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Marriott Leads the Way in Reigning In Customer Acquisition Costs

by Ed Watkins, Contributing Editor |

These days, brand behemoth Marriott International is less often referred to as an industry pioneer. As it has grown in size, the company typically lets other companies break new ground and then adopts, adapts and sometimes enhances whatever innovations evolve from the pioneers. But now, perhaps emboldened by its acquisition last year of Starwood Hotels & Resorts, Marriott has taken the lead in what could become an industry-wide effort to reign in costs of customer acquisition.

Sometime in the next few months, the mega-brand company will sit down with representatives of the major online travel agencies to hammer out the next round of commission levels for bookings those OTAs push to Marriott properties. It will be interesting to see what kind of leverage Marriott will be able to exert in these negotiations. It should be substantial.

After all, with 30 brands and more than 6,500 properties in 110 countries, the brand company is the undisputed Big Dog in the industry, with—perhaps hyperbolically, perhaps not—a hotel in every market and submarket in the world. Just about anyone looking to book a room in a particular location will find at least one property in the Marriott family on his or her radar.

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While by far the biggest hotel company in the world, Marriott is not alone in the kind of size and pressure it can bring to negotiations with OTAs, wholesalers and other third-party sources of business. Companies like Hilton Worldwide, IHG, Accor and others will also be able to put similar pressure on OTAs when their turns come at the negotiating table.

Another arrow in Marriott’s quiver is its vaunted loyalty program. During a recent call with security analysts, President and CEO Arne Sorenson said the company’s combined programs have about 110 million members, and they accounted for about half of all occupied rooms in 2017. Later this year, the company will complete the merger of its three loyalty programs—Marriott, Starwood and Ritz-Carlton—presumably giving the unified program more clarity and reason to members to book directly.

OTAs accounted for 12% of Marriott’s bookings last year, up one percentage point from the year before. By either reducing the levels of commissions on that business, or by significantly boosting the amount of reservations made directly, the company will be able to cut acquisition costs—and increase profits—for its owners.

And no less an authority than former Starwood Hotels head honcho Barry Sternlicht understands the importance of Marriott’s efforts to negotiate OTA commissions downward. Speaking at a recent conference, the ever-colorful Sternlicht compared these upcoming negotiations to World War III.

“We’ll see who wins,” he told the audience at the University of Miami Real Estate Impact Conference. “There’s a war coming.”

Sorenson also told the analysts that the company will be revamping its approach to revenue management to book the most profitable business, not just the highest RevPAR business. That sounds like a not-so-veiled message to OTAs that it is ready and willing to lessen it dependence (if 12% of bookings can be considered dependence) on OTAs.

While nowhere as significant as its upcoming talks with the OTAs, the company recently made news with an announcement that it will cut commissions from 10% to 7% paid to travel agents that book meetings business at Marriott properties. (Several large meeting planning companies were excluded from the cut, at least for now.) As one would expect, the move ignited a firestorm of criticism and backlash from the travel agency community.

So far, other hotel companies have chosen not to join Marriott in its commission-cutting scheme. In fact, several of them have reached out to the travel agency community with assurances of support and pledges not to follow Marriott’s lead.

Others in the hotel and agency business believe Marriott’s move is the precursor to a new paradigm in travel agency commissions, in which the 7% base commission holds but those agents that generate roomnights above certain thresholds can earn bonuses on the back end. It’s not a stretch to believe this marks a new beginning in how the hotel industry values and works with its agency partners.

Marriott’s travel agent commissions cut, while a minor move, might herald a new direction for the company. It has the size, the clout, the leadership and the money to no longer follow the pioneers, but to lead the way for the rest of the industry.

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Ed Watkins, Contributing Editor

Ed Watkins, Contributing Editor

Contributing editor at Duetto
Ed has been covering the hotel industry for more than 40 years. He was editor-in-chief of Lodging Hospitality from 1980 to 2012. He then joined Hotel News Now as an Editor at Large, until his retirement at the end of 2014. Ed still contributes to several publications and is a member of the advisory boards for the hotels schools at Michigan State and Penn State.
Ed Watkins, Contributing Editor
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Ed Watkins, Contributing Editor

Ed has been covering the hotel industry for more than 40 years. He was editor-in-chief of Lodging Hospitality from 1980 to 2012. He then joined Hotel News Now as an Editor at Large, until his retirement at the end of 2014. Ed still contributes to several publications and is a member of the advisory boards for the hotels schools at Michigan State and Penn State.