Last month Marriott reduced the commissions it pays to third parties and meetings management companies from 10 percent to 7 percent. These commissions are paid to 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 salespeople.
As I’ve previously written:
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.
With the possibility that Marriott will eventually reduce commissions to zero—or that other chains will follow its lead—corporations that have relied on commissions to fully or partially fund their meetings management programs should now be turning their attention to figuring out how to adapt to this fluid situation so they can ensure that their meetings program will continue to be supported. Here are my thoughts on what organizations should be doing to adapt.
1. Understand the financial impact: Understand your organization’s financial exposure. I’ve developed an Excel tool that can be used to help calculate your company’s financial exposure (Click here to download a copy of the Excel tool).
2. Shift market share: If your meeting stakeholders and travelers are willing, shift share away from hoteliers that do not appear to value their partnerships with intermediaries, as the intermediaries can be severely impacted by the reduction or elimination of commissions.
3. Show program value: Demonstrate the multifaceted value of your meetings management program to your leadership by documenting and sharing key stakeholder and employee satisfaction with the program, hard-dollar and cost-avoidance savings you are able to negotiate, improved terms and conditions with suppliers, regulatory compliance and other business mitigations, and demand management. Show the value for savings in dollars, for satisfaction in survey scores, and for risk mitigations with the use of heat maps and case studies.
4. Enhance transparency: Stop cost shifting. As mentioned above, expecting commissions to be allocated back to your organization from your third party or meetings management company is based on a fundamental misunderstanding of the role of commissions, and has led to a dependence on commissions. Cost shifting, or subsidization, is the result of the cost of an organization’s meetings management program being inadvertently shifted to hotels. This has led to just as inadvertent, but no less impactful, exposure for organizations, as they experience a 3 percent drop in offsets to their meetings management programs. This is similar in concept to the biggest kid in the schoolyard making someone else pay for their lunch—because they can.
5. Allocate costs: Shift the costs of your organization’s meetings management program back where they belong—stop expecting the return of commissions, and instead ask your meetings management company or third party to reduce their costs to you by the equivalent of all commissions they are expecting to return to you, in exchange for no longer requiring the reallocation of commissions. This way cost shifting will be stopped, and the issue of commissions will be left to the intermediaries and chains to hash out.
These are some of the best ways to inoculate your program from the potential shock of more commission reductions. You should be taking these steps right now, before the other shoe drops. Work fast, since only the chains know if, or when, this is going to happen.