IOC makes strategic addition to business model
IOC announced today that, effective 2018, a new domestic corporate barter division will be launched. This division will take IOC back to its original roots in dealing with domestic and international corporate barter clients. Founded in 1987, ABS worldwide, the predecessor to IOC, was one of the country’s foremost corporate barter companies dealing with Fortune 1000 companies domestically and multinational companies globally to assist in the acquisition of new clientele and in the reduction of bottom line cash expenses.
By opening this division, IOC will be able to finalize its total blanket strategy to now be able to extend its global countertrade and offset clients while expanding into the commercial corporate barter arena servicing corporate clientele.
Barter is usually multilateral (i.e., mediated through a third party) and, in most developed countries, usually only exists parallel to monetary systems to a very limited extent. Barter, as a replacement for money as the method of exchange, is sometimes used in times of monetary crisis, such as when the currency may be either unstable (e.g., hyperinflation or deflationary spiral) or simply unavailable for conducting commerce.
Barter may occur in commercial economies, usually during periods of monetary crisis. During such a crisis, currency may be in short supply, or highly devalued through hyperinflation. In such cases, money ceases to be the universal medium of exchange or standard of value. Money may be in such short supply that it becomes an item of barter itself rather than the means of exchange. Barter may also occur when people cannot afford to keep money (as when hyperinflation quickly devalues it).
Since direct barter does not require payment in money, it can be utilized when money is in short supply, when there is little information about the credit worthiness of trade partners, or when there is a lack of trust between those trading.
Barter is an option to those who cannot afford to store their small supply of wealth in money, especially in hyperinflation situations where money devalues quickly.
More prevalently, Barter is used as a strategic advantage in order to reduce the net costs of commonly budgeted items while at the same time serving as a source for new clientele.
Corporate barter usually works through media placement which the business community is led to believe is the best avenue to unwind barter credits. This has been the traditional way for barter companies to unwind their obligations to the clients. However, most barter clients are now learning that through the use of media and their traditional use of the credits, the barter credits actually end up being of no value (see article below).
IOC’s approach to working with its clients to unwind trade credits is substantially different than that of the industry and the larger barter companies. IOC make sure that the trade credits equate to actual hard dollar savings through the application of benchmark pricing of IOC’s purchasing programs. IOC’s purchasing programs have led the industry for their creative solutions and true hard dollar cost reduction.
ARTIS’s strength lies in its ability to discover both underutilized and previously undiscovered assets.
By identifying our clients “alternative currencies”, ARTIS is able to generate an entirely new product base from which our clientele can source tremendous buying power. Our team regularly surveys our client’s businesses to discover goods or services that had never thought to be of a “tradeable value” prior.
Here again, ARTIS’s team not only discusses our clients needs, but both reviews our clients business and develops a strategic business plan for the future purchases using ARTIS trade credits. On average, the Artis team discovers 40% more opportunities than our clients had originally envisioned.
ARTIS’s procurement staff are trained -professionals with one goal in mind….to command a trade application on all the products or services needed by our clients.
A New Way for Ad Agencies to Fleece Clients: Barter-Based “Trading Units”
REPRINT MONEYWATCH The hot new trend for ad agency holding companies is to set up a “trading unit” to execute barter deals in which a company trades its products for advertising airtime on TV networks or pages in magazines. But few people — advertisers included — know how they work. WPP (WPPGY) and Havas (HAV) both set up such units this week. WPP’s is called the Midas Exchange. Havas has yet to come up with a name for its new division. Existing trading units include Aegis (AGS.L)’s Carat Trading, Omnicom (OMC)’s Icon, Interpublic (IPG)’s Orion Trading, Argent, Active International, a division at Horizon Media, Trade X Media, and a unit of the independent media agency R.J. Palmer. It’s worth knowing what trading units do, however, because so-called “prop trading” brings two potential problems for clients:
- Such trades potentially have the effect of overstating the value of assets on a client company’s books — which is bad for investors trying to assess how much a company is worth.
