The third party commission cuts by a growing number of hotel companies are emerging as planners’ biggest challenge in 2018. That’s followed by the current sellers’ market but, somehow, the cuts feel personal.
In a crowded field of contenders, commission issues have captured the top spot as the number one challenge meeting planners face this year.
There are others, of course—among them the current sellers’ market—but the commission issue somehow triggers a more personal reaction.
“It’s maddening that Marriott decided to do this at the height of the sellers’ market, and the reasons given were puzzling to many planners and suppliers alike,” said Shawna Suckow, founder of SPIN (Senior Planners Industry Network).
Marriott International’s move to cut commission from 10 to 7 percent in North America for third-party planners got the year off to a bumpy start. Hilton Worldwide followed suit just two months later while InterContinental Hotels Group (IHG) in May joined in on the commission cuts.
The hotel giants’ rationales: Marriott, whose cuts took effect March 31, and Hilton, whose cuts will take effect Oct. 1, wanted to reduce costs for owners who need to reinvest in their properties. IHG too said its cuts will enable its owners to reinvest in new programs and improvements. Those cuts are effective in January 2019.
“It’s disappointing to see other major chains following suit,” Suckow said. “The commission model has been in place as long as I can remember, and now planners and hotel sourcing companies are scrambling to figure out how to deal with the fallout.
“There’s a lot of focus on how to educate clients going forward, and how to make up for the lost income in other ways,” she added. “There’s also plenty of talk about shifting business to hotels who haven’t followed Marriott’s lead.”
Planners are already seeing cancellation fees, talk of fees for changing names on room reservations, higher food and beverage minimums, Wi-Fi going to audiovisual for the same service at higher prices, and exclusive audiovisual contracting, according to Christy Lamagna, CEO of Strategic Meetings & Events. “It’s a big challenge and growing with each creative cut in service and increase in pricing.”
LaMagna believes the cuts “speak to the hotels’ state of mind.”
“My reluctant prediction is that rates will be further reduced by those who have cut rates to 7 percent and, in the next five years, phased out entirely,” she said. “Passing along the shortfall to clients means planners take the bullet for some unfortunate decision hotels made.”
The commission issue is, so far, limited to the domestic market, noted Michel Couturier, managing partner of Marketing Challenges International.
But independent planners are going to have to think of charging their clients a consulting fee with the decrease in commission revenues, he said.
“With the continued growth of meeting management platform such as Cvent, it’s becoming easier to plan a small corporate meeting without the help of an independent meeting planner,” Couturier added. “The third party companies which are known for their site selection services are going to have a tougher time, and by the way, they are using Cvent to pre-select and book meetings.”
Weathering a Sellers’ Market
Nearly as challenging for planners in 2018 is the current sellers’ market.
“In this buoyant economy, certainly high demand is putting a pressure on prices, and you have to add that meetings are booked with a shorter lead time which makes it tough for planners as their budgets are not moving up,” said Couturier. “Planners are under pressure.”
The forecast is for the sellers’ market to continue, according to LaMagna. “This trend is an important one to watch as hotels are moving towards the airline model of fees and upcharges for services that are currently complimentary,” she said.
Suckow goes even further. “It’s crazy out there,” she said. “Planners are definitely feeling the lack of power in sourcing and negotiating right now, and it’s frustrating. Some hotels aren’t even willing to hold space. I don’t recall a time when the market’s ever been this tight.”
Barring a major disruptor like 9/11, Suckow doesn’t think the market compression will turnaround for at least a few years
It’s a difficult time to be a buyer, LaMagna agreed. “Contracts are getting harder to negotiate, fees are rising, space is limited.”
Yet a seller’s market can work to planners’ advantage, according to LaMagna. “Both internal and external need to be more proactive when setting dates. Knowing that delays will result in fewer options and higher prices can be motivation to break old habits of waiting until the last minute, changing locations multiple times before signing a venue or underfunding meetings.”
And the pendulum always swings back at some point, the planners said. “When I speak to hoteliers, I always remind them that how they treat planners when they have all the power is how planners will respond when it becomes a buyers’ market again,” said Suckow.
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Photo credit: A photo from a Cvent event in Europe. Cvent / Flickr