When Marriott International announced in January that it was reducing its commission rate for group business from 10 percent to 7 percent, it brought to a boil a debate that has long simmered among hotel companies, meeting planners, and third-party intermediaries — about value, accountability, and more. As a third party providing a variety of intermediation services to clients around the world, the MCI Group is a part of this debate.
In a series of Thought Leader interviews with our global talents, we’ll seek to explore, challenge, and ultimately upend the commission model. Our first interview is with Robert A. Gilbert, CHME, CHBA, president and CEO of Hospitality Sales & Marketing Association International (HSMAI), one of MCI USA’s full-service Association Management & Consulting clients. As both an experienced association executive and a longtime member of the hotel community, Bob is uniquely positioned to explain the history and evolution of group commissions.
How did group intermediation become such a major part of the hotel and meetings industries?
If you go back to the origin of intermediaries that have been a source of business for hotels, you go back to the origin of travel agents. That’s really where it started. Travel agents — the first ones were actually back in the 1700s — represented themselves as agents on behalf of hotels and they got a commission paid by the hotels for their services. Those travel agents began to migrate into group business in the 1960s and 1970s.
American Express was the first to do that, but then group intermediation for hotels really hit its peak when a company by the name of HelmsBriscoe was the first to provide that service at scale for the hotel industry. That was the only business they did — book businesses hotels on behalf of meeting-planner clients — and from that point forward, there were multiple others that copied the HelmsBriscoe model. There are big companies, and then there’s a long tail of independent planners that tried to do the exact same thing for the same amount of commission. And that’s what has grown group intermediation to the size and scale that it is today, where 50 to 70 percent of hotels’ group business is coming through a third party.
What I think has brought this to a tipping point is that hotels continue to optimize their revenue but also look at the growing expenses they’ve had. They’ve begun to question the value of the services provided by these intermediaries, and they’ve realized by analyzing their own mix of business that not all intermediaries are providing the same level of services for the flat 10-percent commission.
When did the 10-percent model come to dominate this space?
The 10-percent model has been around forever. That was the original travel-agent commission that goes back 100 years. As an agent on behalf of a hotel, somebody at some point in time agreed that 10 percent was a fair price, and when companies like American Express traveled began to migrate into group business, they just used that same 10 percent. And nobody has ever deviated or questioned it until it’s reached the scale of business that’s represented now —where the expenses have become so huge, hotels have begun to question, “What’s the value for these services?” Because they’re seeing different levels of services being provided by different types of third-party companies.
From the hotels’ point of view, a big part of the problem is that third-party intermediaries are providing a wide range of services for that same 10-percent group commission?
Correct. You have some intermediaries that are simply providing lead generation, which is where the original model started out. At the other end of the spectrum, you’ve got full-service meeting-planning companies, like an Experient and Maritz and others that do strategic meetings management for a corporate or an association client. And they’re all getting the same 10 percent. That’s where the discrepancy is really beginning to surface: How do we differentiate between these companies when there’s just so many of them now?
In other words, for a single piece of group business, multiple intermediaries are taking 10 percent from the hotel?
That’s where many of the challenges have arisen. Sometimes multiple companies get into the booking or the production cycle of the event, so there have been a lot of gray areas in term of who’s really entitled to the commission based on what they do.
How do you see things proceeding from here?
I think different hotel companies are going to make individual decisions on how they value the services provided by different types of intermediaries. That’s the normal evolution of any business model in any industry: Every service provided in the food chain begins to articulate their role in the value proposition, and some parts or functions will have a higher value than others.
What might a different model for group commissions look like?
I think there’s room for multiple models. There’s room for different types of intermediaries to begin pricing based on the specific components of their services. Another opportunity would be for some type of a registration, accreditation, or classification system for different types of intermediaries. That would help anyone in the supply chain of the meetings industry to understand what an intermediary’s primary scope of services is — so everybody knows their role in the production of the meeting at the time of contracting. That disclosure — that transparency — is really important for all parties.
Is there something that everyone involved in this issue — hoteliers, planners, third parties — should keep in mind?
At the end of the day, what everybody should keep in mind is the fact that the client — whether it’s a corporation or an association — is the ultimate customer, and achieving a successful event for them has to be core to whatever processes or best practices are established by the industry. The minute that a third party or supplier loses sight of what the customer is trying to achieve, we’ve done everybody a disservice. That’s the one thing that’s going to be critical as this discussion continues to evolve.