Common Questions. (& Answers) About. Corporate

Transcription

1 Common Questions (& Answers) About Corporate Trade

2 Contents Introduction... 3 Corporate Trade...3 General questions about Corporate Trade... 4 What is Corporate Trade?...5 What s the difference between Corporate Trade and barter?...6 How does a Corporate Trade transaction work?...7 How do Corporate Trade companies make money?...8 When to use Corporate Trade... 9 What assets can be used in a Corporate Trade transaction?...10 What if we don t have an inventory problem?...11 Our media budget is really small. Is Corporate Trade still viable?...12 Trade Credits What s a Trade Credit?...14 What kinds of expenses can I use a Corporate Trade Credit for?...15 What percentage of my business expense (i.e. media) can be paid for in Trade Credits?...16 How long does it typically take to use Trade Credits from a Corporate Trade transaction?...17 Agency Questions How do Corporate Trade companies work with media buying agencies?...19 How can a Corporate Trade deal strengthen our media buy?...20 Do Corporate Trade companies get better advertising rates?... Can a Corporate Trade company purchase prime advertising space?...22 Television Magazines Radio Newspaper OOH Digital What about digital buys?...23 What expertise do Corporate Trade companies have as media buyers?...24 How do Corporate Trade companies work with in-house media buyers?...25 Corporate Trade Companies What s the difference between agency-owned Corporate Trade companies and independents?...27 How do I decide on the best Corporate Trade partner?...28 What do I need to look out for in a Corporate Trade contract?...29 What s next?...30 Common Questions about Corporate Trade 2

3 Introduction Corporate Trade... is a smart solution, but also a complex one, and one that s often misunderstood. It s not a new practice: most Fortune 1000 companies have used Corporate Trade (also known as corporate barter) for decades. Yet, many company executives don t know much about Corporate Trade, are confused about how a transaction works, aren t aware of the bottom line benefits or wonder if it s too good to be true. We ve been in the Corporate Trade business for close to 30 years. During that time we ve executed thousands of successful transactions, helping companies unlock value from under-performing assets while freeing cash for investments that help their organizations grow. For the last three decades, we ve also been asked countless questions about Corporate Trade:»» How does a transaction work?»» Do I need to have obsolete inventory to use Corporate Trade?»» What s a Trade Credit?»» Does a Corporate Trade company replace my media buying agency?»» What happens to my inventory?»» Don t you sell remnant media?»» How do you make money? These questions (and more) are answered in this book. Of course, not all organizations benefit from Corporate Trade. But it s our hope that once you have more answers than questions, this book will help you decide if there s a fit and, if there is, encourage you to start using Corporate Trade in your organization. Common Questions about Corporate Trade 3

4 General Questions About Corporate Trade

5 General questions about Corporate Trade 1 What is Corporate Trade? Corporate Trade restores value where it s diminished and creates value where it s needed. Many Fortune 1000 corporations use Corporate Trade as a strategic tool to maintain book value on slow moving, returned, or obsolete assets including last season s clothing, perishable food, outdated electronics, capital equipment or excess real estate. In a typical Corporate Trade transaction, assets are acquired in exchange for Trade Credits. Corporate Trade delivers higher returns on slow moving, returned or obsolete assets usually three times what the asset is worth on the open market. Once the assets are sold, companies use their Trade Credits and combine them with cash to purchase the business goods and services they need including advertising space such as television, radio, out of home, magazines, and digital. Corporate Trade minimizes painful write-offs on obsolete assets, keeping original wholesale value intact, while freeing cash for investments that help your company grow. UNLOCKING EXTRA VALUE FROM ASSETS REALIZING EXTRA VALUE Before Trade With Trade Before Trade With Trade $1M Liquidation $1M Cash value $333,000 CASH $6,700, % CASH $1,000,000 TRADE CREDITS PURCHASES $5,700,000 CASH Wholesale Value Of Assets ($667,000) LOSS OF WHOLESALE VALUE Active Pays Advertising Budget Common Questions about Corporate Trade 5

