FINANCIAL MARKETS

BARTER EXCHANGE

- Dr. Sandeep Goel

 BARTER
• Barter is a method of exchange by which goods or services are
directly exchanged for other goods or services without using
a medium of exchange, such as money.

• It is usually bilateral, but may be multilateral, and usually exists

parallel to monetary systems in most developed countries.
 Industry Reasons to Barter What to Purchase ? What to Sell ?

Media Promotional products for

Excess capacities, and
(Print, Electronic & schemes, Media for self Media space on barter
huge expenses
Outdoor) publicity

Excess capacities,
Hospitality Media, Hotel supplies Rooms and Banquets
perishable products

Media, promotional
Consumer Save cash in general, products for consumer
Products
Durables/Products get rid of excess stocks and dealer offers /
schemes, etc.
 Multilateral - Snapshot!

1. 5.

2.
4.

3.
 ADVANTAGES OF BARTER
• Conservation of cash
[Get paid immediately by registering your customers to register on
Barter Trade Exchange and use their trade limits to pay for your services]
• Use of idle resources
• Higher productivity

• Less wastage
• Risk free

• Increased cash sales and profits

 BARTER EXCHANGE/TRADE EXCHANGE
 A trade or barter exchange is a commercial organization that
provides a trading platform and bookkeeping system for its
members or clients. The member companies buy and sell
products and services to each other using an internal currency
known as ‘barter or trade credits.’
-contd.-

Sources of Revenue for the Exchange

• One time Signup fee

• Management or administration fee

• Commission charged on each transaction

• Advertising fee
 Commercial
Barter

Corporate
Retail Barter
Barter
 Types of Barter Exchange

 Retail barter: membership bases of small to medium sized

businesses.
 Large numbers of members
 Low value

 Corporate barter: focuses on larger transactions, which is

different from a traditional, retail oriented barter exchange.
 High value
 Retail vs. Corporate Barter
Retail Barter Corporate Barter

Members Majorly individuals Corporate houses

Role of Exchange Clearing House Purchaser/Intermediary

Sources of Revenue Commission as fee Profit on negotiated deals and

commission

Purpose Generally to conserve cash Using unproductive assets

and people who are not cash and excess capacity to gain
rich

Value of transactions Can range from $1-$200 Can involve millions of

dollars
 Select Barter Exchanges
 World Trade Exchange ,US
https://worldtradeexchange.org/contact-us/

 IBX (India Barter Exchange)

ibxbarter.com
 Quikr
www.quikr.com
 Barter India
barterindia.in
 Top BarterCard
top-bartercard
 Let’s Barter
letsbarterindia.com
 ECONOMICS OF BARTER
Case Study:
 Hi-Tech Computer manufacturing Company wants to trade computers for
media space.
 Cost price per computer: INR 25000
 Selling price per computer: INR 50000
 Number of computers – 10
 Normal customer dicsount@30%
 Member of Net4barter(Barter exchange)
 Net 4 Barter fees @ 10% (in cheque) on the purchase value at the time of
purchase.
Issues:
1. Is bartering favourable to Hi-Tech Computers?
2. Is Ad space purchased on Barter profitable or in Cash?
o Market discount of 15% on cash purchase of Ad space.
Solution

1. NORMAL/CASH TRANSACTION BARTER TRANSACTION

Sale of 10 computers: Sale of 10 computers at MRP:
Assuming normal trade/ customer discount (no trade margin or customer discounts
of 30% on MRP assumed)

Sale =10 x Rs. 35,000 (net of discount) Sale = 10 x Rs. 50,000

= Rs. 350,000 = Rs 500,000 (Earns Barter Credits)

Less: Less:
Expenses = 10 x Rs 25,000 Expenses = 10 x Rs. 25,000
= Rs 250,000 = Rs 250,000

Profit = Rs. 1,00,000 Profit = Rs. 250,000

Hi-Tech Co. earns barter credits worth Rs. 500,000

(sale value) and purchases media space in lieu of
the value earned.
Purchases – Ad space in newspapers on barter for
Rs. 500,000.
 -contd.-

2. Next Stage: Is Ad space purchased on Barter profitable or in Cash?

 Market discount of 15% on cash purchase of Ad space

On Barter
 Profit margin on barter sales = 50%

 Fee paid to net 4 barter upon purchases (which also adds to the cost) =10%

 Market discount on cash purchase of Ad space = 15%

Net margin of Hi-Tech Computers:

50% less 25% (15% + 10%) = 25% in the barter deal
 SUCCESS STORIES
Timex
 It faced a massive inventory problem on a particular model of its watches.
 It was stuck with Rs. 20 lakhs worth of unsold stock and was unsure if it could
spend on its badly needed media plan.

 Enters Net4barter:
- The firm picked up Rs 15 lakhs worth of Timex watches at their full MRP
value.

- In return, Timex could execute a new media plan, that too without having to
spend any hard cash.
-contd.-

Archies
 Though Archies was doing well, its proprietor, Mr Mulchandani, was in a
dilemma.
 He needed massive media spend to keep customers acquainted with his ever-
changing list of gift items, personal accessories, cards and utility products.
 And often when products bombed, he was stuck with inventory as well as
massive media bills.

 Net4barter has helped him on both fronts:

i) The company no longer pays for media campaigns.
ii) Their unused capacities are also picked up in the bartering process.