Many meeting planners are outraged by Marriott's plan to cut third-party commissions on group bookings from 10 percent to 7 percent but here are five aspects of the move that are fueling their concern.
1. Fear it Will Be Harder to Service Clients
Dana Toland, founder and president of Weymouth, MA-based The IT Exchange Group, a company that provides turnkey meeting planning, explained that IT Exchange Group offers a complimentary site selection program to corporate and association companies, something the company is able to provide because of the 10 percent commission.
"Marriott too benefits from my and other third-party planners' services, as we create a separate, independent sales channel that brings new leads yielding them more sales," she added.
Some planners have speculated that the move is related to Marriott International's acquisition of Starwood Hotels & Resorts Worldwide, which has created the world's largest hotel company.
"Clearly their outlay for Starwood had to have been massive and their expansion has to have cost much," said Joan Eisenstodt, founder of Washington, D.C.-based meeting consulting firm Eisenstodt Associates.
"More, they have hotels in states and cities where a minimum $15 per hour wage has been mandated. What concerns me are the stats I saw about how many NSO and inside-hotel sales people they've laid off. If they are doing so and if they are cutting the commissions, who do they expect to sell group business?"
2. Many Third-Party Planning Companies Will Not Survive
This commission cut will leave a huge hole in the pocketbooks of independent planners. For instance, if a planner books a 100-room group for three nights at $200 per night, they are losing $1,800 under this new commission model.
"Third-party planners are such a large and broad segment that the impact will be felt in very different ways by all. Many smaller site selection companies, MMCs, and independent planners rely on commissions for their livelihood. Simple math -- a third-party planner quotes 250 room nights at $200/night, that's a $5,000 commission at 10 percent. Drop that to 7 percent and it's $3,500. That $1,500 to a small firm means a lot," said Eli Gorin, CMP, CMM, chief operating officer, Far Horizons Tourism, Inc. "This policy alienates many and is going to hurt small businesses in our industry. Smaller firms may not have the buying and negotiating power, but many do have the ear of their clients and can influence choice. Many MMCs work off a hybrid fee model of reducing fee based on commission earned. When an MMC proposes three hotels for a program, the client is going to question why the fee is higher if booking the Marriott brand hotel. The answer? Marriott's group distribution costs increased."
Others fear it could make both their services and Marriott properties less competitive.
"For my team, we will still include Marriott in the RFP process; however, going forward we will advise our clients of the change of policy. If the client ultimately selects a Marriott property, my client will need to pay my company the difference between the lower commission of 7 percent and industry norm of 10 percent. This could keep Marriott from being competitive in cost-sensitive markets," said Toland.
3. Perception of Favoritism
It was soon revealed that four large intermediary firms would be temporarily receiving the 10 percent commission rate beyond the announced deadline.
"We can't discuss details of specific contracts, but we are honoring existing contracts," said a Marriott International spokesperson in a statement. It continued, "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."
Experient and HPN Global are two of the four firms that have been granted "a temporary exemption" from Marriott's commission cut.
"Marriott has kicked the proverbial hornet's nest," said Dianne Davis, event producer for TulNet Meetings and Events, based in Tulsa, OK. "It is one thing to drop commissions; they can certainly do that. But the fact that there are four '10 percenters' who have protected status is tossing the hornet's nest into the fire."
Davis called it "a slap in the face" to any company not among "the chosen 'big four.'"
Jordan Clark, owner, Face2Face Performance Partners, said, "If you're an independent small business owner -- which, by the way, supported Marriott in its early days when they were growing as a company -- you are going to be hurt more than if you are a big, large corporation of intermediary with lots of volume. I understand the value of volume purchasing, but usually that's an incentive upward, not penalizing someone for the cost of entry."
Clark also pointed out that, "Nobody's talking about the fact that the online travel agents are making 12, 15, 17, in some cases 20 percent commission, and yet they're squeezing the group side of the business even more, even though we're already lower. And arguably, we bring a higher revenue contribution to them on a per-room basis.
4. Some Planners Are Threatening to Turn Their Backs on Marriott
The initial reaction to the commission cuts have brought about emotional concerns as much as business ones.
"Ultimately there's enough supply in the marketplace, and there's supply being added every day, so I think it might be a short-sighted move, because there are other companies to work with, like Hilton and Hyatt, and that's moving many independent planners I know to say they will stop sending leads to Marriott," said Clark.
"I can't say that I will never book a Marriott again, but they are definitely at the bottom of my list," said Steve Collins of event planning company Resort Meeting Source, based in Breckenridge, CO. "I would never not book a hotel that was ideal for a client based on a commission issue, but frankly, I would be concerned about the financial stability of a company that is so tight on revenue that what has to be a very small percentage of their total expense would make this kind of difference. Hopefully, they will not infect Starwood with their same mentality."
Collins also suggested that industry pushback may prompt Marriott to consider reversing course.
"I would hope that others in our industry would stand with their colleagues to, shall we say, discourage Marriott from enacting this policy," he said.
5. Wait and See
Eric Rozenberg, president and CEO of Event Business Formula, a Parkland, FL-based company that helps independent planners, said Marriott's move shouldn't be seen as a great shock.
"Marriott is making a business decision. Is anyone surprised? We knew it was coming. If you are only getting your revenue in commission, you need to look at how you position yourself in terms of the value you are bringing your client. Am I happy about this? No. But it's not such a big deal if you are working strategically and providing value to your clients."
TulNet Meetings and Events' Dianne Davis said that planners who are on a fee-based model are less impacted by the move.
"I am not a fan of the commission model, as it is a conflict of interest to me," said Davis. "The planner makes more money if the client pays a higher rate. My clients pay a fee to use our company's services. We offer full meeting and event planning services, so a fee-based model is the only way to go."
Dana Toland of The IT Exchange Group said it may be some time before the full picture is revealed.
"It will be interesting, especially if other brands do not follow their lead, to see if an increase of three percent group room revenues will help Marriott's bottom line or end up a costly mistake, especially if it significantly decreases one of their sales channels --third-party planners," she said.
David Peckinpaugh, president of Maritz Global Events, agreed.
"What we're telling all of our people is to take a deep breath, count to 10, the market has a way of leveling itself and I think we've got to give this a little time to see what traction it gets, how it actually impact our customers, how it impacts our business, and the nice thing is we do have some time to play that out."