NEW YORK (AdAge.com) -- Got some old airplanes lying around collecting dust? How about some flavored ground beef from a new burger offering that didn't go over well? Don't worry, because there are a few agencies out there that can help you trade your impaired assets for ad space.
The practice of finding a buyer for a marketer's distressed assets and trading them for media credits that are subsequently used to fund media buys is by no means new -- nor is it without stigma. But one feature of recession-era media economics has been that the barter business has gotten bigger.
Media agencies otherwise faced with tough growth challenges say business in their barter divisions is up anywhere from 30% to 40% this year, and major barter companies are also faring well. Interpublic Group of Cos.' Orion Trading, for example, has seen year-on-year growth of 83% to date. Corporate trade firms such as Active International say their media-bartering business is up by some 25%. Brands, meanwhile, are using barter to maintain or even increase advertising budgets in the hopes of taking market share from competitors.
Martin Cass, U.S. president of Aegis' Carat, whose barter unit, Carat Trade, has grown 30% in the past three years, said smart marketers are taking advantage of barter's benefits. "It is certainly a vibrant sector," Mr. Cass said. "You're starting to see procurement and smart clients understand that they can leverage some of their inventory to create marketing opportunities."
Faced with the steepest downturn in decades, even sectors that haven't widely embraced barter in the past, such as luxury goods, are getting on board. Milus, whose watches retail from $7,000 to $65,000, is using a barter agreement with Circa, a jewelry reseller, to fund 75% of its media plan this year. The luxury firm says the arrangement has helped it to maintain its advertising plan with magazines including Elite Traveler, Harper's Bazaar and Town & Country.
"It's one of the best ways I saw to continue promoting, but I also saw an opportunity to promote at a time when people are backing off. It's a way to gain market share," said Doron Basha, president-CEO of Milus USA. "We can use some of the older inventory that's now sitting to promote the new inventory."
Losing the stigma
Still, there's a stigma surrounding barter that those involved with the deals bristle at. For companies looking to unload products that aren't selling, admitting to barter is often akin to admitting there's a problem with its goods. And in the past, lax business practices at some barter firms led to wariness, as the media offered didn't always meet a company's expectations.
"Barter is such a dirty word. It's had a stigma to it," said Kal Liebowitz, chairman of KSL Media, one of the largest independent U.S. media-services companies. "But now almost every client is asking about it."
Brian McMahon, CEO of Orion Trading, which is a division of IPG's Mediabrands, said his agency recently did a deal for one of the world's largest consumer-package-goods companies that had roughly 4 million euros worth of office products it was looking to move.
"They asked us to sell them to selected discount chains in Europe and the U.S.," Mr. McMahon said. "We used those media credits from the sale to fund a digital and out-of-home campaign across Europe and national cable spots in the U.S."
Mr. McMahon has been in the barter game for 24 years and has seen the industry perception of its image evolve from a charlatan-type practice to something so sought after it's begun showing up in requests for proposals. This past quarter alone he has seen nine new-business RFPs in Europe with a barter element to them. He said the negative stigma attached to barter in the past was well-deserved, due to an absence of any checks and balances within privately held barter companies.
"[They] did poorly constructed deals," he said. "In many cases the clients couldn't use the credits. With the advent of the agency-owned barter company, the stigma has significantly been reduced. We work within the media plan of the agency and have the oversight of the overall client relationship as a factor."
Doing more with less
And large corporate trade firms, such as Active International, point out that they are not a threat to agencies, which has encouraged growth in the space. "Agencies have been more proactive and open to working with us," said Alan Brown, exec VP-worldwide media at Active International. "We don't charge fees or commissions in placing media. I'm not competitive in any way."
Mr. Brown said not only are more agencies on board, companies are more open to barter than they have been in past downturns because of the immense pressure to do more with less. "Embedded in this product are efficiencies they can create. Instead of liquidating and writing it off, we're able to restore value," he said. "We're not negotiating one-off deals. Credits can be redeemed for a whole slew of things [companies] need, from advertising to travel to office supplies."
Orion's Mr. McMahon said he sees two forces driving the growth of the barter business -- the recession and the alignment of barter within media agencies.
"The current economic environment is the most obvious," he said. "The other reason is our alignment within Mediabrands and Interpublic. Since we're aligned within the agencies, clients are more comfortable with it. Where they weren't comfortable working with privately held companies, they are now completely comfortable."
Carat's Mr. Cass said barter has come of age, and the days of trading rotten fish for airtime are gone. "It's no longer a dark art," he said. "It's a much more sophisticated business than it used to be. It used to be out-of-date milk in exchange for airtime, and that's not true anymore. It's a proper traded marketplace."
Trade You Some Guava Puree for Those Media Credits
Bartering, once considered a "dark art," is shedding its stigma and becoming mainstream. While deals today are much more advantageous for marketers and media companies, there have been some quirky transactions over the years. Here are a few of our favorites.
- A major restaurant chain was faced with disposing $1 million worth of flavored ground beef that had tested well but didn't sell well. The chain traded the meat in exchange for spot TV, while the barter shop sold the meat for cash, at a discount, to a state prison system.
- A beer company needed to destroy product that was past its sell-by date. It ended up selling the bottles to a barter shop, which then recycled the glass, in exchange for media credits.
- Excess guava puree was swapped for media credits through a barter company. The company eventually sold the puree to a beverage company that used it to make orange soda.
- Log-home kits, aircraft skeleton frames and poultry have all been swapped for a wide-range of media, including TV, digital, print and radio ads, in the U.S. and abroad.