NEW YORK— Even though the lodging industry is in the midst of a widespread rebound, hotels using barter to underwrite their marketing efforts still makes sense in the right situations.
On peak nights in top markets, occupancy levels have begun coming close to 90%, but that still leaves 10% of rooms unfilled, rooms that can be bartered to help properties attract additional bookings through advertising that would be quite costly to buy outright.
“The recovery not withstanding, barter remains a cost-effective way for hotels to fulfill their sales, marketing and capital needs,” said Sean Hennessey, president of Lodging Investment Advisors, LLC, who moderated a panel at the Hospitality Sales and Marketing Association International conference here on the potential benefits of bartering.
“Unsold inventory represents more than just lost revenue, it’s a disposable asset,” Hennessey noted. “It’s like leaving money on the table that could have been invested.”
While no hard-and-fast numbers exist on the amount of barter traded by the industry each year, experts in the field put the value in the tens of millions of dollars nationwide. In addition to advertising, hotels have traded rooms for merchandise such as guest-room furniture, as well as airline tickets and printing services.
Rather than a marketing tool they use sporadically, some small hotel companies make barter a standard line item in their annual marketing plans. “It’s a tool we use on a regular basis. Short of a sell-out, rooms at our hotels are available for barter,” said Jennifer Rutkowski, regional director of sales for the Morgans Hotel Group, which formerly was known as Ian Schrager Hotels. “We only have eight properties, so we don’t have the same market reach as many of our competitors. Consequently, we use barter to get the name of our brand out there. Media exposure through brand advertising in the right vehicles has been highly effective for us in building visibility and name recognition. Some advertising we pay for, but if we can make an additional impact through barter, why not?”
Hotels often distinguish between mainstream media, where they want to pay for advertising, and more targeted, niche media, where they opt to experiment to see what impact their ads can have. “Barter allows them the freedom to experiment with these kinds of programs since the dollars aren’t coming out of the regular marketing budget,” said Peter Warren, chairman and CEO of Warren Kremer Piano, a New York-based advertising agency.
Hotels also can use meeting space or banquets and other food and beverage functions— as opposed to room nights— as barter. “A meal function, for example, is a one-time event with a fixed dollar cost, so it simplifies the process considerably,” said Jody Merl, president of Innovative Travel Marketing in Parsippany, NJ.
Jeff Stoler, managing director of two New York properties, the Flatotel and The Alex, cautioned that hotels could misuse barter, if they are not careful. He cited two underlying principles that guide his use of the tool. “Both parties have to benefit from the deal and never use barter to acquire something that you wouldn’t pay cash for,” he said.
In addition, Stoler isn’t interested in trading advertising for rooms or other hotel services that bring existing media clients. “The value for me is to bring customers into the hotel who have the potential of becoming new clients.”
Hotels can either negotiate barter deals on their own or, as is increasingly the case, work with third-party specialists in making sure they enter into the right deals. The third-party specialists work with different clients to create barter credits to give their hotel clients a wider range of trading options.
“We think of our third-party barter company as a strategic partner,” said Ian Nicholson, general manager of the SoHo Grand and Tribeca Grand Hotels. “They tell us where they think we need to be in the media and then help us measure the return on investment we can reasonably expect.” Nicholson noted that it was a given in these scenarios that a tracking mechanism be built in. “You need to be able to see the value of the media placement in terms of call volume, bookings and so on,” he said.
Unlike third-party discount Web bookings, which might not generate f&b and other subsidiary revenue to the hotel, guests staying in the hotel through a barter arrangement tend to spend on extras. “Not only can guests lead to a new corporate account, but they tend to make ample use of the food and beverage outlets, room service, and so on,” Merl said.
