is generally controlled by finance.
Barter is not one, but two deals. First, there's the valuation the advertiser gets for its merchandise. Then, there's the method for valuation of the media. Please explain.
Elliot DeBear: A corporate trade transaction is not two deals, one for merchandise and one for media, so often portrayed. It is one transaction. Specifically, the value of the merchandise if liquidated in the open market is the highest amount someone is willing to pay for it any point in time. The value of that asset held on a company's balance sheet is determined by its own accounting methods. After due diligence on the part of the trading company, it will purchase that asset, knowing its true cash liquidation value, at a mutually agreed book value, compensating the client company with a trade credit.
Brian McMahon: Not so - Most of our clients are public companies, as we are. The value of the merchandise is readily available in terms of cost or carrying value. As to the value of the media - that must be set by the client using current costs and benchmarks to set contract compliance.
What media are available via barter and what media are not available? How about new media like the Internet and branded entertainment?
Elliot DeBear: All media disciplines can be purchased on a corporate trade basis. However, there will be individual media vehicles where the trading company will not be able to create the trading leverage necessary to fund its purchase with a client's trade credit. For this reason, it is critical that the trading company be involved with the media planning process as early as possible. In this way, the trading company can provide feasibility of where in the client's media plan the greatest opportunities for trade credit funding exist and to what extent.
With regard to using corporate trade to execute Internet strategies, the answer is yes. At Active, for example, there is a dedicated department for emerging technologies that work with Active clients in the development and implementation of reach schedules, audience targeting and the use of rich-media technologies to achieve an optimization of brand, lead, and retention objectives. We also have a specialized division named Eagle:XM for the development and implementation of Direct Marketing strategies, creative positioning, media planning, ROI modeling, tracking and documentation and post campaign refinement analysis. Again, these disciplines can be delivered with trade credit funding as long as it is achieved in line with the client's qualitative and quantitative specifications.
Brian McMahon: With the exception of network television (supply and demand issue) and newspapers (complexity), all types of media trade - including cable TV, spot TV, out-of-home, radio. This includes new media types such as Internet and branded entertainment. However, there are different degrees of trade and some media (print in particular) set eligibility restrictions. For example, in print, positioning cannot be guaranteed. Clients need to be aware of these before they enter into a transaction - not after.
David Smith: Everything is available for a price. The barter companies have a harder time executing in areas like prime time network or other vehicles that get sold out for cash. Many barter companies want a client to put cash up with the barter. The more cash that is put up, the easier it is to achieve any barter goal. The softer the marketplace, which is often true in newer media, the easier it may be to barter. But it may also be easier to get burned by attaching a valuation to the media which is too high.
What are the "watchouts" to consider in a barter deal?
Elliot DeBear: In reviewing candidates for a corporate trade transaction the first rule of thumb is "Know Who You Are Dealing With". Because many managers, especially those new to corporate trading, are not necessarily familiar with the trading business model, it is essential to review the trading company's balance sheet. Make sure this balance sheet represents exclusively the trading company's activities and is not co-mingled with activities of its holding company or sister organizations. Within this, take the time to study the assets defined as "fulfillment inventories or rights". This will indicate the level of investments the trading company is making in the marketplace (with its broadcast, print, business services partners) in creating the leverage to service its clients' needs. Also, look to see how many trade credits were retired in the previous year relative to the trading company's total volume. This will illustrate the level of value creation actually achieved for the trading company's client base.
Importantly, take the time to visit the trading company's offices to view first hand the scale and scope of its operations and meet the executives managing the media buying and business services teams.
Brian McMahon: Variable blends - or no set blend of cash and trade credits, no media plan or goals attached to the contract, no agency involvement, cancelability issues, and added value. All of these things must be discussed and agreed and included in the contract with clearly outlined performance goals.
David Smith: Make both deals at the same time. Do not release the goods or services without being sure of whether you can execute in a plan that works for your brands. Don't accept rate card or "high market" valuation.
There's a perception that "Barter deals are never as good as they sound." Please comment.
