The rise and rise of corporate barter

Frances Dickens, CEO of barter company Astus, explains exactly what corporate barter is and how it’s growing.

Corporate barter has enjoyed considerable growth over the last few years but can it continue? More to the point what is it exactly?

Although the industry has grown massively over the past few years you may still not know what it is and what it can do so here goes.

Corporate barter is a process which enables companies to part-pay for their media expenditures using their own goods and services. A typical cash/trade blend is 80% cash/20% trade, so on a media buy of £1 million net a company would pay £800,000 in cash and £200,000 in product. The media is still planned and bought by the agency at their usual negotiated rates. It is often, but not always, used as a way of disposing of de-valued stock, as the barter model enables us to pay our clients up to three times the realisable cash value for the product in a Trade Credit.

The model works like this: barter companies use their own cash to make investments into companies where it will receive a ratio back in return. So for example, a hotel chain looking to refurbish could ask the barter company to write them a cheque for £1 million. In return they will receive £1.5 million of room nights. These room nights could then be traded with a media owner for their global conference for £1.5 million of media space. The barter company now owns £1.5 million of media space for an initial investment of £1 million in cash. The barter company can then trade the media to a client allowing them to part-pay in product.

The corporate barter market in the UK was worth £125 million in 2009 and we predict it to grow to £169 million by the end of 2010, with Astus by far the biggest at £72 million worth of media billings. Astus has over 90 corporate clients, most of whom are household names including Mercedes, Diageo, Matalan and Marriott. We do expect some consolidation over the next year or two but still predict the market to be worth £250 million by 2012.

The recession and continuing testing economic market has certainly helped the growth of barter but there are far bigger reasons for its continuing success. The first major factor was that barter now delivers. For a long time, people who worked in barter were (quite fairly) compared to snake-oil salesman and it has taken a long time to shed this image. When I first started in the industry, barter was big on promise and small on delivery. The model has changed since those days and modern corporate barter is about up-front delivery, where media runs before any product is received.

The other main driver for the growth of barter is innovation. There is a tendency for people to think of dusty warehouses with damaged goods being sent to developing markets. The reality these days is very different, over the last few years we have developed a number of innovative barter solutions for our clients.

For example, we used a technique called the Cross Purchase to help a telecoms company win major new contracts. We bartered a cinema and outdoor campaign for this client and by trading with the media owners we lowered the overall cost of the campaign. The telecoms company still paid us the full amount for the campaign which was still planned and bought by their agency at the same quality and price as normal. The margin we created enabled us to buy corporate phone contracts from them for the full price in cash and trade them with media owners for media airtime. The upshot was that they won over £2 million of new business because our media partners could use their un-sold media space to pay for it. Our telecoms client was not the cheapest but still won the business anyway.

The majority of new business over the past couple of years has come from agencies recommending barter to their clients and barter is now also firmly on the radar of media consultants and procurement specialists. This would have been unthinkable 10 years ago and a sign of how far barter has come.

For the industry to continue to grow it is paramount that barter companies continue to find bigger and better ways of impacting on their clients’ business expenditures.

One thing is for sure, the media landscape is continually changing and the established rules will continue to get broken. As long as barter deals make commercial sense for all parties then the future of the industry is very bright indeed.