Industry reaction has been swift and harsh since M&C broke the news yesterday that Marriott International is cutting the commission rate it pays third-party meeting planners from 10 percent to 7 percent, although at least four large firms appear to be exempt from the cuts for now.
"This is exactly what I expected when they were allowed to merge with Starwood," said Shawna Suckow, CMP, founder of the Senior Planners Industry Network. "This does not bode well for the industry. Remember when there were thousands of travel agencies before airlines did this? And to do this in a seller's market, when there are record revenues on the hotel side and record occupancies, is also to be expected, because they hold all the power and don't need us. Interested to see what happens when the market turns - and it always does."
For his part, David Peckinpaugh, president of Maritz Global Events and its subsidiary Experient, noted that "We have been informed by Marriott that we, along with three other intermediaries, have been granted a temporary exemption." Nevertheless, he added, "We always felt Marriott would be the one to drive this type of shift in the marketplace, and we have been preparing for it strategically for a number of years. And, since this letter went out, we are off and running and making our own plans. We have been active in discussion in the last 24 hours with all our supplier partners, and I am pretty confident you will see a number of their competitor hotels see this as an opportunity and an advantage, and leverage this to gain market share."
Since the merger of the Marriott and Starwood, Kevin Iwamoto, a senior consultant for GoldSpring Consulting, said he has been cautioning corporate clients not to rely on hotel commissions to fund their meeting programs. "I feel like saying 'I told you so,'" Iwamoto said when M&C broke the news yesterday. "We've seen this before with the corporate travel suppliers. We've been advising clients that any commission-funded program costs need to have a plan B in case of any changes in the existing commission levels. Hopefully, meeting and event professionals have done the math, and have done the necessary internal and external communications, to prepare their supplier partners and their executives."
When M&C contacted Marriott about the decision, a spokesperson essentially reiterated to M&C the content of the letter that had been sent to its third-party clients: "At Marriott International, meetings and events represent a critical part of our business as well as an opportunity to drive innovation and win with customers. The current business model and environment, however, present significant obstacles to making the investments needed to deliver a world-class experience for customers. While group intermediaries play an important role in the marketplace, costs for our North American hotels and owners are growing at a faster pace than group revenue, which impacts hotel profitability. To strike a balance and ensure the long-term health of our business, we will reduce commissions to intermediaries from 10 percent to 7 percent for all properties in the U.S. and Canada, effective March 31, 2018."
Hilton currently has no plans to follow Marriott's initiative. "As a leading provider of meetings and events, Hilton works with a number of valued partners to attract business and leisure group bookings," said a Hilton spokesperson. "Although we have no updates to our group commission payment policy to announce today, Hilton continuously reviews its sales and distribution strategies to ensure that we are offering the best value for our owners, hotels, and customers." Both Hyatt Hotels and Omni Hotels declined to comment on Marriott's decision.
This is not the first the time Marriott has shaken up the commission structure paid to third parties. In 2007, when its global portfolio stood at just 2,500 properties, it rolled out a new industry policy aimed at centralizing and automating commission payments. At that time, the company estimated that it had paid over $90 million in third-party commissions in 2006. The new system demanded that any group intermediary doing business with Marriott had to be registered with the Airlines Travel Agent Network (IATN), a process that required proof of legitimacy, liability insurance and an annual fee. Not surprisingly, there was immediate pushback from the third-party market. But several months later, when the skepticism and distrust had settled, Marriott claimed that more than 2,000 intermediary parties had signed on to do business under the new system.
Today, 11 years after that commission restructuring, Marriott International's portfolio has grown to more than 64,000 properties in 126 countries, which means its payments to third parties for bringing in group business have swelled. Earlier this year, M&C reported that one of the largest third-party firms, Scottsdale-based HelmsBriscoe, had booked $1.275 billion in room revenue in 2017, representing more than 6.4 million room nights, over 400,000 more than booked the previous year.
One third-party actually welcomed the move. "As an agency founder, I support this. I understand the old business model, but it is ripe for, dare I say it, disruption," said David T. Stevens, principal of the Event Marketing Authority. "I know this is going to outrage a lot of people, but it is high time for planners to step up and realize their time is worth more than 10 percent. This is really an opportunity for maturity in our industry. There are plenty of other industries that aren't offering 'free services' and then collecting a fee on the backend. We should be charging for what we do! Besides, this then allows us to truly negotiate with the clients bottom line as the paramount concern and not our own. How can someone getting paid off the rate really truly fight for the best rate when for every $10 they save, they lose $1? Simple, they can't."
But most planners who contacted M&C were not happy about the news. "Disappointing, but not surprising, given their attempt to reduce commissions paid to third parties in the past," said Pat Durocher, CEO of Global Cynergies. "Other brands that value the cost-effective relationship of a performance-based sales network will certainly benefit. We will continue to focus on providing the best venue at the best value for our global clients."
"For those of us who make some or all of our living through commissions, this is more than a little disheartening," said Siobhan Coen, owner of Planner4Hire, who is moving her business to Sutter Creek, Calif., from Alaska. "While they say they value what the third-party teams bring to the table, they are cutting off our livelihood. My biggest concern is this move is the tip of the iceberg, and depending on how it is received, other chains will follow suit."
Other planners echoed Peckinpaugh in looking to other hoteliers to take advantage of the situation. "If I were a hotel chain or an independent property, I would use the 3 percent variance as a competitive advantage to drive business and loyalty," said Cindy Nachman-Senders, president of the CNS Consulting Group in Potomac, Md. "I am also wondering if the large third-party companies will cut side deals with Marriott. This is a sad day for professional, independent, full-service third-party planners. We are not just booking agents and order takers."
The American Society of Association Executives has decided to take a wait-and-see approach before advising its members. "In my view, Marriott is reacting to market forces and their ability to allocate resources where they believe they can achieve the most value," said John H. Graham IV, FASAE, CAE, president and CEO of ASAE. "The impact on associations, third parties, housing bureaus and the overall hospitality industry remains to be seen as the details of this decision become more clear."
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