Category: Business Travel & Corporate Event Trends

By Adam Koppelman, VP/ Director Investments and Trade Partnerships

In today’s cost-focused business landscape, many organizations are reducing or eliminating cash expenditures on annual sales meetings, corporate events, sales incentive trips, and contest prizing.  This is no doubt impacting the travel and hospitality sector in a big way.

According to Deloitte’s 2012 Navigate Study, Canadians are travelling less for business over the past year, with an 11% decline in domestic and international travel intentions. And those that do plan to travel, intend to shorten their stays.

In addition, the industry is increasingly commoditized, with 65% of the Deloitte survey respondents indicating that price is their top consideration in selecting a travel destination. Canadians looking to save while they are travelling are most often willing to make trade-offs with their accommodations, in favour of spending elsewhere.

It is no surprise why online travel agencies (OTAs) are continuing to have a big impact.  The HAC Annual Travel Survey shows 51 percent of travellers think they can get a better deal through an OTA, with the biggest changes being seen in the business travel community.

Meanwhile, funding for the Canadian Tourism Commission (CTC), Canada’s national marketing agency, has declined from $100 million in 2001 to $72 million in 2012 and $58.5 million in 2013.

Given all of these factors, the travel industry is clearly fraught with the challenge of balancing cost efficiencies with new revenue streams, increased advertising, and customer acquisition strategies.

So what’s a hospitality provider to do?  Many are turning to Corporate Trade as a solution.

Corporate Trade businesses, like Active International, enable tour operators, hotel chains, airlines, and conference centres to use their room/flight/seat inventory to help fund anything from TV ad campaigns and digital activity, to printing, freight, and capital equipment such as in-room televisions and furniture.

Let’s use hotel groups as an example. As noted, many hotels are faced with taking a write-down on their room rates due to competitive pressure from OTCs.  Through Corporate Trade, a hotel chain can exchange their rooms at full market value in return for a credit which they spend on advertising to build their brand loyalty. The Corporate Trade company then sells the rooms they’ve acquired to its customer base, driving new business to the hotel, and creating a win-win-win.

Use Corporate Trade to help offset cash expenditures for business travel and meeting expenses.

Essentially, Corporate Trade enables hotel businesses to keep at-risk budgets whole, and provides new business revenue streams by helping to maintain their ADR (average daily rates) and REVpar (revenue per room).

There are four types of Corporate Trade deals that are popular with the travel and hospitality sector:

  • Bill Payer – any hotel, airline or venue that has expenditure for refurbishment, such as new carpets, flat panel monitors, or linens can use a Corporate Trade company to fund the purchase in return for a multiple of their inventory, such as hotel rooms, meeting space or seats.
  • Cross Purchase – working alongside the travel partner’s media agency the Corporate Trade company places an agreed amount of the planned media expenditure. In return, the Corporate Trade company will guarantee additional incremental cash business expressed as a percentage of the media campaign traded for.
  • Contra Transaction – a straight trade where the travel business pays for media space using rooms or airline seats
  • Cash and trade (for hotels only) – the Corporate Trade company handles a media campaign for a hotel group for which they pay partly in cash and rooms.  The Corporate Trade Company provides rooms to a media owner, for example for a conference, because the media owner has paid for the conference with the provision of a media buy.

The Corporate Trade model is proving to be effective for the travel sector.  Around the world, over the last year Active International has experienced a significant increase in media procurement for the travel sector.

In today’s tumultuous times, if you haven’t considered Corporate Trade as a strategic solution for your travel business, you may be missing out on a hidden competitive advantage.

Your turn: Are you a business in the hospitality sector affected by any of the factors above?  How are you responding?

It is a question I inevitably get at every networking event, friend or family gathering, and discussion surrounding what I do.  Thankfully it’s a question I love to answer, so today’s blog post gets back to the fundamentals of our business model – what exactly is Corporate Trade?

In its simplest form, Corporate Trade is the business of restoring value where it has diminished and creating value where it is needed. Also known as Corporate Barter, it is a strategic tool used by many Fortune 1000 corporations to maintain book value on slow-moving, returned, or obsolete assets such as:

  • Last season’s clothing or accessories
  • Perishables e.g. groceries
  • Product labeled with expired promotions
  • Outdated electronics or technology e.g. mobile phones
  • Obsolete capital equipment
  • Excess real estate
  • Almost any asset that could result in loss of value to a business…the list is practically endless

Many organizations have turned to Corporate Trade (Corporate Barter) as a means to mitigate the risks associated with inventory and asset management, and to reduce the negative impact on the bottom line.

In a typical Corporate Trade transaction, assets are acquired in exchange for cash and/or Trade Credits at two to three times the best offer available through typical liquidation. In return, Trade Credits are combined with cash to purchase necessary goods and services such as: desirable advertising space; printing and retail marketing; freight and logistics; travel, event space, and hotel rooms.

With Corporate Trade organizations can:

  • Realize higher returns on excess inventory and other assets
  • Decrease cash outlay by using excess assets to partially fund expenses
  • Extend the reach of marketing and advertising budgets
  • Improve and sustain growth by making assets work harder
  • Increase product distribution to new markets

How does Corporate Trade work?

 A Corporate Trade deal can be tailored based on business needs.  For simplicity’s sake, we will use the most common type of Corporate Trade transaction: a Trade Credit Deal.

 Problem: A manufacturer has a cereal brand that performs significantly below expectations resulting in excess inventory. For the purposes of this example, let’s assume that the wholesale value of the cereal is $1M. If the manufacturer were to liquidate the cereal the value would be reduced to $300,000 – a loss of 70% against expected revenue.

Solution: Using Trade Credits, a Corporate Trade organization purchases the inventory at the full wholesale value of $1M. In return, the manufacturer agrees to acquire $5M in pre-planned media such as primetime television advertising using 80% cash and 20% in Trade Credits. To mitigate competitive threat and to protect existing retailers, the Corporate Trade organization sells the cereal to buyers approved by the manufacturer.

Result: The manufacturer avoids a financial loss on the under-performing cereal, purchases a pre-planned $5M advertising buy for a cash outlay of $4M, and maintains a positive relationship with the existing retail distribution channels.

I’ll admit that the concept of Corporate Trade can sometimes seem complex for those unfamiliar with it.  We’ve also created this video explaining the nuts and bolts of Corporate Trade, and hope you find it useful.

Your Turn:

What obsolete assets are weighing your business down and how do you minimize financial loss?

Kimberly Armstrong

Active International

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