"Yeah, right." That was Robin Kriegel's first response when a site selection exec said he could save her money on her next meeting.
Kriegel, CAE, executive director, American Association of Medical Society Executives, Chicago, just didn't believe him. But then again, the person making the promise was someone she had long respected--Hilton veteran Brian D. Stevens, now president and CEO of ConferenceDirect, the Los Angeles-based site selection firm he co-founded last summer. Her four- person staff was too small to continue doing everything. She decided to give Stevens a try.
When her committee chose San Francisco as the venue for the October meeting of state medical society CEOs, she figured there was no chance that hotels would give her affordable rates. And, in fact, the initial bids were "ridiculous." Then Stevens started negotiating, and managed to bring rates within her budget. With that tangible evidence that his clout and know-how saved her members money, she hired Stevens to do the site selection for her annual meeting and four of her other biggest meetings.
Kriegel is one of an increasing number of planners who--in these times of organizational downsizing and a hotel industry seller's market--are turning to third parties for destination research and. What makes site firm services particularly appealing is that planners don't have to fork out fees--the companies are paid a hotel commission, usually 10 percent of guest room revenue.
But as the use and number of site selection companies proliferate, so does criticism. At industry conferences, hoteliers and planners complain about firms that jump in at the 11th hour of a negotiation and demand a commission, or even tell hotels that they are representing an association--when the association knows nothing about it. Site selection firms, like other third-party vendors, are getting a questionable reputation.
How can a planner distinguish between firms that offer value, saving organizations time and money, from those that are out for a fast buck?
Finding Partners, Not Predators The first thing is to follow Kriegel's example, and pick a vendor who is known for being ethical and professional. Many of the reputable site selection folks come from hotel sales backgrounds, so they bring an insider's expertise to the negotiating table. If they really intend to use their savvy to benefit you, they won't just toss any old leads at you, but sit down with you to forge a relationship.
When Patty Seneski, former president of the International Association of Forensic Nurses in Thorofare, N.J., appointed Doug Wheeler, president of Conference Locators International, a site selection company in La Jolla, Calif., and a 19-year industry veteran, she was impressed with the research he did on her group. "He takes a lot of time to interview you and find out what types of things you like and need, your price range," she says. "We chatted about our mission, the type of people in our organization, how big we were. I have total confidence in him."
Seneski's faith was not easily won. Before using Conference Locators, she learned the hard way about less-than-ethical vendors when she used an association management company to do site selection. "They gave hotels bogus information--trying to make us more attractive." That tactic would backfire, Seneski realized, as her meeting could not live up to the vendor's promises.
Nothing's Free Seneski's story points to one of the core controversies surrounding companies that charge commissions: In whose interest are they working? Maybe not yours. Just do the math: The higher the room rate, the higher the commission. And, since the hotel, not the group, pays the third party, the site firm's client is really the hotel, say some observers.
And what about the hotels? Don't they just raise rates to accommodate commissions? Some third parties have written guarantees stating that the hotels won't raise rates to adjust for commissions. More nebulous are agreements that say that the hotel won't quote rates lower than the third party's rates. That can be interpreted to mean that the hotel is protecting the third party, not the planner. Short of making calls yourself to test rates (which would take up the time you are trying to save), how can you figure out if rates are inflated? The answers are not clear-cut.
Hoteliers say planners are naive to think commissions won't affect rates. "People have to make up their money somehow. If you need to pay someone to provide a service, it will have an overall effect on the piece of business," says Christie Hicks, assistant vice president, national sales, Hyatt Hotels and Resorts. But how much of an effect, she says, depends on the particular deal.
Even if rates are raised, site selection execs say their clout and experience is such that rates are still lower than planners would get on their own. Wheeler writes in his brochure that he typically negotiates rates 10 to 30 percent lower than the client's requested rates. And Seneski says he backs up that claim. Not only did Wheeler save her money on room rates, but he also fought for deals on food and beverage, AV services, comp rooms, and other concessions. "I really do not believe his commission raised my rates," she says. Accompanying Wheeler on site visits, she saw his ability to "walk the talk" translate into savings. "They know that he knows what they know," she says.
