Evolution or Revolution?

Evolution or Revolution?

Could hotel commission cuts spark a major shift in event agency business models?

It took just two months – 58 days to be exact – for Hilton to follow in Marriott’s footsteps and announce that it would slash commissions paid to third-party agencies on group bookings made at its US hotels from 10% to 7%.

With other hotel chains widely expected to follow suit, commission is currently THE hot topic in the events industry across the globe, including being the subject of a wittily titled ‘Don’t mention the C Word’ debate hosted by SITE GB this week – which featured expert panellists from both the hotel and agency side.

The cuts have unsurprisingly resulted in a backlash from many third-party agencies, particularly those venue finding businesses that rely on a 100% commission model as it poses a huge threat to their sole source of income. Many comparisons are also being drawn with the airline industry, which slashed commissions from 10% to nothing during the 90s and 00s resulting in many travel agencies going out of business (and a slew of new super air ticket only agencies either springing up or expanding).

It’s too early to tell whether hotels will eventually follow the airline model, or indeed if the commission cuts will find their way over Europe and beyond – speaking at the SITE debate, Pauline Bergé, Regional Director of Luxury Sales, Luxury Brands at Marriott International, said there are no plans to cut commissions on group bookings at international properties any time soon.

But, like it or not, these commission cuts could well mark the start of a major change to the entire business model in events. A senior executive at an international luxury hotel group told us he believes that in the longer term, it may assist agencies in securing client business for longer as they will have no option but to charge for time, focusing the client to commit to one agency and not waste time with unnecessary pitching.

It’s a point of view that was discussed at the SITE debate, with several agency panellists agreeing that a fee-based model would of course be the preferred option. But as one venue finding agency pointed out, clients have never had to pay for venue finding services, so they are likely to be reluctant, or unable to find the budget, to start paying now.

And given that the commission comes out of the money the client pays for the hotel or venue booking, you could argue that they are paying one way or another – that’s not to say they’d get a cheaper rate if they booked direct we hasten to add (the gross rate is often still quoted to corporate event teams).

Is the issue then that clients need to be re-educated about the value that venue finders and agencies bring? A good professional venue finder provides a valuable knowledge-based, connections-based service that covers everything from compliance and venue contracting to risk assessment and cost control, which clients are currently getting for free.

In fact, we struggle to think of any other industry sector, where a similar valuable consultative service is provided to corporate clients for nothing?  Please let us know if we are wrong on this one!

And so, it comes back to the event sector’s ongoing battle to be considered on par with other professional sectors. The reality is that the role of procurement over the years and the constant pitching, has driven the cost of fees down to the bare bones and it’s very difficult for agencies to make money. Which brings us back to commissions, and why they are so important to those who’s business model relies on it.

Take commissions out of the equation entirely, and some agencies are going to have to have some serious and difficult conversations with their clients about the true cost of venue research and putting on an event – the big question is: will their client be prepared to pay a fair price for services provided? Assuming nothing changes, there are certainly going to be several business owners out there looking for new revenue streams to compensate for these commission cuts and to future-proof their businesses.

In the short-term, Marriott and Hilton could see some impact on group bookings with third-parties choosing to place their client’s business elsewhere – especially as some other savvy hotel groups have upped their commission rates temporarily to capitalise on the backlash and win more business. Our feeling of course, is that it should be about choosing the right venue for the client regardless of commission, but a 3-5% difference in commission could be hard to ignore for some agencies, whatever their size.

Our bet is that the ‘C Word’ will continue be a hot topic for debate over the coming months. We’d love to hear your views…