Elliot DeBear: As with any financial transaction, it is important to define the objectives of the transaction, the magnitude of the deal and a realistic time frame to define value. Work to understand:(1) what can be achieved in a corporate trade transaction that could not have occurred before, (2) how process will impact performance and (3) the mechanisms required to assure financial responsibility and accountability.
Brian McMahon: That is precisely why agencies have had to take matters into their own hands to protect their clients. Previously, barter deals have been dreadful in performance - and largely the reason why legions of these privately held companies went under. Working hand in hand with the agency and the client, barter can be done with realistic expectations and concrete value deliverables.
David Smith: Cash is king. When you use cash, it reduces the variables. The more variables there are, the more questions arise relative to the valuation or the quality of the exchange. It should not be used as a primary outlet for media expenditures but an add-on.
What are some overall best practices for working with barter?
Elliot DeBear: It is always smart to define the rules of engagement upfront and set up a formal list of protocols and procedures that clearly define the role and relationship of the client with its trading company and its media agency. This is especially critical in defining required reporting procedures and methods of documentation and post analysis for all activities performed.
Brian McMahon: Small steps - period. You can always add credits - as you need them. Understand the deal and more importantly your rights in the Agreement - we have had to go in and fix many barter deals done by previous barter companies. A new market sector of business for us has been that many IPG and other agency clients have employed us to replace their existing poorly performing barter transactions.
David Smith: Get the finance, marketing and agency personnel involved at the start. And make sure your agency knows what they are doing and have done this before or bring in an expert who is not in the barter business currently. Know that you can execute both deals before you sign for the release of assets. Start small. Try to get flexibility in timing, giving you enough time to burn off the barter.
There have been some nasty cases of barter companies going bankrupt after receiving payment from the client but before paying the media. Do the barter companies have any current policies on liability, for example sequential liability versus joint liability?
Elliot DeBear: As with traditional advertising agencies, sequential liability is the standard. Here corporate trading companies will use an "in care of" letter when placing media. If, however, after due diligence, it is determined that a client is not considered credit worthy in the business community, credit would not be issued and "cash in advance" or "cash with order" would be required.
There are exceptions. For example, if a trade-for-trade transaction were conducted and the client fulfilled its payment obligation upfront, regardless of the form of payment, the corporate trading company would retain liability and inform the vendor(s) of such in writing.
Brian McMahon: We bill on the same terms as the agency - why should you pay differently because it is a barter deal. Pay for performance - not expectations.
There is sometimes agency resistance to barter. Why is that and how can that be overcome?
Elliot DeBear: Too often agencies are brought into the picture after a trade transaction is completed, with little knowledge of the financial importance of the transaction, how the trading partner's role is defined, and how that role may impact on the agency's logistics. This can cause what we phrase as "agency angst"...dealing with the unknown. Because of this, Active encourages its financial sponsor to reach out to their marketing management and media agency partner in an effort to provide a greater understanding of the transaction, the company's financial objective and corporate trading business model. It is always best if the agency has a working knowledge of its client's trade expectation and how the media agency and the trading company need to work together for the client to meet fruition in its financial transaction.
Because the media buying function is ultimately turned over to the trading company for those buying assignments accepted by the client, it is critical to understand that the trading company is not a competitor of the agency and does not discount the agency's qualitative and quantitative specifications. Also, in the case of Active, all media is based on NET cost guidelines as to not interfere with the agency's compensation agreement with its client.
When viewed in this way, the agency's collegial participation expands its resource to its client, becoming an incremental and valuable contributor to the client's financial transaction and their client's ability to achieve a greater value for its non-performing asset than the marketplace would otherwise provide.
Brian McMahon: Agencies do not trust outside barter companies based on their past bad experiences. Outside barter firms have no vested interest in protecting agency clients. They are profit driven - pure and simple. While outside barter companies may protest that they are doing right by the client - my question is then - "Why are there so many horror stories - somebody had to create the problems?" Clients choose their agencies for many wise reasons. If you need to do barter, make sure that your agency is in control of the process and that they are accountable. It just won't be seamless if agency clients use a third party barter company who then has access to that client's confidential rates, plans and strategies.
