MCI Thought Leader: Group Commissions & What Third-Party Intermediation is Really Worth

Shawn Pierce, president of Strategic Events, Meetings & Incentives, discusses the value of third-party intermediation when contracting with hotels and planning events.

Now that we’ve talked to MCI Thought Leaders about the history of the group-commission modeland the ways in which that model is broken, let’s turn to the role and value of third-party intermediation itself. For that, we’ve interviewed Shawn Pierce, president of Strategic Events, Meetings & Incentives for MCI USA.

How does the reduction in the group-commission rate — from 10 percent to 7 percent, as some hotel companies have announced — affect a company like MCI?

We currently have contracts booked through 2024 at a 10-percent commission rate. However, as we book next year and subsequent years at 7 percent, the financial impact on MCI and all intermediaries is evident. Any time you’re talking about a 30-percent reduction in your revenue, it’s making an impact. The services you’re providing remain the same, but 30 percent of your revenue opportunity from the same client for the same work has been lost.

What is the group commission paying for? What is it that third-party intermediaries are providing?

The intermediary business is not a high-margin business — nobody is generating 30- or 40-percent profits. The issue we face is, why would hotels want to continue to pay intermediaries at all? What value are they bringing to the table?

This is where MCI differentiates quite a bit. We provide strategic services for that revenue— ranging from full event planning to housing and registration, to select meeting planning, to audience development. All those tangible benefits are being utilized to assist the hotels and organizers.

The client may have been getting some level of rebate, or they may have been using that revenue for strategic services as mentioned. Clients must be educated on the cost of the services that are no longer included in hotel commissions. They’re going to have to pay for strategic event services like housing, registration, etc. It’s no longer going to be included, because there are hard costs associated with those services.

MCI wants to continue to provide these services. We need to do a better job in the industry of educating what value these event organizers are getting within the guise of hotel commissions. We are providing a strategic value. We must educate the customer base about all the various benefits they are receiving from MCI.

Does everyone involved in this process fully understand the differences between a company like MCI and other intermediaries—just in terms of the variety of service levels that they provide?

Maybe not. On the hotel side, they pay an internal sales team a commission for the business. Then they pay an independent group for the commissions. Then they question, “What value are we getting for the dollars we’re paying out?”

MCI and companies like MCI are providing services and real-time value to the hotel and to the client. You can see where the money is going versus a third party that is a pure sourcing company. When we talk about services like full event management, MCI is going to manage the entire event on your behalf. The revenue from the commissions is offsetting the cost to run that event.

We want to utilize that revenue to actually make it easier on hotels. We’ll take all the reservations and change orders, and manage that process through the event. Hotels aren’t dealing with every individual reservation, cancellation, or change. MCI is providing something substantially different than an organization that simply signed the contract and doesn’t connect again until it’s time to collect commissions. We’re engaging with every one of the guests coming into that hotel.

Who is responsible for educating clients about that?

It’s incumbent upon us as MCI, as intermediaries, to prove to clients and be transparent about the value we’re providing — the cost and how that cost is being paid. As an organization, MCI needs to list out exactly what those services are going to cost. Even if there is ultimately no invoice, it should still be clearly stated that the expenses were paid by the hotel’s commissions.

That has not been done in the past but must change to reflect that value. These commission changes will remain and likely increase, potentially landing at zero eventually.

If that were to happen, is there a certain point where the group-commission model simply isn’t viable?

We will need to implement internal experts on providing strategic services that are truly valuable to the client, and those talents will have to educate the clients that they will have to pay for them, not the hotel. Companies that live purely off commissions, that are not differentiating themselves in the marketplace, are going away. They’re not going to be able to educate the client to pay them directly for simply negotiating a contract with a hotel that they have sourced.

Do you see things moving to a point where that’s not a flat commission rate for everything — where there’s a la carte or bespoke pricing for each individual client and each individual event?

I think that hotels would be wise to implement a tiered commission structure based on volume and services. The value and volume that MCI brings to a global hotel brand is vastly different than a small wedding planner or meeting planner. To compensate MCI at the same rate would be out of step with the value. Regardless of the commission structure or amount, it is important that we specifically list all the services they are requesting in our contract along with the fees associated, then note anticipated revenue from other sources to offset those fees. That way, if the offsetting-revenue model continues to change, as it is now, the client is already aware of the costs. There’s simply less revenue to cover those costs.

Certain services may be reduced in the future as well. Clients may not require as many customized and high-end services because they’re not willing to pay for them. When services are being offset by commissions, they’re not thinking about it and/or they’re making high-level demands without knowledge of the cost.

As a global intermediary, what is MCI’s value proposition for its events, meetings, and incentive clients?

We approach it from the standpoint of what the goals are for the event —for growth, audience participation, industry recognition, or education. Then we try to help the client build their event around those goals.

If we’re trying to grow audience, we help them seek new audience demographics. If we’re trying to increase the marketplace of buyers and sellers working together to do more transactions, we’re going to work on that. If it’s penetration of membership to attend events, we’re going to focus on that.

We’re looking to provide clients with strategic services that help grow their event to meet their goals.

By Chris Durso

• Associate Vice President of Content