If the negotiator asks the right questions, the rates are not necessarily inflated, says David C. Scypinski, vice president, industry relations, Hilton Hotels Corp., backing up Seneski's assessment. "Smart people in the business know the right way to do it--not to say people who fall off a turnip truck into the business aren't going to get a higher rate. The hotel is always going to try to offset its costs."
Banking on Relationships Planners also fear that a third party may damage their relations with hoteliers, particularly national sales reps. Indeed it can, but depending on your strategy, it doesn't have to.
Serena Leiser, CMM, director of meetings, American Association of Orthodontists in St. Louis, is an industry veteran who has served on both sides of the fence--10 years in hotel sales and marketing and 10 years as a planner. She brings the "take control" attitude that Kriegel espouses to her relations with site search firms.
Leiser's citywide convention uses 5,000 rooms on peak night. No way is Leiser going to compromise her clout with national sales offices. On the few occasions when she does use a site search or hotel rep firm to research venues, she insists that the firm not contact her national reps. She does that herself. "I'm very protective of my relations with national reps. If I go though a search company that goes through its national rep, my rep doesn't get credit for all those room nights and won't be there battling so hard for me at my annual meeting."
Kriegel takes a similar approach, instructing Stevens to book through her reps and maintaining her hard-won relationships. When she went to a, she visited properties she was considering.
"I told [sales reps] Brian [Stevens] would be contacting them, but that I'm still making the decision." She also gave a letter to Stevens verifying their agreement--a good strategy to reassure reps that you are not being misrepresented.
While Kriegel and Leiser bring industry expertise to their partnerships with third parties, Seneski admits she is inexperienced. That's one reason why the all-group signed on with a third party. Bringing Wheeler actually improved her relationships with hotels, Seneski says.
"Presidents of medical organizations don't necessarily know much about the hotel industry and conference planning," she observes. "My feeling is [the hoteliers] like dealing with somebody who speaks their language."
Don't Bite the Hand Hotels have traditionally viewed third parties as interlopers, but that is changing. When Kriegel told hoteliers she was bringing in Stevens, "a couple rolled their eyes," she says. "But a couple said, 'This is the way of the future.'"
It certainly appears to be. Hotels have taken stock and now recognize the huge amount of revenue third parties can generate. At Hyatt, business from from third parties was up eight percent in 1998 over 1997. The amount Hilton pays out in commissions has grown 200 percent over the past three years.
"Somewhat resignedly, we recognize that this is a major distribution system," says Beverly W. Kinkade, CHSE, CMP, vice president, industry relations, Starwood Hotels & Resorts. "As responsible citizens we need to learn how to work [together] more effectively." Other hoteliers agree. "If someone brings you something you don't have, you are happy to pay for it," says Hyatt's Hicks.
This year Hilton has established a partnership with Scottsdale, Ariz.-based Helms/Briscoe. Founded in 1992, Helms/Briscoe has become a heavy-hitter in the site selection world, placing more than 7,800 meetings in 3,300 hotels in 1998--more than $200 million worth of business. Hilton is one of many chains that have entered into a "performance agreement" with Helms/Briscoe. Instead of hotels paying the 10 percent commission after the meeting, they pay half when the meeting is contracted.
Other site firms are setting up similar arrangements. About 200 hotels have signed on as preferred providers with Stevens' ConferenceDirect, paying five percent of the commission up-front.
There are other types of arrangements, as well, that underscore the increasing power of third parties. Some hotel chains also pay Helms/Briscoe an annual marketing fee, in addition to commissions, of eight dollars per hotel room, enabling them to have more exposure to Helms/Briscoe's sales associates. Even major chains that have not entered into a formal partnership with Helms/Briscoe, such as Hyatt, Starwood, and Marriott, have designated reps to handle Helms/Briscoe accounts.
