By Ron Feldman
Bob
Meyer - a former New York Yankees baseball pitcher
traded in his baseball career to start a publication
called Barter News, after running a National
mail-order business. Bob is the �Mickey Mantle� of
the Barter industry.
As background, Bob Meyer was
not just �any old baseball player�. In his rookie
year in the Major Leagues, in an 11 year career, he
threw a one-hitter and broke a major league record
for pitching that had been previously held since
1915 (fewest �official at-bats�19�). Bob has also
attained the same type of stature in the Barter
industry, having been awarded the industry�s first
Lifetime Achievement Award (2004).
Bob founded Barter News
in 1980, which reports on the global marketplace of
trading goods and services. His online presence,
BarterNews.com, acts as his industry�s portal in
bringing together over 800 Barter companies on a
global basis.
The common mistake that hotels
make in trying to decide in looking at �Barter� is
focusing on whether the hotel room that is
�bartered� will displace their full-revenue
traffic. Hoteliers should look at barter
differently. For example, would a hotel be
interested in trading $100,000 in hotel rooms for
$100,000 in furniture? How about trading for
$200,000 of audio-visual services, instead of paying
an outside vendor for those services in cash? Bob
Meyer informed me that these barter deals are
readily available in the marketplace today.
In other words, the way hotels
should look at �barter� is to make a list of what
their �needs are� in terms of using �bartered� hotel
rooms to purchase items that they would pay for in
hard currency. Barter provides hotels a necessary
avenue to improve their cash flow, while using their
excess capacity for items they were going to outlay
funds to in the normal course of business.
Hotel rooms are a �perishable
commodity�, just like a carton of milk. If you
don�t use the milk by the expiration date, it will
turn sour. If you do not sell a hotel room on any
given night, it is a �perishable commodity� in that
the hotel can never recover the revenue.
According to Bob Meyer, hotel
rooms can also be considered wasting assets,
which cease to exist with the passage of time and
revenue can never be recaptured. Every night, based
on the National percentage of occupied rooms, nearly
one out of every three rooms goes unsold, except
prime tourist destinations like San Francisco, where
the occupancy rate hovers at about 74% annually,
where one out of four hotel rooms goes empty.
Moreover, Bob Meyer laments,
another way to think about it is that if a hotel
were to give away the hotel rooms, and the guest
used the other profit centers of the hotel such as
the restaurant, bar, gift shop, and room-service,
the hotel would still be ahead. But; certainly, the
hotel does not have to give the rooms away. Bob
indicates that the savvy hotelier can really
leverage their empty rooms to bring more money to
the bottom line. This type of thinking is called a
�self-liquidating asset�, meaning that if you have a
hotel that simply �gave the rooms away�, in some
cases, they would come out ahead of the game.
By the way, I am personally
aware of two situations where hotels were literally
giving their hotel rooms away for little or
nothing. When I was running my hotel marketing
company, Hotel Connections, in the late 1980�s, a
famous old Las Vegas Convention property had a vast
wasteland of empty smaller rooms not connected to
their main Casino facility that languished most of
the year. When I received a call from their
Director Of Sales, he said, �You can have as many
rooms as you need, year-round, for $9 per
room-night.� I replied, �What�s the catch?�
Without missing a beat, he said, �The only catch is
that your guests have to share a room with the
ants!� Las Vegas has an advantage in marketing
empty hotel rooms that other cities do not have.
Las Vegas has gambling revenue. In that regard,
over the years, I learned of a prominent Las Vegas
bus tour operator that had an arrangement with one
of the hotels on the Las Vegas Strip where he got
his hotel rooms for $0 per room-night. He obtained
them from the nightly Casino room-block. Many
people do not know that some of the Las Vegas
Casino�s are actually set up as separate
corporations.
But; let�s say you have a
non-gambling hotel establishment. What can you do
then? The answer to the question can be answered by
a real-life situation that involved a Certified
Public Accountant, named George Kopecky, who had
written an article about his experience in being
hired by a famous up-scale boutique hotel chain
based in Los Angeles that had asked him to determine
in his professional capacity how to determine the
approximate real cost to a hotel in trading
one hotel room-night for bartered goods and
services. The results were astonishing. George had
interviewed the owners and General Managers who
expressed to him that the average cost of servicing
a hotel room was 40%, based on taking the overall
revenue of a hotel for one room-night, and dividing
it by the number of rooms. In other words, the
management of the hotels assumed that this is
what trading a hotel room was going to cost them per
room-night. What George determined fixed costs
such as insurance, depreciation, personnel,
etc., based on existing hotel occupancy levels of
50-90%, would be unaffected by the incremental
room-nights generated by a Barter program.
