Why Hotel Market Segmentation Matters to Hotel Owners

The concept of hotel market segmentation is one that all hotel owners should know about. It is a concept that you shouldn’t ignore if you’re running a hotel. 

In the following article, we’ll explain what hotel segmentation is and why it matters. We’ll also discuss some specific market segments and strategies you can use to improve sales by targeting them.

What Exactly is Market Segmentation?

First, let’s make sure you understand what we mean when we use this term. Market segmentation when we’re discussing hotels refers to a strategy that you can use to identify some of your key customer segments. To identify and track these segments, you must utilize guest data that offers a structured view. This data should also be formatted in such a way so you can dissect and look at it in different ways.

If you use this technique and data appropriately, you and any other hotel decision-makers can zero in on specific market segments. You can then develop individual strategies in areas such as pricing and marketing.

Why Does Market Segmentation Matter So Much?

When guests stay at your hotel, you have the ability to collect and store many kinds of data about them. This information may not be consistent across all channels. For instance, rooms booked through an OTA might not give you quite the same data you would get from a direct booking. However, you should still try to make sense of consistent data components, regardless of where that data is coming from.

If you track all of this information, you can go deeper when your revenue and financial departments does a financial analysis of your business. For example, you might do income statements by types of customers rather than by department. This allows you to identify the best customers and the ones who are negatively impacting your profitability.  

For instance, maybe you can identify the market segment that stays at your hotel the longest amount of time. Once you’ve done that, you can pay more attention to that segment. 

Doing so might be what it takes to drive up the average length of stay when someone books one of your rooms. This can lower your housekeeping costs, since there won’t be as many room cleanings when a room is vacated. 

You should also attempt to understand the segmentation that applies to your local market. If you know which travelers are already staying in your market, you can use that information to fuel realistic outlooks and meaningful comparisons.

Now, let’s look at some of the market segments you are likely to encounter as you take a closer look at this concept. 

Demographic 

Demographic segmentation is a great way to divide up your hotel guests. You might do so by age, such as families, young professionals, or retirees. You can do it with gender, dividing up your guests into male, female, or nonbinary. 

Income level is another option. You might have different categories for luxury seekers, midrange, and budget-conscious travelers. 

Psychographic

Psychographic is another segmentation option that makes sense to use. You might look at travel behavior, such as weekend getaways, occasional vacationers, or frequent travelers. 

Interests or values might have their own categories. These could include wellness seekers, food enthusiasts, or eco-conscious travelers. 

Lifestyle might be another one. You might put relaxation-focused, business-oriented, or adventurous into different categories. 

Geographic

Geographic segmentation is another useful metric. You might use resort vs. city. These could include countryside enthusiasts, beachgoers, or urban travelers. 

You could use climate preference as a segmentation. You might get snowbirds or warm-weather seekers. Location could be another one. Specific countries or regions, international, or domestic might be options in this area.  

Wholesale

This market segment includes travelers who have booked through a wholesaler. They may have also used a bed bank. These are companies that contract travel services and hotel rooms from travel suppliers. They then market them to third-party resellers, like loyalty membership programs, airlines, travel agents, and OTAs. 

A wholesaler will have negotiated a net rate with your hotel. The wholesaler will resell rooms to the various third-party retailers we mentioned, and they, in turn, will sell these rooms to travelers. 

Wholesale guests are usually traveling for leisure purposes rather than business. They are typically booked as tour groups or FITs, which is shorthand for free independent travelers. Production crews and tour groups are two of the most common examples of wholesale guests, but there are many others as well.

Group

There are also guests you’ll get sometimes who travel as a group. These groups will generally reserve a block of rooms that they get at a special rate. For you to consider these guests to be traveling as a group, that typically means they will have booked at least 8-10 rooms per night. That can vary by property, though.

If you own a larger property, you might also break down groups into subsections. Let’s look at a few of those.

Corporate

Corporate groups are generally traveling for business purposes. They might partner with entities like Surf Office that set up productive company retreats and organize corporate groups with incredible TRevPAR. TRevPAR, or total revenue per available room, is one of the key performance metrics of which your hotel should be aware. 

Some hotels market themselves toward corporate groups in particular. Those that do usually have amenities they feel confident these kinds of travelers might enjoy. 

SMERF

This acronym means social, military, education, religious, and fraternal. For instance, you might have several individuals in the education field that are going to take part in a seminar at a nearby venue. A fraternal organization such as the Elks might also book several rooms at the same time. 

Sports teams, retiree tour groups, missionaries, and others might fall into subsections of the group segment. 

Corporate Negotiated

This segment includes guests who are all traveling for business. Usually, they will be part of the same company. That company often has a negotiated account with the hotel. Your hotel should have a sales department, and that is usually the entity through which a corporate agreement will come. 

If you’re going to do business with this kind of group, you will probably want the company to commit to a certain number of room nights per year, at a minimum. In exchange, you will give them discounted rates and other perks.

