"It's the middleman thing. Is it worth it?" asks Mykeah Kranzler, marketing communications specialist with Autodesk Corp., a software company in Cupertino, Calif. Kranzler is reflecting on Autodesk's relationship with a site selection firm. Like many planners, Kranzler sees the benefits, but she also has her reservations.
Right before speaking with TM, Kranzler had received an e-mail from Doug Wheeler, president of Conference Locators, La Jolla, Calif., updating her on possible venues for Autodesk's reseller's conference. He was on the right track, Kranzler says. "I told him to keep looking, and then I went back to the work I needed to do, instead of getting on the phone myself."
And that's the appeal of site selection firms. They can save planners tedious, time-consuming legwork. Autodesk is one of an increasing number of firms that--in these times of corporate downsizing and a hotel industry seller's market--are turning to third parties for destination research and. What makes site services particularly appealing is that planners don't have to fork out fees--the companies are paid a commission by the hotels, usually 10 percent of guest room revenue.
So, what's the problem? Kranzler, who is part of the work group headed by Ned Dennison, director of marketing, Asia/Pacific, questions whether using a middleman may damage her relationships with hoteliers. A good question and just one of the concerns planners have when they consider bringing in a third party.
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 a company--when the company knows nothing about it. Some of the newer companies have jumped on the site selection bandwagon and are run by people who don't understand the meeting industry. Site selection firms, like other third-party vendors, are getting a questionable reputation.
How can a planner distinguish between firms that offer value, saving corporations time and money, from those that are out for a fast buck? And how can you evaluate the results and make sure, as Kranzler says, that it's worth it?
Picking the Right Teammate First, pick a vendor who is is ethical, expert in the field, and professional. Site selection execs who intend to use their savvy to your benefit won't just toss any old leads at you, but will sit down with you to forge a relationship. Take Site Services, for example, one of the oldest and most reputable site selection firms, based in Irvine, Calif. Using customized software, president Laurie Mirman creates a database on each client that includes key information about the firm and a comprehensive history of its meetings. During the site selection process, Mirman and her eight-person staff prepare a report, comparing potential destinations, including a detailed profile of each hotel.
It is precisely that in-depth research that brings planners real value. The Center for Tele-communications Management, at the Marshall School of Business, University of Southern California, Los Angeles, has been using Mirman's services for more than six years. "[Mirman] eliminates the stress, and the days and possibly weeks [involved] in getting the right information [on potential sites]," says Shirley Greene, associate director, administration. "She is very familiar with our business. She is part of our team."
Vendors are not just saving planners time. Many of the reputable site selection folks come from hotel sales backgrounds, so they bring an insider's expertise to site selection. They're in the hotel loop--they're aware of new properties, and they know the pros and cons of various locales and venues. Doug Wheeler brings 19 years experience in the hotel industry to his work. "He knows better than I do if it's easy to get to Fiji from Singapore," says Kranzler. "His experience is a definite benefit."
That know-how bolsters your position once you get to the contract stage, as well. "When we get into negotiations [Site Services] stands by us," says Greene. Site Services staff negotiates about 20 clauses into, covering everything from room rates to comp rooms. Mirman, with her contacts and expertise, has been able to resolve negotiation issues, saving Greene the hassle of bringing in her legal department. "If we say [a contract] is not acceptable, [Site Services] goes back and negotiates," says Greene. "They fight to get us the best deal. And, she adds, "it's very important to us to get the very best deal."
The Cost of Clout But are planners like Greene really getting the best deal? That question points to one of the core controversies surrounding site firms: 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 your company, 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, 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.
"I know [commissions] can drive up rates," Kranzler says with conviction--hotel reps have told her so in no uncertain terms. But, she says, the increase is worth it when you factor in the time saved selecting sites.
