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Beyond The Limits Of Cash or Credit

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(This story was taken from the Andy Granatelli cover, issue #36.)

Meeting Planners Use Barter As A Tool To Save Money

It's a concept as old as civilization, but in recent times it's gradually been gaining acceptance as a tool that can be employed by meeting planners.

The tool is barter, and the trade market for hotel rooms in conjunction with business meetings is flourishing—at least in pockets—as corporations seek more avenues to save money.

Barter companies—which are also called corporate trade firms—purchase goods or services in exchange for trade credits that can then be used (bartered) for other goods/services in the barter company's inventory.

Often a meeting planner will contact a barter company at the prompting of a senior management person, who is seeking to unload trade credits the corporation has accrued with a barter company. Sales meetings are a great way to use up credits because you're spending a lot of trade credits at one time, as opposed to buying individual room nights which take longer to spend and are more difficult to administer.

There are dynamics at work when bartering which makes it attractive, particularly to a planner who can be flexible about the time and destination of the next meeting.

"If the hotel is driven by bottom-line needs and doesn't have to sacrifice its high-season business to meet them, then there are opportunities to trade for rooms," said Tim Brown, strategic sites specialist at Meeting Sites Resource in Newport Beach (CA).

"I've seen trades mostly on the media side, where someone provides the Hilton in Las Vegas with an ad in lieu of 100 rooms," Brown noted. "However, hotels do need things like carpeting, and various business products—such as computers, as well as advertising."

Two Conditions Needed For A Barter Arrangement To Work

For a barter arrangement to work, two conditions must be met, all observers agree: the corporation must not have done any cash business with the hotel; and the meeting planner must not have contact with the hotel prior to negotiations with the barter company.

In both cases, the reason is that the hotel has no motivation to barter with a client that it's already doing business with on a cash basis.

In addition to corporate barter companies, there are retail trade exchanges which operate on a more local basis by arranging trades between smaller companies.

A couple of examples of barter in action:

  • Koh-I-Noor, a manufacturer of artists' instruments in Bloomsbury (NJ), bartered trade credits held in its account with Active Travel (a subsidiary of Active International) for accommodations at a hotel in Woodcliff Lake (NJ) for a four-day meeting. Jeffrey Murray, manager of sales promotion, education and training, said, "The rate for a single room was $130, but by bartering we saved a third off that amount and paid a rate of only $80."
  • Hi-tec, a division of a UK-based athletic shoe manufacturer, is getting more than just a reduced room rate when it holds its annual sales meeting for 150 attendees at a Fort Lauderdale resort. Hi-tec paid 35% of the room bill in trade credits along with 25% of its food and beverage costs.

Most barter companies don't limit the selection of properties to those held in their inventory (that is, rooms for which the barter company has already traded a service or product). They will also approach a hotel or resort specified by the client, or located in a destination requested by that client. "When we have a good piece of business, usually a hotel will work with us," said Bloom.

Certainly, not all barter is arranged through barter companies. For example, Central Florida Investments, which owns six hotels totaling 3,300 rooms in the Orlando area, trades directly with corporations for such items as food, golf carts and movie tickets, which the company distributes as incentives to its 4,500 employees.

Central Florida also works with 10 barter companies, but corporations that trade directly with the real estate firm can save on the 5% 15% commission barter companies charge their clients (usually payable in cash).

After a contract is signed, when going through a barter company, the meeting planner deals directly with the hotel. "We only do the financial transaction, not the meeting transaction," said Active Travel president Steven Heydt.

Most often, companies negotiate partial trades on rooms paying the difference in cash. But the sky's the limit when it comes to what can be traded. "If my client is staying at a golf resort in the off-season, I'll try to get (the resort) to throw in golf fees," said Heydt.

Handing over the reins to the barter company during negotiations takes some adjustment, noted Raby at Hi-Tec. "I'm basically left out of the loop during negotiations," she said.

Raby said her biggest frustration in barter arrangements, "was dealing with properties that didn't understand the barter process."

She said she first contacted Active Travel for Hi-Tec's upcoming meeting almost a year ago, but a contract with a hotel was not signed until several months ago.

Why? "About four properties were on the verge of doing a deal based on the assumption they would get shoes from us," rather than the products or services available from the barter company, she explained, noting that Hi-Tec trades shoes through the barter company in overseas markets only.

One common trap for meeting planners is undervaluing their trade credits. "Meeting planners need to ask themselves, 'What rate is my credit being valued at?' A good rate is the negotiated rate rather than the rack rate," said Arnold Hoffman, manager at 3M Media Tradewinds, which arranges trades for 3M Media in Bedford Park (IL).

Planners should consider being flexible regarding the destination, property and timing of their meetings. "The more property names I have, the better my chance at closing a deal," said Jill Halper, vice president of national accounts at Illinois Trade Association, a retail trade exchange company in Niles.

Higher occupancy rates for hotels have put the pinch on room availability, so scheduling a meeting in the shoulder season is more likely to yield a better deal. "We find more blackout times than before, and we never barter in the high season now," noted Jack Schacht, president of Illinois Trade Association.

The hottest destinations for bartered meetings are Florida, Mexico and the Caribbean. Some corporate trade companies also barter for berths on cruises, and Europe is a growing market. Heydt said his company recently did a trade with ITT Sheraton for advertising of Ciga Hotels, the European hotel chain recently acquired by Sheraton.

"Now our European office is using those hotels to fulfill our needs," Heydt said. "If the U.S. market is tight, we do it in the U.K."

Certain popular destinations—New York, Phoenix, Las Vegas-are pretty much off-limits for bartered rooms. However, on occasion even in those cities a booked hotel might accept a barter bid...if there's been a last-minute cancellation, for example. Wald at Icon International booked a client 65 rooms in a top-notch resort in Las Vegas for a meeting in September with only two weeks' notice.

The rule that there must be no prior contact between hotel and client for a barter deal to work is absolute.

However, Murray at Koh-I-Noor said he has been visiting properties incognito in the Princeton area, where he plans to hold the company's 1996 sales meeting, so he can compile a list of suggestions for Active Travel and avoid a problem he and other meeting planners encountered this year at the hotel: poor treatment from hotel management.

They treated us like second-class citizens because we weren't paying full price," he said, noting that Koh-I-Noor brought the property $100,000 worth of business.

Murray said the hotel also erroneously billed him for the full cash value of the rooms. "Active had picked up the cash portion of the bill and we didn't know it," he said. To avoid such hassles, Murray advised meeting planners to make sure the billing process is outlined up front and request that the barter company's travel arranger be present at checkout.

Despite these glitches, Murray said for next year's meeting he plans to barter for "as much as we can," including air and ground transportation.

In fact the reason he is shifting the meeting, to the Princeton area from Woodcliff Lake, is to be closer to Philadelphia International and secondary airports that don't have the traffic volume of more popular destinations like Newark—and therefore might present more opportunities for a trade on airfare.