(The following article was provided to us prior to the announcement of IMS acquiring NTA.)
Barter Industry Faces Tremendous Challenges
By Jack Schacht, National Trade Association President
In the last decade, there has been a significant change in the marketplace. Due to mergers and acquisitions, margins for many retail categories have shrunk so much that we have seen the demise of many of those retail categories in the small business arena.
Even though new retailers are coming-in and going-out of the marketplace all the time, tighter and tighter profit margins are making barter a less attractive option for them. The growth of the Internet and globalization have also made competition very intense forcing most companies to either increase productivity or go out of business.
As Bob Meyer pointed out in BarterNews, ?We used to think we didn?t need chiropractors, podiatrists, and massage therapists. Now they?re keeping us in business.?
According to the New York Times (2/20/05), small manufacturers are also struggling or going out of business. ?It used to be so simple. Big manufacturers with powerful brands called the shots. The only decision retailers had to make was whether or not to stock the manufacturer?s product. Then came the rise of Wal-Mart and other big box retailers which turned that power relationship on its head.
?Manufacturers now had to play by the retailers rules?not only about prices but even about product design and production methods. Companies, particularly smaller suppliers, simply can?t match the prices offered to the big chains by overseas manufacturers and thus have gone out of business. The bigger manufacturers have felt compelled to move the bulk of their production overseas, or throw in the towel.?
This changing landscape presents tremendous challenges for the retail barter industry. Our changing business environment along with more demanding clients, requires that we make some fundamental changes in the way we do our business.
As always we must find the new opportunities in this changing environment. I believe that the increase in the number and the types of service businesses that have recently come into the marketplace represents one of these new opportunities. We, of course, have to learn as much as we can about these new business service categories so we can effectively present them and sell them to our clients.
To make any real change in our business, of course, requires that we first see the urgency of the problem. Once we know we have an urgent problem, here is the action I think we should take to continue building a viable barter businesses.
First of all, we must continue to drill deeply into those business categories that offer both high gross margin for sellers and high demand from buyers in the marketplace. We must go out and find the excess capacity, excess time, or excess inventory in all of these categories in order to build our trade volume. At NTA these categories are media, travel, restaurants, excess inventory, and a myriad of business services.
More importantly, we must improve on selling the products and services within those categories to our clients. Our brokers must view themselves as inside salespeople, and not as customer service people.
We must sell what we have, not simply offer what we have available.
This shift from a service organization to a selling organization has made the fundamental difference in our media department. Without any increase in the number of clients who buy media, our media department volume is up 25%...merely because we have gotten better at selling the media we have to the same number of clients.
The next thing we need to do, however, is a more radical step for most of us in the retail barter business. While we are building our trade volume, we must also aggressively build a base of cash customers to buy our media, our travel, and our excess inventories.
Barter markets are shrinking, and we have nowhere to turn but to cash markets if we want to do sizable trade deals in those arenas where trade is most active. There are two important reasons for us to build cash customers.
As most of us know, the best way to trade with media, travel, and even restaurants is to use a ratio model, instead of the cash fee model. In using the ratio model, however, we produce no cash revenue from these business categories, and really have no choice but to liquidate our trade profit into cash through a growing portfolio of cash customers. Which leads us to the first reason: If we don?t, it will be difficult to meet payroll and have enough cash to run our companies.
The second reason we need this cash track is that there are incredible opportunities to buy both excess media inventory and product inventory at very favorable prices. Many media vehicles, for example, which no longer barter or which are holding too much barter in their account, will offer cash rates on their excess inventory for as little as twenty to twenty-five cents on the dollar.
While we can sell this media to our cash customers, we can also trade that media at its full retail price to clients who are highly leveraged in their trade dollars. We cannot do this, however, unless we develop a strong base of cash customers. The successful integration of cash customers and trade customers is absolutely critical to us and will result in more trade volume, more trade revenue, and more cash revenue for our business.
The integration of cash markets and trade markets must be done carefully and responsibly. We should neither create additional trade deficits, nor should we interfere with our trade clients? cash business, when we sell their products or services to our own cash markets. This new integration of cash and trade can be a boom to our business, but if not done properly it has the potential to destroy our business.
I have never thought it is a good idea to build our business in a vacuum, and I always try to spend time reading the books of some of our great business leaders. (Since I don?t hang out in their social circles, I at least have access to their books.) In the past, before I?ve taken the company in new directions, I?ve often found the support I?ve needed from these business leaders.
NTA, for example, would not be sharing ownership with employees today if it wasn?t for a book I read in the early ?90s called The Great Game of Business by Jack Stack. This book, about the great benefits of sharing ownership with our employees, was extremely helpful to me in building a strong, loyal employee team.
Though I have always tried to find and nurture strong leaders within our company, I had never thought of the idea of actually developing a leadership culture until I read Noel Tichy?s best-seller in the late ?90s called Leadership Engine. Today NTA enjoys the benefits of a leadership culture thanks to Tichy?s book.
The book that is perfect for our business today is called Leading Change by John Kotter. He is the major contributor of articles published in the Harvard Business Review, and his current book is a best-seller that can be ordered online or picked-up at any bookstore. The book, of course, is about the challenge of implementing change in a company environment.
While our challenge today is great, it is not insurmountable. We only need to create our plans and execute them. If we let the realities of the marketplace instead of our egos guide us, I believe we can still build highly successful businesses in the barter industry.
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