6 General questions about Corporate Trade 2 What s the difference between Corporate Trade and barter? Barter The Trade Credits from the transaction are then used by the company to purchase things like advertising space and marketing materials. For example, a spa shop might trade a hot tub to a graphic designer for a logo and some promotional materials. Although the spa shop and the graphic designer are both happy with the deal, no additional value is created. Based on availability of services within the exchange, minimal quality controls exist, and a fee or commission is usually charged for brokering the transaction. Corporate Trade Corporate Trade, on the other hand, is subject to qualitative and quantitative requirements and creates measurable, incremental economic value. It is generally used by larger companies, many among the Fortune In addition, large quantities of products or assets are used in combination with cash to purchase media, goods or services that otherwise would have been purchased for 100% cash. No fees or commissions are charged. Although the terms barter and Corporate Trade are often used interchangeably, Corporate Trade offers a distinct and measurable advantage, as well as meeting the requirements or specifications companies seek. In a typical Corporate Trade deal, a company sells its underperforming assets to a buyer in exchange for Trade Credits. The value of the deal is typically three times what the asset is worth on the open market, allowing the company to maximize cash flow. The Trade Credits from the transaction are then used by the company to purchase things like advertising space and marketing materials. Common Questions about Corporate Trade 6

7 General questions about Corporate Trade 3 How does a Corporate Trade transaction work? The first step in a Corporate Trade transaction is identifying distressed assets in your organization. A deal is then negotiated with your Corporate Trade provider who buys your assets for Trade Credits. They then re-sell your assets into channels approved by you. You can also choose to manage that re-sale transaction yourself, if preferred. In return for the assets, you ll receive Trade Credits that can be combined with cash to purchase things like media space. Common Questions about Corporate Trade 7

8 General questions about Corporate Trade 4 How do Corporate Trade companies make money? Corporate Trade companies make money by leveraging relationships in two ways: 1. A small portion of the cash acquired from the re-sale of a business asset is used for profit and the rest is used to fund long positions in media space. Leading Corporate Trade providers invest capital (the cash acquired from the re-sale of an asset) with media outlets. Corporate Trade companies also provide these media vendors with the essential goods and services they need to operate and grow their business, such as funding an annual conference. Active International Canada, for example, has financial relationships with a wide range of media and other service providers. The media company then works with the Corporate Trade organization to provide quality, unrestricted media space. As a result of these investments and trading approach, Corporate Trade companies develop a lower cost for the media clients require. The client s contracted media rates remain intact the Corporate Trade company simply pays for the media in a different way. 2. When clients spend their Trade Credits on media space just as an example the Corporate Trade company can make a small profit on the transaction (although not at the expense of the agency s commission which remains unaffected). The Corporate Trade model is dynamic in nature and no two transactions are the same. Various factors come into play such as the type and value of the asset, the media plan and the type of business expense Trade Credits are funding. Sometimes the Corporate Trade provider makes money entirely on the front end of the transaction (re-sale of the assets) and not on the back end (against media), while other times it s the reverse. It is always in the best interest of both the client and Corporate Trade provider to keep modest margins in order to encourage and accelerate the use of Trade Credits for future transactions. Common Questions about Corporate Trade 8

9 When to Use Corporate Trade

10 When to use Corporate Trade 5 What assets can be used in a Corporate Trade transaction? You can trade almost any asset imaginable (excess real estate, aging capital equipment, product labeled with expired promotions, sponsorship commitments no longer on strategy) to earn Trade Credits. And you can use your Trade Credits to purchase things that your business really needs. You can trade almost any asset imaginable Common Questions about Corporate Trade 10

