Ritz Restructures Commissions: Will Other Hotel Companies Follow Suit?
In a move competitors call "gutsy" and planners call "bold," Ritz-Carlton cut commission payments to third-party site-selection firms to 3 percent as of November 6. The proliferation of intermediaries earning 10 percent commissions to bring meeting clients to properties prompted Ritz-Carlton to make the change. Ritz will continue to pay 10 percent commissions to full-service meeting planning companies, which it defines as those who "conduct on-site inspections, event planning, on-site meeting management, and are responsible for ensuring payment."
JoAnn Kurtz-Ahlers, Ritz-Carlton's vice president, sales and business development, says the creation of two commission levels reflects a judgment of the value of the services provided by different types of intermediaries. "We recognize that site selection companies have a value to the end user and to us," she adds. "If there wasn't value, we'd be saying we're not paying any commission."
Test Case? The move sparked a wave of speculation about whether others would follow suit, particularly Marriott, which owns Ritz-Carlton. But Mark Sherwin, Marriott's vice president, segments, products, and promotions, says at this point, "Marriott will not make any bold moves like Ritz-Carlton. It would be difficult for us to even enforce compliance, and we will not implement any policy that we cannot enforce consistently." Marriott's 500 full-service hotels are 64 percent corporate-managed and 34 percent franchise-managed.
Four Seasons, a hotel company closer in size and market positioning to Ritz-Carlton, will continue to "pay up to 10 percent to all qualified third parties," according to Tom Hubler, vice president of sales, North America. At Hyatt Hotels Corp., decisions are made at the property level about whether or not to accept a piece of business and how much to pay for it, explains Ty Helms, vice president of sales. Steve Armitage, vice president/managing director at Hilton Hotels Corp., splits the "10-percenters" into several categories - ranging from full-service meeting planning companies to Web sites offering hotel databases and electronic RFPs. A range of commissions might be allocated to these different types of intermediaries, Armitage suggests.
Dave Scypinski, vice president, industry relations at Starwood, takes the historical view. "In the late '80s and early '90s, when things looked bad for hotels, they were so happy to get business that they created the precedent that plagues them now - giving 10 percent for leads. We made our bed at that point," he says. "Now Ritz is trying to extricate itself from the problem we created."
While it will be somewhat instructive to observe the impact of the Ritz-Carlton move, Scypinski notes, "it will not be suggestive of what would happen if Marriott or Starwood or Hilton did it. On a larger scale, it would require more diligence. At a company like Starwood, with such a diverse portfolio, we have to be much more cautious. For Ritz-Carlton, a select, high-end product, this move doesn't hurt them that much."
What the Market Wants? Roger Helms, president and CEO of the fast-growing site-sourcing company HelmsBriscoe, says Ritz-Carlton represents "less than one percent" of the nearly 10,000 meetings HB associates booked in 2000. Helms stands by his company's initial value proposition. "Clients love the service," he says. "It makes up for inefficiencies in the industry. We respond, we're consistent, we're not consolidating. Clients want our procurement power."
Helms points out that even "full-service" meeting planning companies often do only site selection because that's what their clients want. In those cases, says Ritz's Kurtz-Ahlers, the firms will be entitled to a 3 percent commission. The policy, she explains, is service-based rather than company-based.
Among the newest players in the 10-percent field are Internet-based site sourcing companies such as EventSource, which will also be affected by the Ritz-Carlton decision. EventSource President and CEO Ed Sarraille emphasizes that "online" doesn't necessarily indicate a lack of service. EventSource representatives bring benefits to both the occasional meeting planner and to hotels "who have neither the bandwidth nor the marketing dollars to reach that occasional planner," he says.
Still, EventSource is looking at changing its revenue model, at least with its new product, Compass, an Internet-or intranet-based tool designed to help companies track meeting activity and spending across all of their divisions. Hotels may pay a "transaction fee" rather than a commission for business booked through Compass.
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* Q: What has 800 brains, 25,000 years of meeting management experience, and a big mouth?
* A: The hottest place for meeting cyberchat, the Meeting Industry Mall's listserv, better known as the MIMlist.
If you don't know what we're talking about, crawl out from under that rock. Numbering more than 800 members from both the meeting planner and supplier sides of the industry, MIMlisters, as they call themselves, chat online about everything from hotel negotiations to creative welcome gifts. And in a new twist, members are emerging from behind their computer monitors to meet face-to-face at industry events. How can they spot one another? MIMlist badge ribbons are the "private" handshake of this active online community, the nod of one MIMlister to another.
The invention of Rodman Marymor, CEO and founder of Cardinal Communications, based in Berkeley, Calif., the MIMlist was launched in March 1999. The discussion is strictly noncommercial, with a well-known enforcer. Marymor enlisted his long-time friend Joan Eisenstodt, a Washington, D.C.-based meeting planner, as listmistress, who rules with a white-gloved fist. As the self-described "princess of protocol," Eisenstodt is on top of any violation of listserv policy, such as attempts to mine subscribers for e-marketing purposes.
So what do 800 meetings industry people talk about? You name it. Current industry events are perennial subjects, as are threads on tipping, attrition, and ROI. Sometimes humorous, sometimes serious, MIMlisters are likely to have an answer to any question imaginable. Eisenstodt remembers one obscure request: Where do you find those cocktail party clips that go on plates to hold your drink? Immediately, four people offered an answer, she says.
Eisenstodt is happy to take some of the credit for the listserv's success. She reads every single posting, which takes her up to four hours every day. "It's a passion, she says. "The things you love, you fit them in. I've always wanted my own salon, and this is it."
To join the chat, register at www.mim.com/mimlist.