List Exchange Value Proposition—Would It Be Better With Barter?
Would your list marketing be better with barter? Barter is the oldest form of exchange and it still exists today for many products, services and data. While the concept of barter hasn't really changed, its facilitation has evolved remarkably. In the early days, just a few thousand years ago, produce weights and livestock headcounts were tallied to calculate an exchange. For the past four decades, marketers have been applying the same principles to data. Today, technology makes it even easier to track the "exchange balance of trade" and keep everyone accountable.
An exchange is a reciprocal arrangement between two mailers where each allows the other to send a promotion to their house list. Exchanges are typically done on a name-per-name basis and may have some restrictions that would not otherwise apply to standard list rental agreements. Exchanges also are most common among catalogers, magazine publishers, and non-profit organizations.
List brokers and list managers often coordinate these arrangements and track the exchange balances. It is important to establish rules of engagement and parameters for exchange relationships, especially when there are competitive implications. A good list manager will keep you in the know regarding exchange balances and avoid costly mistakes. Extending too many names upfront may not be wise, especially when future circulation volumes are becoming less predictable.
Marketers can leverage exchange relationships to lower acquisition costs for prospecting data. Although there is typically no cost for the prospect names in the exchange, list brokers and list managers are paid an exchange fee for their services. A common exchange fee is $8 per thousand names (/M).
The list management exchange fee is usually the equivalent of the base management fee on a list rental order. However, there could be savings related to targeted selections if you leverage the exchange value proposition. For example, compare the cost of a list with multiple selections with an exchange management fee of $8/M. To avoid complexity, the following example does not include price negotiations, net name arrangements, run charges or other fees:
Base price for catalog list rental: $90/M
Monthly hotline: $20/M
Last purchase amount: $15/M
Purchase frequency: $15/M
Mailer list price: $140/M
Exchange fee: $8/M
Keep in mind that barter is a two-way street and you'll likely be passing on similar savings to those mailers that you have approved on exchange. These exchange restrictions may limit selectivity from a file in order to guard best customer segments. However, there are plenty of opportunities to target interest categories from secondary product market categories that are less competitive. For example, a health products catalog mailer may enter into an exchange relationship with a health fundraising organization or health-related magazine publisher.
For list owners, it is important to recognize the value of exchanges when reporting budgeted versus actual net list rental income. It may not be realistic to calculate the actual value of every exchange order, especially when multiple selections are involved. However, there are best practices for list owners to recognize exchange value in a consistent manner.
I'd recommend an approach based on opportunity cost. Ask yourself the question, "How much would I have made in list rental income if I had not offered these names on exchange?" The easiest way to answer that question is to take the average list rental cost per thousand for the period and apply that to the exchange volume. After all, you could always reciprocate a list rental with your income. Other methods may work better for your business, but it's wise to speak with your controller regarding potential tax implications of these arrangements, and other forms of revenue recognition versus expense.