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. Clients say he backs up that claim. Rocki Frantz, administrative assistant to Tom Tullie, vice president of worldwide sales, Applied Micro Circuits Corp., San Diego, contends, "Because of his contacts, [Wheeler] gets better rates than we could get ourselves. He's not trying to [increase rates] so he can skim off the top. He's really good at fighting for us. We are confident that we are getting value for our money."
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 Frantz'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 will always try to offset its costs."
Will the Reps Still Know You? Planners also fear that a third party may damage their relations with hoteliers, particularly national sales reps. "You don't always get that personal interaction with hotel[iers], because Doug's the middleman," says Kranzler. "Not to say he doesn't do a great job, but sometimes having a middleman isn't the best thing."
Some planners get around the problem by instructing their site firm to book only through planner-approved national reps. This way your reps get "credit" for the business, and you maintain your clout with the hotels. Another strategy is for planners to introduce the third party to their hotel reps. This assures hoteliers that the corporation--not the site firm--still calls the shots.
There's also a potential upside to the middleman arrangement--especially if you're a novice planner. With their background in hotel sales, site selection execs communicate with hoteliers in their own language, which can ease the meeting management process. In addition to providing site selection and contract negotiation services, Doug Wheeler also handled on-site logistics during Applied Micro Circuits Corp.'s international sales conference last June. (For a breakdown of services third parties offer, see What's in a Name, page 54.)
"We got a lot of compliments [about Wheeler] from the salespeople," Frantz says. "They appreciated having someone like him as a main contact."
Don't Bite the Hand Even in the best of circumstances, hotels traditionally have viewed third parties as interlopers. But that perception is changing. Hotels have taken stock and now recognize the huge amount of revenue third parties can generate. At Hyatt, business from third parties was up 8 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. Hilton is one of many chains that have signed a "performance agreement" with Helms/ Briscoe. Instead of hotels paying the commission after the meeting, they pay half when the meeting is contracted. Other site firms have developed similar arrangements.
There are other types of agreements, as well, that highlight the increasing power of third parties. Some hotel chains pay Helms/Briscoe an annual marketing fee, in addition to commissions, of $8 per hotel room, giving them 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 its accounts. And some hotels offer site selection firms commissions higher than 10 percent, in an effort to draw more business during off-peak seasons, for instance.
Playing Favorites? These arrangements raise the question: Don't site selection companies play favorites, steering business toward hotel partners or destinations offering 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 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 [decides]. "
Some site selection firms, such as Site Services and Conference Locators, choose not to forge any formal partnerships. Emphasis on "formal"--sometimes facilities offer enticements such as gift certificates, says Heidi Neal, senior sales executive with Site Services, and a 20-year hotel industry veteran. "If two hotels were both perfect and one offered something more than the other, then you will sway toward that property," she acknowledges. But Site Services has a 96 percent retention rate, she underscores, and "you don't get that by jacking up rates or pushing clients toward certain properties."
Wheeler weighs in with the same attitude. Even if a hotel offers a 12 percent commission as a financial inducement it's not worth the extra two percent if it means antagonizing a client, he says. He also won't set up formal partnerships with hotels. "I don't want to limit the choices I give clients or have an obligation to push clients in [one] direction."
But, Kranzler says she is wary of Wheeler's relationships with hotels. "Some hotels are pushed more than others," she says. "I understand that. That's the nature of the game. But I'm not [choosing] a hotel because he's pushing it. I will [pick] the one that works for us."
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 corporate clients similar to your company and suppliers.
* A reputable third party shouldits 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?
* 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 it. 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.
* Work with one site selection firm at a time.
* Play fair. Don't bring in a commissionable third party after you have discussed rates.
* One site selection firm signed a hotel contract, blanked out its commission, and sent the doctored copy to the planner. Protect yourself from "blind commissions" by having a person from your organization--not the third party--sign the hotel contract. Most hotels insist that their contracts include disclosure of third-party commissions.
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 manage- ment services, either on a commission or fee basis, or a combination.
* 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, 5 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. Fee structure varies, flat fees, commissions, or a combination.