ShareBy Robert A. Gilbert, CHME, CHBA, President and CEO, Hospitality Sales & Marketing Association International (HSMAI)
When I first wrote about Marriott International’s decision year to reduce its commission rate on group business, I suggested that the proliferation of third-party intermediaries is threatening to disrupt the traditional hospitality sales model. Since then, Hilton Worldwide has announced that it also will be cutting its commission rate, while Hyatt and other companies have said that they’re considering it. 
Looking for specific numbers to track the growth of group intermediation, I recently asked executives at five global hotel companies if they could share how many individual third parties they used last year compared to 2012. As reported in Chart 1 (below), the results confirm that in just the last five years, the use of intermediation has increased substantially — from 9.7 percent for one of the companies I surveyed, to a mindboggling 140 percent for another. It’s not surprising that studies have shown that the total acquisition cost for a piece of group business can be 15 to 35 percent, with Kalibri Labs reporting that intermediation commissions and fees hit $3.4 billion to $4 billion last year and could double by 2022.
A few additional observations from my informal research:
“Intermediation” can mean anything. One of the challenges that I identified in my original article is the sheer scope of services that are now considered third-party intermediation, which was borne out by the hotel companies I talked to. They identified a staggering variety of intermediaries, including third-party planners, full-service agencies and planning firms, site-selection companies, incentive planners, housing companies, travel-management companies, association-management companies, hybrids, and many others. And under the current model, everyone wants to collect the same 10 percent — sometimes on the same piece of business.
A few big players dominate the landscape. Even in an increasingly glutted marketplace, a few third parties still loom large. In Chart 2 (below), you see that the five hotel companies I talked to use 10 intermediaries for much if not most of their group business. These are large, established companies — and generally they’re not the problem with intermediation today. Rather, it’s the newer, smaller players that represent the long tail of intermediary companies without much of a track record or a clearly defined service model. They have diluted the perceived value of intermediation and triggered the reassessment of the commission structure that is now happening.
We need standards. What is the solution? To clearly define what a specific intermediary does for a specific client, and pay that intermediary a specific fee for that service. The actual mechanism remains to be seen — whether it’s a formal accrediting body or other standards-setting organization — but the idea is to abandon the one-size-fits-all commission model and fully classify the scope and types of services provided. In that way, hotels would know upfront what they’re paying for, meeting planners would know what they’re getting, and intermediaries themselves would be aligned with a legitimate value for their services.