By definition, barter is the trading of a product or service for other products or services of equal value. Entities that manufacture, own product or generate services, can often use their assets as payment for other goods or services, including media, travel and raw materials; even as components in the manufacturing process. This allows them to pay for the above with cost of goods dollars instead of 100 cent dollars.
A simple example of such a transaction was detailed above, and resulted in a manufacturer of a motor scooter deciding to use a quantity of their new vehicles as remuneration to various electronic and print media as payment for ad space. The vehicles were distributed by the media for use in promotions, and the scooter manufacturer was thus able to obtain media which was purchased with “cost of goods” dollars when trading with the media. By using the scooter in contests and sweepstakes, additional mileage and promotional value was achieved, resulting in an effective and cost efficient transaction for both the scooter manufacturer and the media when promoting to the consumer.
Barter is also often an alternative to liquidation for a company that doesn’t want older inventory clogging its existing channels of distribution; yet is not desirous of closing out excess inventory for pennies on the dollar. A reputable barter company or barter partner can acquire the inventory in exchange for media or other services and remarket the merchandise in a manner which might result in the generating of incremental sales while avoiding disruption in the marketplace.
Although barter can be an option to liquidation, the subject of corporate barter often comes under scrutiny because some Fortune 500 companies have had poor experiences with “value received” in exchange for product traded.
Before making a decision to consider barter as an option for reducing excess inventory, companies should understand how barter works and know how each of the participants in the process can enhance or adversely affect the end result.
Additionally, the company chosen to handle or broker the barter transaction should be reputable and offer to provide guarantees that the client will receive media or product at competitive rates. Finally, it is most important that the barter company be contractually responsible for the manner and/or classes of trade in which the client's product or service is remarketed. There is nothing more harmful than excess inventory being dumped on the market and causing the value of such merchandise to drop significantly as a result of what can appear to be a liquidation or closeout for merchandise still on retailer’s shelves.
Click on the links below to gain a more comprehensive understanding of the participants in a barter transaction and how the responsibilities of each can affect the outcome.