This post is by Areef Vohra, Managing Director, Active International Australia. Areef joined Active Australia as Managing Director in July 2013, following a highly successful career in sales, executive search and media spanning more than 25 years.
What do our clients want? It’s the question nearly all of us should be asking ourselves on a daily basis.
With media budgets constantly shrinking, marketers continue to tirelessly chase an ROI on their media spend while countless leading brands battle for increased sales. And this in a world of constant evolution, never-ending product innovation, emerging new technologies that ultimately lead to rapidly changing consumer preferences and vice versa. Most of us are going at full speed just to make sure we don’t lose ground to the competition.
What’s frightening is that with more and more options available to consumers, sales are under increasing pressure, product upgrades are constantly in demand, and new product launches are far more frequent. Businesses are faced with surplus, unsold stock or excess inventory. This is increasingly becoming the most common financial burden and biggest struggle for most businesses in the current market conditions.
So who should care about this? Of course the companies with the issues but also their media agencies and even the media suppliers who provide their media space who should naturally want their clients to succeed. After all a successful client is a repeat client.
Clients are always looking for ways to get new or incremental revenue and maximise their returns on under-performing or obsolete assets. That’s where Corporate Trade, also known as barter, comes in. Corporate Trade companies work with clients and their media agencies to combine their challenges and commercial objectives to create financial benefits for their business.
Often described as a marketing or a financial tool, Corporate Trade allows businesses to use their under-performing or obsolete assets to pay in part for media that perhaps otherwise they wouldn’t be able to fund, and also give its clients access to a wide range of business and marketing solutions.
Even though this business solution has been around for decades, it is relatively recently that more and more businesses and agencies have begun to explore this opportunity to pay differently for their media. This unlocks additional media value by part paying for advertising, using their unwanted stock, inventory or assets, making their marketing budgets work harder.
How to use excess stock to pay for media
Let’s say a company has $1,000,000 worth of stock that they need to liquidate. In the secondary market they usually get a 30% return, which will leave them with a $660,000 loss. Using Corporate Trade, they don’t have to bear that loss. That’s because partnering with a Corporate Trade company can help them restore full value to that product.
Simply put, Corporate Trade takes the stock or asset off the company and issues them with a trade credit* worth the full value of that $1,000,000. This credit sits on their books as an asset, and then can be spent to fund media campaigns through our media partners, thereby recovering the full value of that stock. Over the years clients from all over the world have unlocked value from a diverse range of products from corporate helicopters to chip packet packaging and everything in between!
So how does it work?
The Corporate Trade model is dynamic in nature and no two transactions are the same. A number of variables come into play to create the value for clients such as the type and value of the asset, the media plan and the media spend to name a few. Generally, Corporate Trade companies make their money by leveraging relationships with their media partners and paying differently for media.
In a typical Corporate Trade transaction with media partners, ad space is traded for goods or services or an upfront cash injection. Corporate Trade companies make large media investments (goods and services paid in cash) with media partners to gain the right to allow clients to “pay differently” using trade credit as partial payments.
Essentially, by receiving a multiple of the up front investment or payment of goods and services in inventory, the margin created between what they pay and the media value they get back is used to rebate clients in cash.
In some cases, if the client has no excess stock, Corporate Trade can purchase the clients’ first line product once that margin has been created, unlocking once again, extra value.
One of the preconditions of the transaction is that the margin agreed with media owners is at agency’s and client-negotiated rates. Full control of the planning and buying process remains with the agency and or client, which means the client’s rates or value are not affected.
Corporate Trade companies have been around for many decades and have successfully helped thousands of businesses around the globe earn new-found revenue or restore value to underperforming assets equalling billions of dollars. In 2013 alone, 400,000 companies worldwide utilised their excess stock and underperforming assets, to earn an estimated USD12 billion dollars in previously lost revenues**.
Happy client = Happy agency = Happy media supplier
Corporate Trade, when utilised correctly can be a powerful tool in the armoury of clients, their media agencies and even media owners. It can extract additional value from the client’s media spend, guaranteeing they receive ROI through additional product sales and media value. Their marketing budgets expand further, which ultimately results in incremental business for media agencies. Which leads me back to my opening question.
What do clients want? They want all of their partners to work with them to help solve their business problems.
* Trade credit is the currency a trading company provides its clients in order to restore value of their distressed stock. Usually $1 trade credit = $1 cash savings.