David Smith: Agencies want flexibility. When a client cuts a deal for media, it takes away part of the flexibility that agencies want and that clients are asking them to have. Never meet with a barter company without all parties involved (agency, finance, marketing) at the table.
Major agency holding companies including IPG (Magna Global Trading) and Omnicom (ICON) have now entered the barter space. How has this impacted the industry?
Elliot DeBear: The fact that companies like IPG, Aegis and Omnicom have entered into the barter business gives evidence of the growing importance of corporate trade and its acceptance by major corporations and advertisers. However, it will be incumbent upon these holding companies to maintain separation between its trading practices and mainstream cash media buying operations. This means totally separate and dedicated staffs for media buying, vendor transactions, asset re-marketing and accounting.
We believe there exists a flaw in the advertising holding company model. Specifically, that once the media agency negotiates the lowest price for a client's media, the agency's affiliated corporate trade company does not have the ability to create 20% or more lower costs that are the basis for using trade credits. A truly independent trading organization invests its own capital and in-kind payments in the media community, as a principal. This is a critical point of differentiation in creating the required leverage or margin for a client to use trade credits.
Brian McMahon: As previously stated - it is wiping out the third party barter companies. Literally, there is only one company of any size left. Clients are becoming so much more demanding and sophisticated about barter and major agency holding companies have risen to the challenge to protect their clients by creating a structured and highly regulated internal barter answer.
We asked Brian to clarify his statement that MAGNA is not a barter company, even though their web site says otherwise. His response is below.
Brian McMahon: We are not a barter company for one simple reason - we say "no" to clients. I never (and I mean never) have seen a barter company say that they can't provide the necessary media or that it does not make financial sense for a client to do a barter deal. We do say "no" - and that is why it is not marketing hype or semantics when I say we are not a barter company. We do structure barter deals for clients and provide barter media if it makes sense for that particular client and if it doesn't - we say "no". Many ANA members each had barter deals that for a variety of reasons did not work. We met with these clients; analyzed why their deal had not worked; ensured that advertising, procurement, finance and sales each met with us at the same time to give each group ownership of the transaction. When the analysis was complete, we issued replacement credits and these clients promptly began using credits to run their media. Even more compelling - each of these clients with a previously negative barter experience has returned to us to do multiple new barter deals, because our methodology works. We tell the truth - the good, the bad and the ugly (to steal your line) - and our clients love us for it! So when a client asks, "Are you a barter company?" - Our answer is - absolutely not! Will we structure a barter transaction that is right for a client? - Absolutely!
David Smith: It is unclear as to whether these organizations are acting as pure barter companies or referees for the barter deal. Their role needs to be clarified at all times.
The Jack Myers Report article on barter from 5/9/05 cited that the potential market for barter is not as robust internationally as it is in the U.S. Please comment.
Elliot DeBear: The international marketplace poses a number of challenges to the corporate trade business but also represents a very robust potential. Active International built a base for corporate trade in the United States and transferred that model, creating offices throughout the world to mirror the U.S. This has afforded our company the ability to provide clients with a reverse logistic to meet their international needs. For example, Active recently purchased a large shipment of wine from a foreign destination, had the ability to ship and re-market this inventory to non-competitive distribution channels in other parts of the world, and, accommodate the client's media and premiums needs using trade credits in multiple media disciplines in the U.S. and Europe.
Brian McMahon: Barter is more common in the US but has increased over the past few years internationally - again agency involvement is critical to navigate the different media issues that abound like share deals in the UK or Loi Sapin in France - both of which have a profound impact on a client's ability to achieve value from barter. Further, the lack of media venue proliferation in some countries creates a supply/demand hurdle to barter. The key - go slowly and go wisely and, above all, consult with your agency partner.
ANA West Coast Marketing Financial Management and Procurement Committee Meeting, 09/08/05
Elliot DeBear, Senior Vice President - Active International: edebear@activeinternational.com.
Brian McMahon, President & CEO - MAGNA Global Trading: brian.mcmahon@us.initiative.com.
David Smith, CEO - Mediasmith: mailto:smith@mediasmithinc.com
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