Marriott's decision to cut third-party commissions, as first reported by M&C, will affect not only third-parties, but any client that relies on hotel-sourcing services. That includes the giant corporations that direct a huge amount of business to the chain's properties - and typically rely on commissions to fund their meetings-management programs.
Room nights typically represent about 35 to 45 percent of overall meetings spend, according to Debi Scholar, left, an experienced SMM coach. "The commissions collected from those room nights often largely offsets the cost of managing a corporate meetings management program in terms of venue sourcing, oversight of the SMM program, or meetings management technology," says Scholar. "This is critical for SMM programs - without that commission, it will kill organizations from a funding model perspective."
A giant blow to meetings management
After talking with many industry leaders following M&C's publication of Marriott's announcement on Tuesday, Scholar collected her thoughts in the article, "Marriott's Disparity and the Impact on Strategic Meetings Management (SMM)."
Among Scholar's comments: "Marriott leaders, with the decision to cut commissions from 10 percent to 7 percent, squander our flexibility and power to influence our organizations towards efficient Strategic Meetings Management (SMM) programs. Worse, when Marriott chooses to show preferentialism toward four sourcing agencies [who will be granted a temporary exemption, as Successful Meetings reported]…the inequality results in an industry uproar with obvious imbalance.
"All of my SMM colleagues are scrambling, putting together revised cost/benefit analyses on their meetings programs that had previously been funded by commissions, now wondering where the money will come from for their headcount and technologies. If Marriott was planning to cut commissions, it should have provided the industry with at least a nine- to 12-month warning so that organizations could revise budgets, renegotiate with their agencies, reevaluate their resourcing and technology requirements, and - most important - reconsider which chains are in their preferred hotel program."
Expect more pricing transparency - and fees
Pricing structures can vary significantly for third parties who serve corporate clients, notes Judith Johnson, now a health-care compliance consultant, who ran an independent meeting-planning firm specializing in med/pharma for more than 20 years. One global pharmaceutical firm that was a longtime client, "is about as transparent as you can get," she notes. "When you do a big project for them, you have to outline every budget item, and it is very clear you are not getting any commissions. Others, who might do a meeting or two a year, really don't care if you are taking a commission, because you're helping them, and if you take a commission you don't have to charge them as much."
Having been in the travel agency business when airlines cut their commissions to that market, Johnson is hardly surprised by the move. In a strong sellers' market, she notes, "hotels are really sitting in the driver's seat, and have taken advantage of that by adding fee after fee - because they can. Now with Marriott and Starwood holding so much of the hotel space, they very clearly have the upper hand. It puts planners in a tough situation, scrambling to make up for revenue that's lost."
Furthermore, it has become increasingly challenging in recent years for third parties to collect the commissions they're owed by hotel companies, according to Johnson: "We almost had to have a full-time person to do that because they were really reticent to pay."
Meeting planning companies that have been collecting commission will need to charge fees to make up the difference, says Johnson, and she doesn't expect the drop will stop a 7 percent. "I think it's just going to keep dropping."
What companies should do now
Marriott's move was absolutely predictable, said M&C contributor Kevin Iwamoto, a senior consultant with GoldSpring Consulting LLC. "Frankly, is anyone surprised?" notes Iwamoto. "I have been pointing out the possibility of this happening for more than a year now. When the mega chains started to merge, that was a clear indication to me that the economies of new size and scale were not just an attempt to build market share and revenue, but perhaps a strategy by the new super-mega hospitality companies to review their existing business and revenue models. It's logical and understandable why they would use their new super-mega status to start to put pressure on areas that are impacting their revenues and average daily rates."
For corporations, he advises, "The time to trigger your contingency plans in anticipation of commission reductions is now. And even if it's a tad late to the party for those who didn't think this would happen for a while, you need to figure out how the reduction of commissions will impact your respective strategic meetings management programs and events."
Iwamoto outlines key steps that he recommends corporate meetings managers take "sooner rather than later" to mitigate the damage to their programs.
The fight for corporate funding
SMM expert Betsy Bondurant, CMM, CTE, worries that meetings departments will struggle to justify their existence going forward. "I think that the commission reduction implemented by Marriott will stick, and no doubt other hotel companies will follow Marriott's lead," the president of Coronado, Calif.-based Bondurant Consulting told M&C. "This will have a negative outcome on those companies who use a commission model to help fund their SMM, as the amount of funds available will be reduced. The alternatives will be to either reduce services provided by the SMM program or go to finance to get additional budget to fund the SMM."
That's not likely to be an easy sell, predicts Bondurant. "The challenge with asking for more budget is being able to prove the value of the SMM, which until this point has been sold as 'low cost' or 'no cost,'" she says. "I am concerned that, in many organizations, 'low or no cost' translates to senior leadership as 'low or no value,' making it hard to sell the business case to get the additional funds. SMM leaders really have to hone their skills in order to tell a compelling story of the return on investment - the true value - of their SMM to the company."
Message received: 'Work around the third-parties'
Ultimately, Marriott is sending a "not-so-secret message" to end users, Brett Sterenson, founder and president of the independent site-selection firm Hotel Lobbyists, told M&C in a frank Q&A yesterday. "And that is, 'Work around the third parties.'"
Marriott's Brian King talked to M&C's sister pub, BTN, about Marriott's reasoning behind the change and how the hotel company is investing in meetings.
Visit M&C's dedicated landing page for more articles related to hotel commissions for third parties.