Playing Favorites? These arrangements raise the question: Don't site selection companies play favorites, steering business toward their hotel partners or to destinations offering more incentives? "If it's good for the client, nothing makes us happier than putting clients in partner hotels," says Roger Helms, president and CEO, Helms/Briscoe. But, he stresses, "We are 100 percent client-driven. Our goal is to have long-term relationships with clients. We want them for 50 years, not just one, so we put them in properties that best meet their specific needs."
As for Hilton's perspective: "There is always the hope that they will [give us an] advantage," says Scypinski, "but realistically, it's the customer who is going to [decide]. If everything [among several hotel choices] is equal, I think we have an advantage--but how often does that happen?"
Some site selection firms choose not to forge any formal partnerships. "I don't want to limit the choices I give clients," says Wheeler, "or have an obligation to push clients in [one] direction ."
Making Your Move When teasing apart the pros and cons of using a site selection firm, there are no easy answers. While some planners won't touch a third party, convinced that the vendor will increase rates, others insist that an ethical firm saves time and money. Kriegel considers herself a good negotiator, but she's also a realist. "I don't think anybody, on their own, has the same kind of clout in the seller's market that they used to have."
Protect Yourself When retaining a site selection firm, make sure the company represents you well and works with both you and the hotels fairly. Here are some tips for creating positive partnerships. * Ask the site selection company for references from both medical organization clients and suppliers.
* A reputable third party should volunteer its fee structure, but if it doesn't, ask how the company gets paid and exactly what services it provides. Does the company have partnerships with any hotels or chains? Does the company get paid a marketing fee by hotels as well as a commission? If so, what are those fees for? Does the company accept commissions higher than 10 percent? In other words, you need to understand the third party's potential biases.
* When you've chosen a firm, get a written agreement that includes how the company will be paid. It should also specify which meeting(s) the company will handle.
* Make sure the site selection company charges a commission only for meetings you book through them. Some less ethical firms have assessed hotel commissions "in perpetuity." You book a meeting once through the firm, but it demands a commission for every meeting you hold at that hotel in the future, even if you handle the bookings directly.
* Some groups ask for a share of the site selection firm's commission. While that isn't illegal, "Boy, would I disclose that to my members," says attorney Jed R. Mandel, partner in Neal, Gerber & Eisenberg, Chicago.
* Play fair. Don't give the go-ahead to several site selection firms. Work with one at a time.
* Be up front with your hotel partners. Don't bring in a commissionable third party after you have discussed rates.
* If you bring in a second third party, such as a housing vendor, don't expect the hotels to dish out double commissions. They will either inflate your rates or ask the two vendors to split a 10 percent commission.
* One site selection firm signed a hotel contract, whited out the part about its commission, and sent the doctored copy to the planner. Protect yourself from "blind commissions" by having an authorized person from your organization--not the third party--sign the hotel contract. Most hotels insist that theirinclude disclosure of third-party commissions.
* There is no legal imperative for disclosing commissions to attendees. But, "why not disclose?" says Mandel. "Disclosure tends to avoid a whole bunch of potentially troublesome legal and ethical issues."
What's in a Name? Asincreases, the lines distinguishing different types of third parties are blurring. Here are some helpful definitions: * Site selection firm: Hired by the planner, and charges hotels a commission, usually 10 percent of guest room revenue. The company may have partnerships, formal or informal, with hotels or chains. Services offered include destination research and contract negotiation. Some site selection companies also offer more meeting management services, either on a commission or fee basis.
* Hotel rep firm: Hotels, mostly independents, sign on as members with the rep firm, paying a retainer. They may also pay the firm an "incentive" of, say, five percent of the total guest room revenue if a meeting is booked. Hotel rep firms assist planners with site selection (and sometimes contract negotiation) but will book only member hotels.
* Meeting management firm: Provides a full range of services, from site selection to on-site management. The fee structure varies, from flat fee to commission, or a combination.