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Hoteliers Use Barter To Build Name Recognition...Thereby Increasing Traffic

Despite predictions of a travel upturn, there is now little likelihood the hotel industry will see much improvement until at least 2005, according to PricewaterhouseCoopers.

Their study shows the average daily rate for a hotel room ($83.46) is at a trough right now. And hotels' annual revenue-per-available-room, at $19,619, is expected to be lower than it was in 2000 when it reached $19,840.

In the past month, every segment of the hotel industry from luxury to economy experienced a drop in revenue-per-available-room, according to Tennessee-based Smith Travel Research. With a recovery still out on the horizon, it behooves hoteliers to start promoting their properties with a greater effort—trading unsold rooms for advertising.

Barter advertising in the hospitality industry involves the exchange of unsold rooms for advertising. Unsold rooms are a perishable product that is lost when left unoccupied, and advertising, an essential expense for increasing occupancy, requires hard-earned cash to acquire.

The key to barter advertising is to turn unsold rooms into an asset by using them to pay for advertising.

Three main players are involved: the hotel that commits the unsold rooms; the barter company that provides the media on trade; the hotel's advertising agency that evaluates the quality of the media.

It is a misconception to think that there is always a direct connection between the advertising placed and the barter guest who ultimately uses the room credits. The advertising for which one barters is aimed at the markets usually used to increase occupancy. Barter guests brought to your property via the barter company represent corporations presently trading with the barter company.

Barter Advertising: Some Rules Of The Game

While the end result of advertising purchased via barter is the same as advertising acquired with cash, it is purchased differently. For the hotelier, it is important to understand how the buying process differs yet achieves the same result.

Just as you don't want your paying guests displaced with barter guests, media companies don't want to displace their cash advertisers. You or your agency must identify the media where you currently pay for advertising. Then it is the barter company's job to produce equivalent print and broadcast alternatives that are both "barterable" and meet or exceed your goals.

Getting "cleared" as a barter advertiser. If you are currently a cash advertiser with a particular publication, radio channel, or TV station the general rule is that you are ineligible to be a barter advertiser for one year.

However, depending on supply and demand some media companies will be flexible...especially if the barter advertising is incremental or mixed with cash. It is also an incentive if they know the only way you can increase the amount of business with them is through barter.

Make Checklist Before Negotiating

Once your hotel decides barter is a viable way to expand its advertising reach and/or reduce cash outlays on advertising, you need to negotiate a contract or written agreement with the barter company. A pre-contract checklist will include the following.

  • The Advertising Agency. Since all barter advertising is placed through your advertising agency, be sure the agency shares your media schedule with the barter company.
  • Media Buying Instructions. You and/or your advertising agency must send any and all media buying instructions to the barter company in writing, well before sitting down to negotiate a contract.
  • The Media Schedule. This must be included as part of the contract with the barter company, usually as an exhibit.
  • Shelf Life Of Room Credits. Don't leave this until last minute negotiations—it's a potential deal breaker. A shelf life of two or three years is reasonable. The shorter the time to use the room credits, the less value they have to the barter company.
  • Guaranteed New Business. Make sure you have procedures clearly worked out with the barter company, so that none of your existing cash customers are displaced. Insist on providing written pre-approval of companies using the room credits, and give the barter company a list of your top accounts so they can avoid those companies. Specify the number of business days you need to research the volume business you may already be receiving from a proposed barter customer before you approve them.
  • Internal Finance/Accounting Agreement. Be sure your accounting department agrees to a system for tracking the use of the room credits before you negotiate, and they should know their counterpart at the barter company.

Accounting should also be in sync with your outside auditors and review with them Accounting Principles Board Opinion #29, "Accounting for Non-monetary transactions," and the later 1995 rulings on accounting for trade credit transactions (EITF 93-11) which relate to the tax laws applicable to the barter process.

