Has a new global pricing strategy emerged from the COVID-19 pandemic?  

Why are first world countries reverting to an old fashioned barter system to keep their economies moving? 

What impact does this have on world trade and will things get back to normal soon? 

 

As the world hibernates, economies and global pricing strategy are changing. World stock market shares are plummeting; factories are closing down; manufacturing and distribution are under pressure. Additionally, people are working from home and governments are lobbying for full lockdowns. Demand for products is either slowing for some items or spiking in demand for ‘essential items.’ Both consumers and businesses globally are struggling to keep up with the changing global pricing strategy and agenda.  

 

The impact of all of these factors is that most countries are struggling to run their economies as they used to. Many have been forced to re-visit barter opportunities to re-ignite a global pricing strategy and failing economic system.

 

Is bartering the new global pricing strategy?

 

Why are countries reverting back to a bartering system? Well, in effect, currencies are losing their value. Countries today are shutting their borders to prevent the coronavirus from entering their countries. More people are hoarding goods to survive through lockdown in various countries.

 

But what if countries continue to barter with other countries as their new global pricing strategy? If this becomes our new economic reality, then we’d see countries trading whatever is available in their jurisdiction to meet the massive demand for ‘essential’ supplies. In short, the paper-based currency would become obsolete and meaningless and a new currency would emerge. 

 

Don’t think this is possible? It’s happened already, since the crisis first world countries like the US and Australia have been bartering using essential items instead of real money. 

 

In this article, we’ll discuss the significance of bartering between countries. We will go through real-world examples of bartering since the COVID-19 pandemic. 

 

We argue that bartering is never a good exchange for acquiring goods. It ruins the global pricing strategy undermining the product’s value.

 

By the end of this article, you’ll learn the basics of barter and why it shouldn’t be widely practised. You’ll learn why countries reverted back to bartering during the crisis.  

 

global pricing strategy

 

 

What is a barter system in the global pricing strategy?

 

Bartering systems were used within the local community, but advances in technology and transportation made it possible for modern society to barter on a global scale. Barter is nothing new. Some people have always traded goods and services instead of buying the things they need. Today, with the pandemic and countries closing their borders, they are rechecking barter opportunities.

 

The primary difference between barter and currency systems is that a currency system uses an agreed-upon form of paper or coin money as an exchange system rather than directly trading goods and services through bartering. Both systems have advantages and disadvantages, although currency systems are more widely used in modern economies of countries. 

 

But when a global crisis is underway, the first priority of countries is to protect its citizens. What good is a country if no people are supporting its operations? Therefore, they close their borders to ward off any danger coming to their jurisdiction.

 

Conceptually, direct trade is the simplest to understand. One gives food to get cloth, and hence ‘essential goods’ serves as direct barter payment for another ‘essential’ good. No question of money arises here, just countries bartering for essential items that they need for their survival but haven’t got due to supply shortages and lockdown restrictions. 

 

 

Different entities involved

 

In any trade situation, there are two different entities involved and two different transactions of goods. The correct method is to understand that the two entities must be different in regards to the cost of production and the benefit of products to consumers. That is, the same good is produced by two agents at different costs and consumed by two agents to give them different benefits measured in terms of any reference good. 

 

This trade is the beginning of standard economics. And one will never get it on the basis of optimal choice because economic choice is super optimal and defeats optimal choice. 

 

In real-world global economies, however, the seller is never representative of the buyer; the seller must incur a lower cost of production than the buyer.

 

Now, why is barter so rare in practice, despite being so easy to think about as a theory? There is something called transaction cost, which occurs after production has been completed. Transaction costs are not part of production cost. 

 

The transaction cost of x is the cost of sending x from its producer to its consumer. All the logistics involved to deliver the product to the end-users require a cost.

 

The upshot here is that you won’t have the quality of goods available to you until it’s in your possession.

 

In the early civilisations, common agreed-upon goods, such as animal skins or salt, served as a currency that individuals could exchange for goods and services.

 

For example, a farmer with eggs and milk can trade them to the local baker for a birthday cake and a loaf of bread. The baker then uses the milk and eggs to bake more bread, which she gives to the appliance repairman as payment for repairing her oven.