Therefore, variable costs, such as
housekeeping, laundry, and room-supplies, and
semi-variable costs, such as the increased costs
of extra staffing needed if the hotel experienced a
jump of 10% on any given room-night was the
barometer that the hotel should use in calculating
its real cost.
Additionally, this hotel chain
only traded for room-nights, so the hotel guests
were responsible for any food and beverage costs
that they incurred in the hotel. Therefore, he did
a separate profit analysis as to the dollar amounts
that each hotel guests for one room-night (1-4
people occupying one room for one night), and
determined that if the hotel were to give away the
rooms, just as the Casino hotel I cited earlier in
this article in Las Vegas, the hotel would generate
$22 in pure profit, per room-night! He went
further. The hotel chain he was hired to evaluate
was similar in occupancy to the current National
average of room occupancy in the United States. He
determined that if the hotel were to trade 4.4% of
the hotel inventory in Barter, they would generate
$300,000 annually to the bottom line.
Over the years, Barter News has
become a great educational resource for how the
hospitality industry is ideal for trading for
products and services. Readers may enjoy the
following articles that have appeared over the years
in past issues of Barter News, which include:
I met Bob Meyer at his home
many years ago in Orange County in Southern
California, as I had written an article for his
publication, Barter News. In the article, I shared
my experience of being involved with barter when
Outrigger Hotels traded hotel rooms for radio spots
that were owned by 3M, which owned stations in Los
Angeles, which was the ideal feeder market for
Outrigger. As well, I traded for Barter credit that
Manhattan East Suites (now Affinia) had in the
marketplace that offered Barter for �Rooms, Food and
Beverage�. (Note: Many Restaurants not affiliated
with Hotels often trade their �food and
beverage�.).
Whether you are involved in the
hotel industry with a small property in a secondary
city, or are part of a group of hotels throughout
the Country, gaining knowledge about the available
Barter programs can help you increase your
room-nights as well as Food and Beverage (F&B)
revenue. As an example, Bob Meyer reported over 10
years ago that Nendel�s hotel group used Barter to
trade for its entire $1.6 Advertising budget!
Barter is not a new concept, and can be the focal
point of an entire sales and marketing campaign. In
that regard, Billboard companies, like Gannett, have
been known to trade their excess capacity of
Billboard space. A hotel located off of a freeway
exit might be unaware that they could trade for
Billboard space.
Hotel Suppliers, just like
hotels, can have the same �perishable commodities�.
For example, if you are a commercial printer, and
have already scheduled some paid jobs to be printed
on a certain time and date, using the excess
capacity of your printing press is the same use of
obtaining additional revenues from your printing
operations.
The delivery of a �physical�
item in the Barter industry such as hotel furniture
is called �hard goods�. Hotel Rooms are considered
�soft goods� because they do not deliver a physical
product.
However, in the case above,
Hotels need brochures. But; what if Printers do not
have a need for hotel rooms? This type of situation
where a Printer may need to Barter for goods such as
�Paper�, or being able to obtain the services of an
Accountant, might be what the Printer is looking
for.
Recognizing that different
vocations have disparate needs, Barter
organizations, properly called �Trade Exchanges�
started organizing in various communities around the
Country. There are also �National� Barter
companies, as well. These organizations serve
several purposes. First, they act as the organized
body to bring together companies whose products and
services they believe will be of interest to the
other Members of their Trade Exchange�. Secondly,
they regulate their groups to make sure that each
provider is charging �fair market value� for their
services. In the case of a hotel, for example, that
wanted to establish a relationship with a �Trade
Exchange� a typical practice would be to charge
�Rack Rate� at the �double-occupancy� rate.
For example, if you had a $200
�Rack-Rate� hotel room, belonging to a Trade
Exchange would allow a hotel to obtain $200 in
�trade credits� every time that a member of their
�Trade Exchange� stayed at their hotel. Whenever a
hotel, or any �Trade Exchange� member accepts a
trade, the tax on the item is still collected at the
point-of-sale. So, in this case, on a $200 hotel
room that was obtained by �Barter�, the hotel guest
would pay tax directly to the hotel on the $200, and
the hotel would report that to the IRS in the usual
manner.
How do Trade Exchanges make
their money? Typically, they charge an annual
membership fee, as well as a cash fee for each trade
that is made between the two members. In fact, they
act as sort of an escrow agent in making sure that
the services are exchanged. They also generally
receive a 10-15% fee. Depending on each trade
exchange, usually the seller is charged the fee.
