Navigating Through Crisis: The Rise of Corporate Barter in Hospitality
The global pandemic has been formidable on small and medium enterprises (SMEs), including hospitality giants, facing the brunt of the economic shockwave. Compared to their larger counterparts, these businesses have struggled to stay afloat amidst a sea of challenges. Government credit schemes, designed as lifelines, often fell short due to the bleak growth horizon that stretched for months. This blog delves into the resurgence of an old yet innovative survival strategy: corporate barter, which has been heavily relied upon in the hotel industry for ages.
But Let’s First Understand Corporate Barter
Corporate barter is not a new concept. It has been active for years, especially since it has roots in the 1950s, when it caught attention during the U.S. recession of the early 1970s. “Retail” barter exchanges involve local trade among businesses and individuals, with a transaction fee paid to the trade exchange. In contrast, corporate barter companies engage in large-scale transactions, often involving publicly traded companies, and can take title to the goods themselves.
The Evolution of Corporate Barter
Initially, corporate barter was a means to an end—a way to offload excess inventory in exchange for media time and space, thus conserving cash. However, today’s corporate barter industry has become a sophisticated marketing tool. It offers many benefits, including entry into new markets, incremental sales, and utilization of excess production capacity, all without additional costs.
Corporate Barter as a Marketing Strategy
Corporate barter now serves as a strategic marketing lever, enabling companies to expand their advertising reach, extend geographical distribution, and even boost export sales. It’s a cost-effective method to reduce purchasing costs and generate positive cash flow. For SMEs, this could mean the difference between survival and closure.
How Hotels Turn Empty Rooms into Big Savings: The Power of Barter Collaborations
The hotel industry is no stranger to innovation, especially when maximizing profits. One strategy that has proven practical and ingenious is using barter collaborations. This approach allows hotels to transform idle inventory into valuable assets. Let’s explore how this system works and why it’s a win-win for hotels.
Trading Spaces for Services
Let’s consider a hotel is occupied seventy per cent of its capacity. It’s indeed a profitable figure, yet the hotel has an opportunity to capitalize on the vacant rooms by trading those in exchange for goods and services. Here’s where barter comes into play. Hotels can offer their unsold rooms to a trade network in exchange for goods and services they need, such as media advertising, toiletries, or even renovations. Since the primary costs for these rooms are already covered by the hotel’s overhead, the actual cost of trading them is minimal—just the cleaning and restocking of amenities.
Media Arbitrage: A Cornerstone Strategy
Media arbitrage is a critical element of barter collaborations. By trading rooms for advertising space, hotels can significantly increase their visibility without impacting their cash flow. This increased advertising can lead to higher cash sales, filling more rooms at the total price. It’s a cycle that feeds itself: more advertising leads to more sales, which leads to more trading power.
The Financial Logic Behind Barter
Let’s do the maths. Trading a room with an incremental cost of only 20% offers the hotel an 80% discount on exchanged goods and services. The room would otherwise go unsold, rendering it a lost opportunity. By bartering, hotels can stretch their budgets in ways that would be impossible with cash transactions alone.
Community and Tax Benefits
Trade credits can also be used for community goods. Donated to non-profits, these credits can provide tax benefits to the hotel while supporting worthy causes. This not only helps the community but also enhances the hotel’s reputation as a socially responsible business.
Real-world Success Stories
The effectiveness of barter collaborations is more than just theoretical. Take Sandals and Beaches resorts in Houston, Texas, for example. They grew into household names primarily through the strategic use of excess capacity without spending cash on media.