11 When to use Corporate Trade 6 What if we don t have an inventory problem? You don t need to have an inventory problem to strike a Corporate Trade transaction. In fact you don t necessarily need to have inventory at all. Distressed assets can be anything from aging capital equipment, excess real estate or unwanted financial commitments. Plus, if you don t have inventory now, Corporate Trade firms can fund and trade your media while you provide inventory at a later date. The truth is you don t even need to have a problem to enter into a Corporate Trade transaction. Corporate Trade addresses many situations that occur in the normal course of business: packaging is redesigned; weather is unseasonal; fashions evolve; consumer shopping patterns change. It helps you plan ahead and effectively manage risks before they occur. Market Trends Common Questions about Corporate Trade 11

12 When to use Corporate Trade 7 Our media budget is really small. Is Corporate Trade still viable? Corporate Trade is suitable for businesses with an existing media budget of $500,000 minimum anything less puts your organization at risk of not receiving the full economic benefit of the transaction. It is best to speak with a Corporate Trade provider to determine your eligibility. Corporate Trade is suitable for businesses with an existing media budget of $500,000 Active International has established a best practice of a maximum of three years for a company to spend its Trade Credits. If you do not have a media budget of at least $500,000 it is unlikely that you will be able to spend your Trade Credits within this three-year period and will end up writing off the assets. The intent of a Corporate Trade transaction is to avoid the write-off and drive incremental economic value, which is why Active International does not advocate such a deal. maximum of 3 years for a company to spend its Trade Credits Common Questions about Corporate Trade 12

13 Trade CREDITS

14 Trade Credits 8What s a Trade Credit? When you enter into a Corporate Trade deal, your distressed assets are sold for cash. Your Corporate Trade provider takes the cash and in return gives you a pre-determined number of Trade Credits (typically three times the best cash offer available in the market). As part of the arrangement you agree to spend those Trade Credits with your Corporate Trade provider, in combination with cash, to purchase the media you require. Trade Credits Common Questions about Corporate Trade 14

15 Trade Credits What kinds of expenses can I use 9a Corporate Trade Credit for? Radio Digital Trade Credits can be spent in combination with cash to pay for a wide variety of media, including: Television Magazines Out Of Home Newspapers Some Corporate Trade providers also offer Trade Credit usage for additional services, such as business printing, retail merchandising and marketing, freight & logistics, travel, event space, hotel rooms, and more. Common Questions about Corporate Trade 15

16 Trade Credits 10 (i.e. What percentage of my business expense media) can be paid for in Trade Credits? Typically clients pay for services with a combination of cash and Trade Credits. If your media buy is $1,000,000 you might pay $850,000 in cash combined with $150,000 in Trade Credits. The specifics vary by industry sector and therefore percentages range anywhere from 10% to 20% or more. These percentages are often referred to as Trade Credit blends. It is best to consult with your Corporate Trade provider to determine what Trade Credit blends you can expect based on your media plan. Percentages range anywhere from10 % to 20 % Common Questions about Corporate Trade 16

17 Trade Credits 11 How long does it typically take to use Trade Credits from a Corporate Trade transaction? Trade Credits can be utilized immediately. Corporate Trade solutions are typically customized to a client s needs and in some instances Trade Credits can be used prior to the actual asset being sold or given to the Corporate Trade provider The timeframe it takes to use your Trade Credit balance is dependent on a number of factors: The number of Trade Credits issued and the size of your media buy Effective collaboration with your media agency Good communication throughout your organization to ensure Trade Credits are used in as many categories as possible At Active International, this range is typically between one to three years. Common Questions about Corporate Trade 17

