Media trading: A procurement professional’s best friend

As a procurement professional, your mission in life is to find material measurable savings on the purchase of goods and services for which you are responsible. But what can you do beyond the usual price negotiation in all its various forms? What can you add to your tool kit that gives you even lower costs and the resulting competitive edge, not to mention the accolades and bonuses for a job well done!

You know that some goods and services have higher margins than others, right? Certain industries are more inefficient than others. What if you were able to transfer the higher margin found in one of your purchase categories to a lower margin good or service purchase? In other words, what if you were able to leverage market inefficiencies into lower costs?

If you are responsible for overseeing the purchase of media, you know that advertising can be a pretty high margin business. It also tends to be a fairly inefficient market. Unlike commodity goods that have a fairly tight range of price, advertising has a wide range of pricing. The price you pay could depend upon how much you buy, your relationship or your agent’s relationship with the media vendors, past deals or the lack thereof, pre-season commitments, and of course supply and demand which changes every quarter, etc.

How to tap into that market inefficiency and turn it into an advantage for you.

Did you know there is an established media market existing outside of the purchasing model in which you are currently engaged? It is the trade market, and it is the province mainly of the corporate trading firms. The power of the trade market has lately attracted a number of the world’s largest media conglomerates, so that should tell you that there is something interesting going on.

The trade market provides the means for media to be acquired using goods and services rather than cash. The media trade market also smooths out supply and demand imbalances from quarter to quarter by taking positions in “media futures”.  Regardless of its inner workings, trade  allows you to access a lower cost basis for advertising, not in terms of the rates or CPM, but in your bottom-line investment. Trade takes advantage of the fact that margin exists that is sufficient for a cable network to gladly accept hotel rooms for a Fall ad schedule. It provides the means for a billboard company to take a retailer’s gift cards for a high profile spot in Times Square.

Now, it’s unlikely you have a stock of goods and services that exactly meet the needs of your specific media vendors. You need to enlist the services of a third party that has established relationships with your media vendors AND possesses a wide variety of the specific goods and services desired by those vendors.  Acting as a clearing-house for you and the media vendor, this is the role of a corporate trading company.

By purchasing advertising through a corporate trading company, margin exists and is transferred so that it can be used for many other corporate needs. This brings us back to the point that the margins of advertising can be leveraged to create savings on your lower margin purchases. Consider the following examples of how you can use corporate trade:

  • Cost reductions on routine operational expenses
  • Savings on raw materials and other direct costs
  • Funding for non-budgeted needs
  • Gap financing on goods and services for which budgets are insufficient
  • Payment for excess inventories, surplus real estate, and obsolete capital equipment at well above the cash market value
  • Full price payment for current goods and services that can be distributed outside of current channels
  • Reserves for “rainy day” needs and other emergencies

You’re likely to ask three important questions to determine if corporate trade is a viable means for achieving cost savings for your organization:

  1. Are these savings real?  The fact that corporate trade has been around for decades and that the world’s largest advertising agency holding companies have entered the trade market demonstrates a certain legitimacy to this market. Corporate trade structures conform to GAAP, and a great many companies, including perhaps your competitors have added millions on their bottom line due to corporate trade. As to the real savings that you can accrue through trade, ask a corporate trading company to take you through a scenario using your particular purchasing and circumstances in order to project your potential results.  Those savings can and should be measured and reported.
  2. How difficult is it to implement? If you were to attempt entering the trade market without a trading company, you would have your work cut out for you. You’d need to acquire goods and services needed by your media vendors, create a new accounting process to track the various trades, and restructure the entire billing methodology between you and your media vendors. Luckily, the corporate trading company takes care of all this for you. No new worthwhile cost-cutting tool is effortless to implement, but corporate trade can be a relatively simple and enjoyable process that will pay significant personal and professional dividends.
  3. Are the savings measurable and sustainable? Measuring the savings from corporate trade is simple. If you choose to create media savings through the purchasing of your advertising through the trading company, your reduction in cash can be easily calculated. If you choose to pay for advertising using an asset like excess inventory or surplus real estate, simply look at the market value of the asset relative to the higher price paid to you by the corporate trading company.

Regarding sustainability of the cost savings of corporate trade, the most successful trading relationships are those that are maintained over a long period of time. Once the trading process is implemented by your organization, you will likely see it as an integral part of your procurement process. After all, if you can use obsolete assets or other approaches to save 12% or more on your advertising expense through a proven process, why would you stick exclusively to the difficult exercise of price negotiation with your vendors?

To learn more about the mechanics of corporate trade and how to implement this across your full range of purchasing, download The 9 Insider’s secrets to Winning at Corporate Trade.

About Mike Lake

Mike is the Senior Vice President of Marketing for Evergreen Trading. When not playing jazz trombone he is probably obsessing about writing content that will capture the attention and interest of business people and fellow learning junkies everywhere.

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