Point of View

The founder of Conferon believes that ‘Marriott has misjudged the value that site-selection companies provide.’

In late January, Marriott International reduced payouts to third-party planning groups with a 3-percent cut to the long-established 10-percent commission structure. 

The following Op-Ed by Bruce Harris, founder of Conferon, is a companion piece to our story, “What Will Marriott’s Commission Change Mean for Planners?” 

This is big news and I’m very disappointed that Marriott has made this decision. Marriott is a great chain with many highly service-minded team members. This decision may make their jobs more difficult than it already is. Here’s why:

Effectively, Marriott has announced a 30-percent reduction in revenue to those firms that have been booking Marriott-owned or Marriott franchise hotel properties for their clients. A 30-percent drop in revenue will be devastating to the thousands of independent planners who serve association and corporate clients in the site-selection and event-planning process. For many, their only choice when booking a hotel in the Marriott family will be to reduce the amount or level of services that they currently offer.

While at first look, this may appear to Marriott as a profitable decision on their part, I suspect this decision may not yield the financial gains they anticipated.

A Closer Look at the Hotel Commission Model

From a hotel’s point of view, commissions are often a double-edged sword. On one side, site-selection companies allow hotels to run leaner. In any given year, site-selection companies book hundreds of millions of room revenue dollars. By doing so, they’ve reduced the need for large sales forces at the hotel companies and have generally elevated the booking/contracting process for clients.

One the other side, this group business comes at a price — which, until last week, was valued at 10 percent of room revenue. This latest decision by Marriott to reduce commissions didn’t come about because they’re struggling to make a profit. In fact, the exact opposite is the case — Marriott is currently enjoying large revenues and profits. Instead, I fear this latest decision by Marriott is a misguided move to exploit the current sellers’ market and increase profits even more.  

Granted, if you’re only looking at this through Marriott’s financial lens, this decision might make sense — but there’s something much bigger at stake here and it impacts our clients and our industry as a whole.

The reality is that by lowering commissions to those who send so much business their way, they’re damaging their relationships with those same individuals and firms.  The foundation of the relationship between organizations that hold meetings and those that assist them in finding, booking, and managing those meetings is based on valuable elements that include time savings in finding a location; knowing hotel staff and the actual physical condition of hotels; superior contract negotiation and protection against hidden costs and penalties; and cost savings on food and beverage expenses.

These services and other intangibles, like the relationships that independent planners have with their clients, point to the likelihood that event organizers will book hotels with the goal of retaining the services and savings that their independent site-selection partners provide. When event organizers realize that some, or all, of these services cannot be provided when booking a Marriott property, they’ll have to make a tough choice.

Do they go with the Marriott property and in turn, now have to deal with the critical needs outlined above on their own? Do they go with a Marriott competitor and continue to enjoy these services without increased expense or the risk of tackling new needs outside their specialty on their own?

Marriott’s bookings will go down and the reason for this won’t just be because the site-selection companies need the revenue. It will be because Marriott has misjudged the value that associations and corporations place on the convenience and cost savings that site-selection companies provide.

The Evolution of the Commission Model

Thirty-four years ago, my firm, Conferon, negotiated the first chain-wide, guaranteed commission (on net room price) contract in U.S. history.

In 1984, Hyatt Hotels believed in the value that we were bringing to our clients and took a major leap of faith in partnering with us. More importantly, they guaranteed every single one of our clients that our 10-percent commission would not be reflected in higher room rates. What resulted was a huge increase in group-event bookings for Hyatt. In no time, Conferon was Hyatt’s largest meetings client.

Starwood noticed that many clients wanted to do business this way and soon followed suit, becoming the second chain to provide commissions for group business. In just a few years, every other major hotel chain in the U.S. adopted the same plan with Conferon. In later years, these same hotel chains opened commissions to other site-selection and meeting-planning firms.

While there were corporations and associations that were blessed with excellent planners and did not use the services of site-selection companies, there were many other organizations, with and without internal planners on staff, that found that using outside help enabled them to be more efficient and more focused on their internal meeting-planning needs.

The reason that the independent event-planning industry grew was because event organizers valued the services these companies were providing. That hasn’t changed and in fact, many organizations now consider their site-selection providers to be an extension of their staff.

Marriott’s plan is a plan that they could only launch during a robust economy — a sellers’ market. When the economy has a significant “adjustment” — and it most certainly will — hotels will be falling all over themselves to attract more business. For Marriott, they will have to look long and hard at the commission deterrent that they have now put into place.

At the end of the day, successful hotels will be selling to their clients in a way that their clients want to be sold to. The customer has always been in the driver’s seat and will continue to have the last voice.

Bruce Harris