Group Intermediation: Where Do We Go From Here?

By Robert A. Gilbert, CHME, CHBA, President and CEO, Hospitality Sales & Marketing Association International (HSMAI)

When Marriott International announced last month that it was reducing its commission for group business from 10 percent to 7, it was easy to focus on the minutiae of the decision — why Marriott did it, how would it affect meeting planners and third parties, would other hotel companies follow suit, and so on. 

But I’ve talked to a wide variety of HSMAI’s member community in the aftermath of Marriott’s announcement — professionals working for hotels, owner groups, management companies, and third parties — and based on those conversations, I think it’s more constructive to look at the larger issues this raises around the changing nature of group hotel business. Here are three:

1. It’s important to understand how we got here. If you’ve worked in this industry for any length of time, this news shouldn’t surprise you. In the aftermath of the recession 10 years ago, third-party companies proliferated as budget-crunched groups looked to outsource housing and other planning functions. “When groups like HelmsBriscoe and ConferenceDirect really grew,” one industry executive told me, “was when large corporations realized this was ‘free’ for them.”

It’s now gotten to the point that more than 40 percent of the cost of sale for a piece of group business can go to intermediation, from sourcing to housing to distribution. According to research from Kalibri Labs, intermediation commissions and other fees totaled $3.4 billion to $4 billion last year, and could double by 2022. Because of that, even as the industry has returned to pre-recession levels, hotels haven’t seen a corresponding increase in RevPAR or group occupancy. It’s stressed the commission model to the point of breaking. “What are hotel operators going to say,” a veteran industry observer told me, “when they are paying their sales staff to bring in the business, then also paying the independent the extra 10 percent?”

Marriott’s decision is an attempt to fix that — at the behest of hotel owners, who are driving this process more than brands themselves, even if that’s not always clear from the way this issue has been covered. “Marriott is conveying to owners that they are margin- and growth-focused on their behalf,” an industry consultant told me, “and to get a commission, third parties must add value beyond search.”

2. We need to better define the value proposition of group intermediation. This follows the first point: The growth of third-party companies has diluted the perceived value of the entire field. Indeed, this is the biggest issue that came up in my conversations with senior-level HSMAI members: Given the full spectrum of services that third parties provide — starting with room-block logistics and proceeding all the way up to something like full-service event management — do they do enough to differentiate their value? Is it clear not just what you’re paying them for, but that what you’re paying them for can be different from job to job and company to company?

Not always. As one industry executive told me: “I would like to see a discussion about the value of third-party sourcing agencies and the relatively high cost for simple sourcing vs. full-service meeting planning.”

One solution is to bring more transparency to intermediation. Third parties need to better explain not just the specific services they’re providing, but why they’re charging what they’re charging for them — in other words, fully communicating the value of those services. In that way, hotels will know exactly what they’re paying for, and third parties will be able to distinguish themselves from their competitors. This also means that third parties need to be vigilant about self-policing, taking steps to ensure that anyone who is providing intermediation services is qualified to do so.

Perhaps it’s time for a formal accreditation body for third-party companies, or a certification for third-party professionals, or both. The idea is to provide if not a guarantee of quality then at least a framework for hotels to evaluate a company’s expertise. “The third parties need to accept that this [current] situation is unsustainable,” one hotel sales executive told me, “and they need to be part of the solution.”

3. It’s time to do away with one-size-fits-all. If we’re going to insist that third parties better differentiate and valuate their services, we also must consider changing the way they’re paid. It doesn’t seem fair or reasonable to continue using a flat commission rate that doesn’t acknowledge differences in the scope or quality of work third parties provide. If evaluating each transaction on a case-by-case basis is too labor-intensive or time-consuming, at least we can use more of a sliding scale — or a traditional fee-for-service model — that accounts for some of those differences.

This would also have the advantage of recognizing what it is that makes the hotel business special. “The real question is, are we building relationships with our guests and clients,” an executive told me, “or is it a transaction?”

I’d like to think we’re building relationships. Marriott’s recent decision doesn’t change that. In fact, it’s an attempt to address what’s actually changing — the framework within which those relationships thrive.

The Hospitality Sales and Marketing Association International (HSMAI) is committed to growing business for hotels and their partners, and is the industry’s leading advocate for intelligent, sustainable hotel revenue growth.

Categories: Sales, Group Market Trends
Insight Type: Articles