AGE IDEA THAT CAN PLAY AN IMPORTANT
ROLE IN TODAY'S HIGH TECH SOCIETY
By David Rogovin
Whether you are one of the last Neanderthals,
head up a small company or work for a multi-national corporation,
barter; a primarily cashless exchange of goods and services,
can play a profitable role in your business life.
The trading of your
products or billable hours for such items as advertising
media, travel, sales incentive programs, office equipment...
is quite attractive in these difficult economic times.
Suppose that your company sells computer software and needs
an advertising campaign to help build demand for your line.
The exchange of some of your inventory for well-targeted
and realistically valued advertising media may offer you
three distinct advantages. First, your cash requirements
for the program are vastly reduced. Secondly, when the
barter organization takes title to your software inventory,
you can book the transaction as an actual sale, thus improving
your balance sheet. This is often very important to public
companies. Thirdly, since in most cases, the barter company
with whom you are trading must "Remarket" your software
in order for them to make a profit, they are coincidentally
introducing your product to new customers who, if satisfied,
may at some point approach you directly for additional
orders on a cash basis.
The barter concept has long been used
in international transactions to get around the vagaries
of currency restrictions and shortages. In the 70s when Pepsico
began to trade with the Soviet Union, it exchanged U.S.-made
soft drink syrups for, of all things, Stolichnaya Vodka,
because the Russians did not have the necessary hard currency
to purchase foreign products. Thanks to Pepsico's marketing
prowess, this barter arrangement has also become quite a
boon to Stolichnaya that today, is one of the premier vodkas
sold in the U.S.
A word of caution, barter is not necessarily
a panacea. A company interested in trading must make certain
that the quality, availability and value of the bartered
products and services it wants are realistic. It makes no
sense to trade your current firstquality goods for someone's
five-year old seconds! It is also very important for a company
to clearly understand its real cash costs in the items it
wishes to make available for barter. If you are trading seats
in theatres that are usually five to ten percent empty, your
incremental costs are low and your ability to leverage the
tickets into most needed products and services is economically
feasible. However, if you are thinking about trading on a
one-to-one ratio, a product like an automobile that has a
relatively high labor and raw materials cost, the gross margins
may be too small for a barter program to be effective.
Having said all of this, for many small-
and medium-sized companies the upside potential of barter
exchange programs are going to far outweigh their risks.
When approached intelligently, barter can be a good business
expanding tool. However, like the caveman's flint stone ax,
it can cut both ways!