- Clients might naturally suspect that these trading units are competing with the regular media buying agencies owned by the same corporate parents, thus creating a conflict of interest within holding companies that might drive up the overall average price of advertising.
As trading units make their money in a variety of different ways, and each deal is often unique, the only consistent thing that can be said of them is that they are yet another way for ad agencies to separate clients from their cash. Here’s how a trading unit barter deal works, according to Omnicom’s helpful web site for Icon. Let’s say your company sells trendy clothing. Unfortunately, a shipment delay means that the miniskirts you ordered from your factory arrive too late, just as long dresses become fashionable. Now you’re stuck with inventory you can’t sell at full price. The normal procedure would be to “write down” the dresses and sell them to a liquidator, at perhaps just a third of their previous market value. That writedown becomes an expense, lowering your net income and reducing your assets. Ad agency trading units say they have a better idea for those miniskirts. They’ll offer to buy them at “book value,” or the price they’re being carried at as inventory by the company — far above the writedown/liquidation price. In addition, the trading unit will give the company a credit note for advertising media. Your clothing company has thus exchanged a bunch of unsellable dresses for some cash and some usable advertising time. This seems like a remarkably good deal for the dress company and a terrible deal for the ad agency. Of course, the deal has strings attached: The trading unit demands that the media credit be used as part of larger, cash-based ad buy at some point in the future, in just the same way you’d use a coupon to lower the price of a packet of cereal. Media credits can be held for years, according to Omnicom. The trading unit is able to make a profit doing this because it buys advertising time far in advance, like a commodity, when it’s cheap. By the time it’s sold to the dressmaker, it’s at market price. In addition, the trading unit will come up with some imaginative way to sell the minskirts for its own profit, perhaps by shipping them to a foreign country where the weather is warmer and the long-dress trend has yet to take hold. That’s why IPG’s s Orion Trading tells clients that it charges no fees for making such deals (look under Question 11 in the FAQs). It all sounds remarkably useful — and for many clients it undoubtedly is. The problem is that it changes the quality and quantity of assets being held on the dressmaker’s books. What was once an impaired asset that should have been written down has been replaced by cash and some credit. These are useful assets to be sure, but the credit can be used for only one thing — the trading unit’s ad time. In addition, the company has a new long-term liability hanging over its head: It must spend even more money on a new advertising campaign to fulfill its side of the bargain. In other words, this is not an asset that will produce cash (like the sale of a dress). It’s an asset that will expend cash (like any other ad campaign). Here’s an example, again from Omnicom’s Icon: A large brokerage house had a portfolio of margin accounts that were in arrears. We offered to buy the entire portfolio of obligations at book value, but only because we knew the brokerage house was able and willing to purchase sufficient advertising through us. In fact, we collected very few of the accounts in full but did a great job serving the broker’s advertising needs. The other problem is the potential conflict of interest. The trading units are buying and selling media like a commodity, and at the same time, the holding company’s regular media agencies are trying to make routine ad buys for regular clients. Won’t the trading unit and the media agency be in conflict? Omnicom says no: In these matters, agencies and media buyers sometimes mistakenly assume barter firms are rivals. They are not, nor do reputable barter firms ever intend to be. Put bluntly, a company’s advertising agency and media buyer (if separate) are the proper and sensible source of a company’s strategic media planning in any corporate-barter transaction. The barter company is simply there to fulfill what the company decides it needs. But Omnicom’s Icon unit them immediately adds: Can a media-buying company or an advertising agency do good corporate barter? Not likely. It then lists all the reasons that media agencies are lousy at barter trades. Even if you ignore the potential conflict, the bottom line is that trading units bring advertisers into the market who, through their own incompetence at handling inventory, may not have ordinarily been there. That must, by definition, raise the aggregate price of advertising by increasing demand.