What To Expect From The Barter Company

Once your checklist has been taken care of, you're ready to negotiate the key elements (to be listed in next week's issue) that will give both you and the barter company a maximum-benefit minimum-risk contract.

Although you should personally anticipate unforeseen business surprises, neither your attorney nor your accounting department should negotiate the media or room credit value issues. These are marketing issues, and barter programs are uniformly housed in the marketing department of the hospitality industry.

Key Elements Of The Contract

When negotiating a formal contract, be certain that the following key elements are included, either in the body of the contract or as attachments to it.

List the media covered. The barter agreement should be flexible enough to go beyond one media schedule. Generally all types of media are barter eligible except network television and newspapers. Bartered media include print (consumer, business, trade), direct mail, spot media (TV, cable, radio), national media (cable and syndicated TV, network radio), outdoor advertising, and international media.

Spell out the media services required from the barter company. Always be sure that the contract specifies how the barter company will prove that your ad ran when and where you wanted. This includes "proof of performance" billing, in which you receive affidavits from the broadcast stations through the barter company as evidence. You can require that the affidavits be notarized, if you wish. In print media, checking copies or tear sheets serves the same purpose.

You also should include language about how the barter company will conduct "post-analysis/reconciliation," as you need to know the actual ratings versus the estimated ratings of your ads. These figures are based on audience measurement services subscribed to by the barter company.

Include safeguards. The contract should state clearly that all media must be bought to advertising agency specifications, and indicate that the barter company will receive the specs from the agency well ahead of time. This section would also indicate that bartered media placement must be guaranteed no differently than media bought for cash.

Describe how you want broadcast media to be monitored. Don't be hesitant about covering these details in the written agreement or contract. The barter company must use broadcast and insertion orders, and it must monitor commercials on a regular basis. Do not accept schedule changes unless you have approved the changes in writing.

The barter company also must agree that any preemptions are "made good" during the same period of time for which the media was scheduled, with spots of equal or greater value. These are standard monitoring steps any barter company has to perform, and detailing them in a contract is expected.

Show how you will control the room credits. The best way to prevent bartered room credits from leaving the control of the hotel is to write conditions under which the barter company may use or trade/sell the credits.

Once the advertising is placed, the barter company, not you, owns the room credits. Barter room credits should not be advertised or offered to the general public without your written approval. If no walk-ins are allowed you will maintain better control. The same goes for groups and meetings. It is a good idea to spell out the number of rooms that you define as a group, maybe over 15 reservations.

Build in flexibility to increase market share. If a particular property in a chain has an existing negotiated volume discount with a customer, that naturally takes precedence over the barter agreement. However, that customer could use barter rooms at other hotels in the chain.

State the value you are putting on your rooms in the contract. Since you have already spelled out that all media are to be bought according to advertising agency specifications at negotiated rates and not standard rate, card rate, or other arbitrary cost, then the barter company expects the room credits to be valid at the lowest available rates you offer cash-paying guests. This includes corporate rates but not package rates.

If the negotiated media rate equals the lowest available room rates, then the ratio of the barter agreement is $1 advertising for $1 room credit. Since the barter company expects the room credits to have the same value in its marketplace as the media does to you, blackouts or other restrictions lower the value of the room credits considerably. And the shorter the expiration date, the lower the value.

Exclusivity benefits both parties. Exclusivity is ranked at the top of the barter company's wish list, since it uses the room credits to create new barter agreements. If you trade rooms with more than one barter company, the worth of the room credits to all of them is greatly diminished, and you won't be getting the media value you expect.

Also, the more media one barter company places with the same station or magazine for all of its barter clients, the more "clout" you have to get the best negotiated rates from that media source. So work with one barter company for best results.

Since you have negotiated tight control on use of the room credits and are receiving negotiated media rates, you are getting full value for your rooms. The bartered rooms are all net, non-commissionable, and no credit card fees are involved. It is up to the barter company and its customers to use the credits at the room rates you established up front.