Six months ago, a prescient article by the Global Business Travel Association Meetings Committee raised the specter of a reduction or elimination of hotel commissions. As of a few days ago, that possibility is now a reality, thanks to the folks at Marriott reducing commissions from 10 percent to 7 percent in the U.S. and Canada. And do we believe this is the final reduction in commissions, or only the first step? Let the chaos begin!
The only question that matters now is whether other chains, seeing an opportunity to increase profitability, will fearlessly follow suit, thereby making the chaos unavoidable, or whether wisdom will prevail, with other chains remembering that commissions are almost universally used by their corporate clients to offset the cost of meetings management programs. I believe that if the other chains remember that commissions are a key factor in the funding of meetings management programs, they will reap the rewards of a massive share shift away from Marriott to chains that are more amenable to corporate meetings management programs.
But what should corporate clients do now? In the GBTA Meetings Committee article, “The Hotel Commission Dilemma: Plan Now to Avert a Potential Disruption,” the Committee (full disclosure: I am a member of the committee and contributed to the article) provided excellent advice, which is still applicable today:
If you are a company or association using the services of an intermediary, have a conversation now that clearly identifies what is at risk if the commission model were to change, and how as business partners you could lessen the impact. Also, begin to articulate clearly the value of your SMM [strategic meeting management program] within your company now.
This advice clearly points to one of the key challenges of the commission-funded meetings management model. There are three parties to the commission dance, as I call it: the hotels, the intermediaries, and the corporate clients. The hotels pay commissions to the intermediaries as compensation for the use of their sales channels, which reduces the cost of sale a property incurs by not having to hire more sales people. The meetings management companies use the commissions to offset their costs of sale, which includes the necessary technology infrastructure and staff. That is the way it is supposed to work, but over the years, and with the increasing involvement of procurement departments, corporations have insisted that commissions be returned to them because it is their volume generating the commission in the first place, and therefore belongs to them. The corporations, having historically had problems convincing senior leadership to cover the costs of meetings management programs, found that a commission-funded model circumvented resistance from senior leadership and enabled the creation of these programs.
All of this being said, I believe there is room to explore new funding models for meetings management programs and, conceivably, to shift their costs back to those whose costs they should actually be—the corporations that have, through smart negotiations over the years, insisted that agency commissions be shared with them. What I cannot agree with, though, is the disruptive manner in which Marriott has executed on its strategy. More time should have been given to allow for an orderly transition.
What do you think? Is this causing disruption to your program? Do you think hoteliers and meetings management companies should be indirectly subsidizing the costs of your program? We want to hear from you in the comments section.
See you next time.