Breaking Away

Marriott veterans
Joel Pyser (left)
and Mike Beardsley
jumped ship to start
third-party Inn Fluent.

Over the past several years, the third-party segment of the meetings industry has swelled, and commission payments made to third parties by hotels -- a standard 10 percent on room rate -- have grown exponentially.

Last year, however, several new twists were introduced, forcing this formerly unregulated body of industry players, which now number in the thousands, to play by new rules -- and with new players who are determined to shake things up.

Marriott update

In June 2007, Washington, D.C.-based Marriott International, which estimates its commission payouts to third parties totaled roughly $90 million in 2006, rolled out a new policy aimed at centralizing and automating commission payments.

In a nutshell, any third party or group intermediary doing business with any of Marriott’s 2,800 properties worldwide must be registered with the International Airlines Travel Agent Network (IATAN), a process that requires proof of legitimacy and liability insurance and an annual fee. “In the beginning there was a lot of uncertainty,” says Marriott’s Julius Robinson, vice president, sales intermediaries, who stressed that the hotel company’s new policy was driven by a need to streamline its commission payment system across its brands, rather than a move to eliminate third parties. “But once we got through that initial period and people saw centralized payments and statements, they could see it was a partner benefit, not a punishment.”

* Third parties jump on board. Now seven months into its new policy, Marriott executives say more than 2,000 “intermediary partners” have received IATAN accreditation, which represents more than 90 percent of the hotel chain’s group business booked through third parties.

The initial knee-jerk reaction of doubt, skepticism and downright hostility by many third-party companies has largely dissipated, says Robinson, as they enjoy the added benefit of faster commission payments. With the new policy, checks are cut about 45 days after an event is completed, rather than 30 days after the close of the event’s master account. In addition, the new system allows third parties to receive consolidated commission checks for multiple meetings.

* Internal challenges. “Trying to launch any new industry-changing program with a systemwide distribution of 2,800 hotels is daunting,” says Stacie Canova, Marriott’s senior director of sales intermediaries. “Because the program touches so many entities within the properties, from finance to sales, everyone had to know their role.”

To get its people on board so that they in turn could answer the concerns of third-party clients, Robinson and Canova initiated a communication blitz that ranged from conference calls to training guides that outlined a step-by-step process for the new procedures. “To say we overcommunicated is probably an understatement,” says Canova.

* Looking ahead. For the moment, Marriott says it will limit its policy to any North American intermediary doing business with any of its hotels worldwide. However, the chain has begun looking into the possibility of including third parties abroad. “There are just so many nuances that don’t exist here,” notes Robinson. “For example, in the United Kingdom, they pay commission on wine purchased in advance.”

Meet the new players

In the same month that Marriott’s new third-party policy commenced, two of its former executives quietly launched their own third-party company, Inn Fluent, based in Ashburn, Va. Its chief executive officer, Mike Beardsley, is a former 20-year sales veteran of Marriott. He also is the chairman of Dallas-based Meeting Professionals International’s board of trustees. His business partner, Joel Pyser, also a 20-year Marriott veteran, is the new company’s president and chief operating officer.

Unlike other third-party companies that straddle the line between planner and hotel vendor, says Beardsley, Inn Fluent’s philosophy takes a comprehensive partnership approach. “Most companies look at their associates as employees, their clients as customers and the hotels as vendors,” notes Beardsley. “We think there needs to be a balance for all three.”

* Challenging the commission model. For years, the hotel industry has paid out a standard 10 percent commission on room rates to third parties. Inn Fluent, however, has developed a sliding-scale compensation model based entirely on lead time to check-in. “Commission payments by hotels to third parties are growing faster than group revenue,” says Beardsley. “We see this as an opportunity to be different.”

Under Inn Fluent’s commission model, only short-term business -- up to 12 months out -- earns a 10 percent commission. “We know from our experience that the shorter the booking window, the more valuable the lead for hotels,” says Beardsley. “So that’s the business we feel hotels should pay the 10 percent compensation on.”

Business booked 13 to 36 months out receives an 8 percent commission payment. For business booked 37 months or more out, the commission earned drops to 6 percent. “The further out you go, the more opportunity hotels have to fill those dates,” says Pyser. “Six percent is logical, because it provides hotels with a better value proposition, which will also make them more inclined to take our business.”

* Cash-on-cash discounts. For years, third parties such as Scottsdale, Ariz.-based HelmsBriscoe and Los Angeles-based ConferenceDirect have courted hotels by offering them a slot in their preferred-provider programs, a system that allows them a first crack at lucrative group business. For the privilege, hotels have reciprocated by paying half of the commission earned up front, with the other half paid when the group’s master account was settled.

When this arrangement was first created, it was a business model that made “all the sense in the world,” says Joel Pyser. It has since outlived its purpose. “What happened over time is everybody signed up as a preferred hotel, so the playing field is completely level,” Pyser says. “We wanted something where we earned preference, rather than got paid for it.”

Under Inn Fluent’s business model, hotels that opt to pay 50 percent of their commission within 45 days of the signed contract automatically get a discount. The level of discount is based on a booking-time sliding scale. For business booked within three years, the discount is 10 percent. For business arriving within a 12-month period, the discount is 9 percent. And for business arriving within two to three years, hotels get a 7.2 percent discount on commission payable.

“Hotel executives are all sitting around looking at their growing commission costs. They see this as a balanced approach,” says Beardsley. “Our model shows them they are not just another vendor. They are also a client. Nobody else is doing this.”

* Better, not bigger. Currently, Inn Fluent has a sales team of seven, and the fledgling company’s strategic plan calls for expanding that number to 18 or 20 -- but slowly, to assure that first-class people are hired. “We are going to sacrifice volume for quality and let the market dictate our growth,” says Pyser.