Although the concept of barter is appealing, the industry also shows weaknesses which has considerably hindered the spread of such networks.
Limited impact
Most successful sales are almost solely the result of word of mouth referrals. Efficient promotion must clearly explain what a barter exchange system is, which is not as easy as it looks. Indeed, some features are so different from those in a conventional economy that explanations need to be precise and comprehensive yet not complicated.
Low awareness
Despite several articles in mainstream media, retail and community barter is still a marginal phenomenon and awareness is still relatively low. Bartercard, BBX, Empire Trade and the other regional barter exchanges each appear in Australian media on average only 2 to 3 times a year whereas the combined coverage of community barter exchanges (LETS) across Australia is almost twice that of the retail barter industry.
Low credibility
Barter exchanges rest on a logic which is almost alien to our conventional economy. First of all, the savings able to be achieved through excess capacity trading are not always obvious as individuals tend to compare 1 Barter Dollar to 1 Australian Dollar when the actual cost to create a barter dollar should be significantly less than the cost to create a single Australian Dollar.
Secondly, although there is a growing concern about globalization and supporting local businesses, in reality it is not obvious to think and act locally in an economy where out-of-season fruits are flown from the other side of the world, and where multinational companies are widely praised as examples of solid entrepreneurship.
Negative balance are also an issue as some businesses often consider these shameful and do not feel comfortable with a system which is based on money created by the accounts below zero.
Finally, as business owners receive little education in the use of barter dollars with both their potential uses and downsides (availability of products and services due to a smaller market than the cash economy) they may find them potentially more difficult to use than cash.
Incorrect image
For all intents and purposes barter dollars are not strictly barter – they are, in fact, a type of real money backed by real goods and services, otherwise known as commodity backed money. Unfortunately barter is still often depicted as direct trade or something ‘worse’ than nationally printed currency. Re-enforcing this stereotype are the many media articles which mention barter as a way to “trade” or “swap” rather than a way to buy and sell and increase local wealth. Unlike cash, it should always be redeemable for the same value and, if de-linked from the national currency, is inflation-proof. The general public tends to wait and see and is still hesitant about joining.
Mergers and takeovers
Acquiring the customer base of another exchange, or combining two existing barter exchanges, is a strenuous legal and operational challenge. The added employees must become part of an existing corporate culture, or a new culture must evolve for the entity. It is an advantage, and a potential bottom-line enhancement, if duplication can be eliminated and efficiency improved. However, that usually means that people will loose their jobs, creating anxiety and often resentment among the employees who survive.
As the industry has consolidated there has been a tendency for local offices to close and the individuals who have driven local sales and member performance often leave; either as a result of the new owners operational consolidations or, as former owners, they are paid out and move on to other opportunities. Either way this often creates resentment amongst the customers who are left behind. Further, the acquiring organization often has different policies, and underwritten idiosyncrasies and ways of doing things that have evolved informally and which the acquired members are unaware. Very simply, exchanges which are taken over rarely keep more than 30% of their original members after the first 12 months.
The need for critical mass
For a barter exchange to survive critical mass is needed. An exchange with a small number of members, members all in a niche market, and low trade volumes will not generate the revenues needed to survive. This often results in the exchange owners themselves “borrowing” barter dollars from the exchange to survive and never repaying them which, in turn, creates inflation and worsens the problems of the exchange.
Critical mass of buyers and sellers is essential to create a stable marketplace, with sufficient goods and services as well as sufficient trade volumes per members (referred to as liquidity). One of the major success factors for any exchange is early liquidity however all too often new enterprises do not reach this break-even point and instead get into a cycle of servicing existing members to ensure that those with credit balances are doing SOME trade rather than building the marketplace to ensure that all members can do OPTIMAL trade.
Costs to use
Barter exchanges are typically seen as labour intensive as they often involve more time to find, discuss and close a deal compared with cash transactions. This is usually a by-product of the following:
Incomplete information on members offerings
Lack of knowledge or differentiation of those members who are obligated to sell and those who wish to spend down
It is time consuming to collect all the information on each seller directly
Difficult to find out about others experiences with the seller
Being unaware if they are obligated to trade
Sellers may be located further away than other cash suppliers leading to perceived ‘cost’ differences
Regional offices and franchises often operate in silos which gives members the perception that they are often the only seller of those goods or services and they may price accordingly (i.e. not in line with their cash market prices)
Settlement does not take place immediately
Historically, systems are labour intensive and commissions are therefore high
Cost curves
As the quantity of members increases, costs too increase as more brokers and sales agents are required to support them. In a system where the target market understands the benefits and where members engage more and more in self-service or serviced via the Internet and out-sourcing the costs are less per member and any increase should be matched by an increase in member trading volumes (if brokers and sales agents are solely incentivized on bringing in new customers and ensuring trading takes place with those existing members).
Copying and distributing this article
Ormita provides free updates about the generic benefits of barter to those interested in local currency, community currency, countertrade, reciprocal trade, barter exchange, time dollars, hours and other forms of community trade vehicles.
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About Ormita
The Ormita Commerce Network spans 5 continents, with direct representation in more than 17 countries plus additional partnerships in a further 59 countries. The business allows companies to exchange goods and services on a reciprocal trade arrangement.
Some of our Websites
Ormita Commerce Network Australia – www.ormita.com.au
Ormita Commerce Network Canada – www.ormita.ca
Ormita Commerce Network India – www.ormita.co.in
Ormita Commerce Network Mexico – www.ormita.com.mx
Ormita Commerce Network New Zealand – www.ormita.co.nz
Ormita Commerce Network United Kingdom – www.ormita.co.uk
Ormita Commerce Network United States of America (USA) – www.ormita.com
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