Tough Love for Hotels: An Independent Planner Talks Commission Cuts

Brett Sterenson, founder and president of Hotel Lobbyists

It's kept me up nights, deciding who has more egg on their face -- the third parties who have spent the better part of the last four months moaning about the new commission structure Marriott so generously introduced, or the secondary brands who so spinelessly followed suit only a few short months later. It used to keep me up nights wondering if and when the commission reduction would come. I was first made aware of the idea by the good prophet Mike Dominguez, senior vice president and chief sales officer for MGM Resorts, who at Northstar Meeting Group's Independent Planner Education Conference in 2015 floated the idea that Marriott could make such a move once the merger with Starwood was complete.

So, on Jan. 24 of this year, when Marriott announced their intentions to customers, it was not a surprise in the least. And while I certainly did not embrace the idea with open arms, and I shared in the anger of so many of my esteemed colleagues, I quickly made the conscious decision not to dwell, for wasting time here could be detrimental to my business.

It took just two months -- on March 23 -- for Hilton to bring forth their own announcement, nearly plagiarized from the book of Marriott. And then less than two months from that, on May 9, InterContinental Hotels Group followed suit. I read the announcements incredulously, not because they weren't wholly predicable, but because their letters were presented as if they were totally original and independent thoughts, when they may as well have been two lines long: "You know what Marriott did back in January? Sounds good to us."

Neither brand let even a fiscal quarter go by to see if they would see incremental revenue as a result of industrywide disdain towards Marriott. The truth is, there probably wasn't. Any third party worth his or her salt would be foolish to make buying decisions for their customers based on commission percentage. Marriott knew this full well when they made their calculated decision to reduce commissions from 10 percent to 7 percent. And when there was no seismic shift as clumsy third parties had threatened, it was the easiest decision in the world for Hilton and IHG to follow the leader. Why leave money on the table for even a quarter?

All three companies are in agreement to some extent when asked why they've made such a move. To quote Marriott (and why not, Hilton and IHG did), they claim "group distribution costs are growing faster than group revenue." It's hard to fathom that's not a creative interpretation of statistics during the longest stretch of ADR and occupancy growth the industry has seen, but taking them on their word, this claim ignorantly misses the broader question of why. Why is more of their group business being intermediated than ever? The hotel companies would have you believe it's the oversaturation of third parties in the marketplace, that these shrewd and aggressive mom‐and‐pops are out pilfering business Marriott might have otherwise booked directly themselves. Even if that had some truth to it, it still disguises the reason this is happening.

The truth is, the end user would rather work with an intermediary than booking direct. The largest hotel companies have decentralized their sales processes so much that there are few hotel experts anymore, a limited number of hotels have their own sales teams, and salespeople can't form longstanding relationships with end users. With the economy as robust as it has been, salespeople have become robotic order takers, punching numbers into a software package that spits out rates for them. Salespeople aren't out cultivating business, they are mechanically choosing between 10 different opportunities under the direction of their revenue managers. Customers no longer feel like they're being serviced, they feel they're being yielded. The hotels themselves created the monster, and in an effort to combat it, rather than address their own deficient structures, they've punished their own lone champions - the third parties themselves.

When Marriott first made their play, the initial knee‐jerk reaction from site selectors was to pull their business from the brand. That would teach them! It was such an amateur call from the third‐party community, and it made the industry look even more foolish when the other brands completely exonerated them by joining in. In the words of the late great football coach Denny Green, "They are who we thought they were… and we let them off the hook!"

I ask those third parties who shouted, "Death to Marriott," who are you booking now? More power to you if you can give your clients a steady diet of Hyatt, Omni and Wyndham, but I sure can't! Nor would I think to. My clients would leave me if I allowed commission rates to dictate my recommendations. It's always the client's best interests first. The Marriott-Starwood merger was not good for this industry - it's given the customer less choice in almost every serious marketplace in the nation. Less competition means higher prices and less room for negotiation. In too many convention markets to count, this merger is a virtual monopoly. And with Hilton and IHG now joining the 7 percent bandwagon, good luck avoiding the pay cut anywhere your clients need to be.

There's only one way to avoid this wholesale 30 percent pay cut, which will be in full effect by Jan. 1:. Stop wasting time moaning about something that cannot be quickly rectified, and book more business! You need to book 43 percent more (trust me, the math works) to make up for a 30 percent pay reduction. Hotel Lobbyists has been in business 11 years and has sourced more than 2,200 meetings in that time. I average 194 leads per year. This year I'm on pace for 270 (that's 39 percent up). Some got angry. I got busy. My goals are twofold -- provide top-notch service for my customers, and provide a happy, comfortable life for my wife and two children.

As a sole proprietor with no employees, to increase business by 43 percent, something has got to give. And so, to my hotel partners, please trust that I understand how much harder your jobs are now that your brands have handicapped you. I don't hold you to account for this. It was never my intention, but I hope you'll forgive me in advance if you find I'm providing you with 30 percent less information, am available 30 percent less of the time for phone calls, and if I'm 30 percent less patient when your bids come in late, come in sloppy or when commissions are inevitably paid late.

For now, we press on. As a final note to my partners at Marriott (I would ask Hilton and IHG, too, but we all know they'll simply follow the path Marriott forges): We've received the message loud and clear. Please do me the courtesy of letting me know if this move to 7 percent is your endgame or if it's simply step one toward a tiered rollout of eliminating commissions entirely. As a small business whose revenues are 100 percent commission-based, and whose dear and loyal customers can only continue to use me provided there are no fees, it would be nice to get a jump start on my next career as a public speaker or, humbly, as a writer.

Brett Sterenson is founder and president of Hotel Lobbyists, a conference site-selection firm based in Washington, D.C.