18 Agency questions

19 Agency questions 12 How do Corporate Trade companies work with media buying agencies? Your agency plays an important role in a Corporate Trade transaction. They are the mastermind of your media plan and collaborate with your Corporate Trade provider on the execution. Your Corporate Trade provider reviews your media plan and together with you and your agency collectively determines where they can make the most impact on your behalf. This process ensures that your goals are met. Typically your agency continues to formulate your media strategy, plan and pricing plus oversees the implementation of your Corporate Trade plan and the performance of your provider. At Active we have a media process of checks and balances to ensure your buys are properly executed to meet your goals. The process allows us to adjust to revised plan parameters, costs and media formats: 1Due Diligence 2Program Design 3 3Plan Review & Approval 4Transparent Execution proof of performance 4 full Agency reviews media plan, marketing and financial goals with Active Active creates proposal to meet buy plan and submits for Agency s review Agency and Active agree upon final submission prior to execution Agency provides signed Media Authorization Form & approves all schedules Active executes buy and provides Common Questions about Corporate Trade 19

20 Agency questions 13 How can a Corporate Trade deal strengthen our media buy? Trade Credits reduce your media invoices. The discount frees up cash flow in your advertising budget so you can choose to purchase additional media. Common Questions about Corporate Trade 20

21 Agency questions 14 Do Corporate Trade companies get better advertising rates? Trade Credits help you lower the cash outlay for your media, but they don t lower your contracted rates. Your media planning agency determines the benchmark pricing, just as it normally does. In other words, if your media plan costs you $1 million before the transaction, it would still cost you $1 million after the transaction under the same plan. The difference is that you are paying for a portion of it with your Trade Credits (see Question #10) which to you, acts as savings. Corporate Trade is a good solution for marketing on a budget, making your marketing dollars go further or simply freeing up cash flow to put to the bottom line. Marketing Budget Common Questions about Corporate Trade

22 Agency questions 15 Can a Corporate Trade company purchase prime advertising space? There s absolutely no need to compromise media quality when dealing with a reputable Corporate Trade company. If media is available to the general marketplace, it is available to an established Corporate Trade company. Seek providers who are recognized in the industry and have made a wide range of trade agreements with media providers based on unrestricted media space (see question #4). Corporate Trade companies like Active International employ seasoned media buyers who place sought-after media across all channels. For example, Active International places over $50 million of media in Canada and over $1 billion around the world each year. Here are some of the media Active International typically purchases for Fortune 1000 clients: Television Conventional English & French Specialty English & French Sponsorships Promotions Radio National / Syndicated Local Remotes Traffic Promotions OOH Billboards Transit Bus Shelters Digital Large impact boards Resto - Bar Health Clubs Grocery / Retail Stores Magazines Newspaper Digital Consumers Magazines Trade Magazines Inserts National Local Dailies Display Pre Rolls Video Expandable Big Box Site Takeovers E Blasts Contests Common Questions about Corporate Trade 22

23 Agency questions 16 What about digital buys? Established Corporate Trading companies partner with digital media owners on display, rich media, pre-rolls, sponsorships, performance-based campaigns and social media. At Active International Canada, we ve also secured trading relationships on emerging platforms such as mobile and RTB. If you re looking for a Corporate Trade provider, ask whether they have a digital team. You ll want to ensure there are dedicated digital resources in-house who understand this media. Established Corporate Trading companies partner with digital media owners Common Questions about Corporate Trade 23

24 Agency questions 17 What expertise do Corporate Trade companies have as media buyers? Expertise varies from one Corporate Trade company to another. Active International Canada has a team of 190 integrated media specialists across North America who negotiates and manages media campaigns every day. Our media professionals have significant experience in the media industry they have been marketers, media planners, advertising agency executives, creative directors, client partners, and account planners just like many of our clients. Having buying capabilities in-house maintains flexibility as well as quality control. The US-based board is comprised of top executives from the domestic and international broadcast and publishing community, providing a forum to discuss industry trends and develop new solutions that lead directly to increased efficiencies and new opportunities for our clients. We strategize with these insiders on a regular basis about everything from cross-platform integration to advancements in electronic media measurement to the impact of social networking. In addition to our experienced media team, Active International also has longstanding relationships with media leaders in broadcasting, cable, publishing and online media that provide us with unique access to the highest level of insights within media organizations around the world. This connection was formalized by creating the Active International Media Advisory Board. Common Questions about Corporate Trade 24