 

 

 

Non-flexibility of a currency system

 

Bartering makes it easier to negotiate between two entities but it lacks the flexibility of a currency system. However, many countries today are accepting non-monetary payments for their products in exchange for necessary goods or services. This is because, in times of crisis, countries need essential goods in their country to operate. And, for this short space of time, their currency is not strong enough to guarantee the transfer of these essential items. So, they end up bartering with one another so each entity gets what they want, essential items that are high value and which are short in supply.  

 

A very good example of international bartering in the Global Pricing Strategy

 

Australia has been in desperate need of medical equipment over the past few weeks to fight the COVID-19 pandemic. Likewise, China has also been in desperate need to replenish its food supplies, but have an ample supply of medicinal equipment and consumables. 

 

With the two countries needing one commodity from one another, Australia has delivered some $800million worth of Australian seafood to Asia. And, the planes have returned from China with medical supplies. 

 

The freight planes are part of a $170million exporter support package and will return with vital medical supplies and equipment to help Australia fight against COVID-19. 

 

The arrangement has benefited suppliers exporting rock lobsters (as they see a baseline low of sales from last year), abalone, fresh fish and prawns, as well as dairy products. In turn, Australia will get the desperately needed medical supplies to combat the virus. Both bartered based on essential items needed during the crisis. 

 

In all of this, getting the export sector back on its feet was crucial for the Australian government to reduce job losses through the crisis. They injected a stimulus package to help with distribution costs which will turn out to be a critical part of Australia’s ultimate economic recovery after Covid-19. 

 

Discussion

 

As you can see from the example above, bartering can give the goods needed for each country when the currency loses its value.

 

However, what the Australian government has learned is that if they intend to barter again with other countries, they need to plan for the considerable increase in work created from coordinating large numbers of freights and distribution and manufacturing partners. To do bartering properly, countries need to set-up a centralised system. Ad hoc bartering is chaotic and costly. 

 

In times of emergency, certain transactions can be exempted to expedite the needs of the country. Bartering can be one of these exemptions since it is essential for survival. But, it should only be done on a case to case basis.

 

Instead of using paper-based currency, they trade what’s available in their jurisdiction and get the needed supplies essential for their survival. 

 

A poor substitute

 

Bartering is a very poor substitute for free trading with countries based on the value of commodities or currency markets. Just as with most things, there are disadvantages and advantages of bartering. 

 

A complication of bartering is determining how much trust you can give to that country. It does not have any proof or certification that there is consumer protection or warranties involved. This means that services and goods you are exchanging may be exchanged for poor or defective items, which happened to Australia in the example above; they provided China with premium seafood in return China supplied Australia with defective medical supplies. 

 

Bartering can also prove difficult if one country knows what they can trade, but the other country does not specify what they are willing to trade or know what they really need.

 

In these times of a global pandemic, getting fresh supplies like food and medical equipment is a daunting task; with countries shutting their borders to prevent the spread of the virus, securing a needed product from another country requires lengthy negotiations and transactions with financial institutions to negotiate the transfer of funds.

 

When time is of the essence and most businesses are shutting down, the barter system is the fastest way to get essential items. In addition, it benefits producers, as their products sold instead of just sitting in the warehouse. 

 

Implications

 

Bartering used only on a case to case basis. Using it too often could lead to a slump in the world stock market. 

 

If the barter currency becomes valuable, enterprising individuals will no doubt attempt to counterfeit. Modern counterfeiters can even produce coloured documents by laser technology, making the problem an even larger threat.

 

The peak load pricing strategy will be in ruins. Countries with weak pricing systems and currencies conversion will be left behind.

 

Conclusion

 

We found that when one county barters with other countries for goods and services, you need to first set up a centralised barter system because work increases considerably with the number of participants.

 

Good bartering requires skill and experience. At times, it is easy to think the item you desire is worth more than it actually is and underestimate the value of your own item. Always have a criterion for what you need and what you are willing to trade.

 

When planning a new barter system, decide which country you are going to barter with. Why and whether the barter system is open to more than one country. The wider the trading range, the more attractive the barter system.

 

Using the barter system is a sustainable option and used with caution. Exchanges must be guaranteed/certified to ensure both countries are getting the right value for their products.

 

When your pricing strategy is not working out because of organisational problems. Give us a call and we’ll assess on improving the company’s pricing strategy. Don’t miss out on this opportunity.

 

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