However, this percent and structure may vary.
However, because �Barter� is
widely considered to be �advertising�, the �cost of
sale� is �balanced� in regards to what the hotel
received in return. Let me share with you why the
Outrigger Hotels �Barter� program with the radio
stations in Los Angeles was so successful.
Every time that Outrigger
Hotels traded $100,000 in �hotel rooms� for $100,000
in radio spots to 3M corporation, the �radio spots�
that ran in the Los Angeles market generated
full-revenue traffic for Outrigger Hotels.
When you think about the
�break-even� point for Outrigger in getting into a
venture like this, it is exciting. The Outrigger
program was in full swing in the early 1990�s, when
they had double the capacity that they do today.
Assuming that the �average
rate� in Hawaii was around $100 per night, with the
average stay being over 5 room-nights, Outrigger
would only need to generate 200 reservations to
generate $100,000 U.S. Dollars.
Bob Meyer remarked that
bartering for media is a natural, because both the
hotel rooms and the media revolve around the clock,
and in both instances have a low incremental cost.
Because Outrigger Hotels had
excess hotel rooms to sell at that time, they
calculated that their �incremental costs� of
entering into a �Barter� arrangement with 3M for
their radio station spots was the cost to clean
their room (housekeeping), and pay for the
electricity and maintenance costs on that room.
They figured that they had the costs of paying
everyone�s salaries, and other operating costs
anyway. So, in other words, their �incremental
costs� were maybe, 10-15 cents on the dollar. In
other words, the hotel knew it was paying for the
radio spots in �soft dollars� instead of in cash.
By the way, 3M Corporation used the Outrigger Hotel
Rooms to organize incentive travel trips for their
top sales people. Everybody liked the arrangement.
For those of you who have been
in the hotel industry for a long time, you have
probably come to the conclusion that in most
geographic markets, you have some years where
occupancy is outstanding, and other years where you
have many unsold rooms. Or, to put it another way,
Sparky Anderson, the famous baseball manager once
said, �Every 24 hours the World turns over on the
person who is on top of it.� If you don�t have a
need for Barter �now�, learn about it, so that if
your hotel is ever in the situation where you need
to find a creative way to fill empty rooms, you can
think about using �Barter�.
Bob Meyer is open to hearing
from readers if they have any questions regarding
structuring barter programs for their hotels. He can
be reached by email at bmeyer@barternews.com.
The process of handling a
bartered hotel room transaction at the front desk
can be accomplished by establishing either a �blind
folio�, where you have a Master Folio that is kept
year-round and dedicated to the barter transactions
(think of it as an in-house group you have year
round). In this scenario, the hotel collects the
�tax� on the bartered amount, and this is entered on
the �blind folio� (just like you would use in a
�comp� hotel room where the guest puts up their
credit card for incidental charges).
In the case where the hotel is
offering barter for �rooms, food and beverage�, the
guest simply presents their room-key at the F&B
outlets, or for room-service, and the room, food and
beverage is calculated during the stay, and deducted
from a separate Master Folio for each barter
account, which is similar to �running an open tab�
at a bar.
Meeting Space can also be
bartered, and represents an excellent untapped
resource, since an empty Meeting Room is akin to an
empty hotel room.
Hotels can also trade other
hotels for hotel rooms. For example, having an
allotment of bartered hotel rooms in various cities
allows for hotel sales executives to cut down on
their expenses on their business trips.
Hotels can also use Barter
locally to trade for goods and services such as
hiring a computer programmer and providing them with
accommodations in return for their services.
Also, it should be noted that
hotels certainly can custom design a Barter program
for their hotel that meets their own particular
occupancy patterns. For example, an airport hotel in
Chicago might want to create a Barter program where
the room-nights are only offered to meet their
weekend (Friday-Saturday) slow days of the week.
Similarly, a hotel property in Phoenix, Arizona,
could create a Barter program that might only be
offered during the Summer month�s (June, July, and
August).
Finally, Barter allows hotel
executives the freedom to be creative in structuring
trade agreements that meet the specific needs of the
hotel.
� 2006 Permission granted to
reprint this article.
 Ron
Feldman has been recognized by Who's Who In Lodging
and Who's Who In California, and holds a U.S. Patent
for an automated hotel reservation processing method
and system. He has taught business services
marketing at the undergraduate and MBA levels.
Since 1994, Ron has been
president of World Business Services, Inc., a
consulting firm which help businesses improve
efficiencies, and increase sales. He can be
contacted through his office at 718-240-5142
Monday-Friday. Or, Ron can be reached by e-mail at
bizamerica@aol.com. |