25 Agency questions 18 How do Corporate Trade companies work with in-house media buyers? If you place your media in-house, it s important to understand that your in-house media buyers play an important role in a Corporate Trade transaction much like an agency. They are the mastermind of your media plan, collaborating with your Corporate Trade provider on the execution. Your Corporate Trade provider reviews your media plan and together with you and your in-house buyers determines where they can make the most impact on your behalf. This media evaluation process ensures that your goals are met. Typically your in-house buyers continue to formulate your media strategy, plan, and pricing, and oversee the implementation of your Corporate Trade plan and the performance of your Corporate Trade provider. Common Questions about Corporate Trade 25

26 Corporate Trade COMPANIES

27 Corporate Trade Companies 19 What s the difference between agency-owned Corporate Trade companies and independents? Independent Corporate Trading companies are focused 100% on trade. Agency-owned Corporate Trading companies, as part of larger holding companies, are driven by a different business model. Independent Corporate Trading companies create trades that deliver measurable incremental value when applied to marketers media plans. Common Questions about Corporate Trade 27

28 Corporate Trade Companies 20How do I decide on the best Corporate Trade partner? First, find the most established, independent Corporate Trade organizations in your market. Ask colleagues within your company and industry for references. Talk to your media buying agency and search online. Chemistry is an important part of every business relationship. Meet with the companies you initially identify. Visit their office and start a conversation. Ask about their expertise in key areas relevant to the transaction at-hand, as well as anticipated, future transactions. Can they handle inventory resale as well as excess real estate, aging capital equipment and sponsorship commitments that are no longer on strategy? Understand the depth and breadth of categories in which you can spend Trade Credits. The more options for using Trade Credits, the faster you ll get your distressed assets off your books. Reputable Corporate Trade organizations are able to combine Trade Credits with cash to get the business goods and services you require including media, point of sale materials, printing, freight, logistics, travel, event space and even hotel rooms. In addition, look for an organization with a dedicated account management team who regularly completes formal business reviews and annual satisfaction surveys with their clients. You want a responsive advisor who takes the time to understand your business intimately and who helps you understand the ROI of your transaction. Understand the depth and breadth of options where you can spend Trade Credits. The more opportunity for using Trade Credits, the faster you ll get your distressed assets off the books. Finally, narrow your list of potential Corporate Trade partners down to a manageable short list. Ask the short list companies for references and case studies from companies with similar challenges to your own. You may also choose to select a company for a test transaction before embarking on a larger asset sale. The most important factor to ensuring success is spending your Trade Credits quickly and efficiently without compromising the quality of your media plan. Running a test media campaign will offer a good indication of a Corporate Trade provider s overall ability to deliver results. Common Questions about Corporate Trade 28

29 Corporate Trade Companies What do I need to look out for in a Corporate Trade contract? A Corporate Trade deal is a high-trust transaction and it s important to feel confident in your Corporate Trade partner s ability to help spend your Trade Credits effectively. A legal contract is a must and should at minimum include these essential elements: I. Any restrictions on where your distressed inventory can be distributed must be specified. II. In all likelihood your Trade Credits will be used to supplement your media buy. Make sure your Corporate Trade contract spells out that your credits will be applied only to your authorized plan. III. Corporate Trade companies do not typically take media fees as part of their business model. Your contract should stipulate that no commission is payable. IV. Before entering into a Corporate Trade deal you ll want a dedicated account manager and media team assigned to your business. The account manager will diligently track your Trade Credit use, routinely present opportunities for increased Trade Credit usage through formal business reviews and attend all relevant media briefing and planning meetings. Common Questions about Corporate Trade 29

30 What s next? Do you have more questions about Corporate Trade? Or are you ready to get started? Active International Canada 4100 Yonge Street, S-406 Toronto, ON M2P 2B5 Canada P: infocanada@activeinternational.com Follow us Common Questions about Corporate Trade 30