Some examples might include businesses like IBM, Amazon, Google, Microsoft, and the like. The larger the companies you negotiate with on the corporate level, the more guests you can expect to get through this arrangement. 

Transient

The transient segment refers to individual guests, or those who are not traveling in connection to or in conjunction with a larger group or entity. They might be traveling for business or pleasure. These types of guests will usually book rooms with your hotel through entities like online travel agencies. They might also book directly through your hotel’s website. 

They will not typically get a negotiated rate in the same way that a corporate entity might. Some hotels also break transients down into further segments, so let’s look at a few of those.

Direct Bookings

If a transient is staying at your hotel, and they booked a room through your website, that is an example of a direct booking. That is a simple, straightforward way to book a hotel room, and some guests prefer that. 

OTAs

OTAs are online travel agencies. There are many of them that exist today, including some massive examples like Expedia.com and Hotels.com. 

OTAs act like search engines for travelers. Travelers who are planning their trips might use one to locate a room, and also a flight and additional travel-related necessities in some cases. 

When looking at the transient segment in general, you might consider digital nomads, families, and backpackers to all belong to it. 

Other

The “other” segment is one that doesn’t get as much attention from hotels, but you should still know about it. Usually, this term means individuals who don’t fall neatly into one of the other categories. 

A member of the military who is traveling alone could be an example. If you have someone who is traveling on government business, they would also be an “other.” Since these others are not so easy to categorize, it follows that marketing to them can be a little more difficult as well. 

Now, let’s talk about some ways you might improve sales by identifying and leveraging some of these market segments:

1. Collect as Much Guest Information as You Can

As any big data company will tell you, the more information you can collect about your guests, the better you will be able to market to them. Whenever possible, gather and retain information pertaining to your guests so your marketing team can study it and formulate a strategy that makes the most sense for your financial goals.

You can collect data when someone makes a reservation and when they check in. You should also try to think of additional touchpoints before, during, or after a guest’s stay that might be useful to you later.

2. Identify Booking Behaviors

Identifying booking behaviors can certainly be useful as it relates to guest segmentation. You might look at things like cancellation rates, the average daily rate and revenue per booking, preferred room types, arrival and departure days, lead times, booking channels, and the cities of origin of most of your guests. Analysis of this data can help you a great deal as you’re preparing a comprehensive marketing campaign. 

3. Solicit Details from Guests

You can also attempt to solicit details directly from your guests. A guest experience tool can allow you to do this. 

For instance, you might send your guests a pre-stay digital registration form. A post-stay survey is also a sensible idea. You can request specific information, such as “what is the purpose of your travel” or “how did you hear about us?”

4. Create Guest Personas

You can also create guest personas. With this information, you can create a representation of a typical guest in each market segment that frequents your hotel. 

The details you’re looking for might include a guest’s preferred room type, what amenities they wanted, how they booked, their lifestyle preferences, their place of origin, and the purpose of their travel.

5. Identify Your Most Valued Market Segments

Identifying your most valuable market segments also makes sense. You can use booking data to figure out which market segments it would be appropriate to target. Once you have figured out which ones generate high ADR and revenue, you can focus on those. 

However, don’t overlook various other segments that may not necessarily spend a lot, but they can still help to fill dates or times when you have more need. These can include corporate workers who travel on the weekends or government workers who travel during the offseason. 

5. Rethink Your Inventory Management 

If you want to make an impact on your profitability, distributing and categorizing room inventory for various segments can definitely help you do that. Consider how you might distribute your inventory in unique ways. For instance, you may bundle and sell different room varieties as a single unit if circumstances call for it. 

You can use these kinds of inventory management procedures to differentiate your hotel from your competitors. You can appeal to specific market segments this way as well. 

6. You Can Develop Pricing Structures

You should not offer the same rate to all of your guests. Instead, develop a pricing strategy with different rate plans for each of the segments you have identified. You can look at pricing sensitivity and booking behavior to help you formulate your technique. 

You might implement corporate, group, wholesale, or BAR rates. These can be flexed down or up depending on how busy you are.

7. Be More Targeted in Your Marketing and Sales

You can also think of marketing campaigns that target your most valued segments once you have identified what those are. As a hotel manager or owner, you might create bonus plans to incentivize your sales staff. You can ask them to focus on group or corporate business. You can set revenue targets and realistic quotas as well.

If you want to do hyper-niche targeting, social media can work to your advantage. This is a relatively easy way to market to very particular population segments.

8. Customize Your Guest Services as Much as You Can

One additional thing you can do is to create special services or amenities that are most likely to appeal to each one of the market segments that you have identified. Intimate or personalized experiences that draw more guests to your property can certainly be helpful. 

You might partner with a local tour operator. Find one that promises to deliver your guests a memorable or unique experience. 

Communicate on your website what guests can expect when they arrive and while they are staying with you. This will also allow you to earn customer loyalty and meet and even exceed a guest’s expectations.

When you start to learn about hotel market segmentation, you might easily become overwhelmed by the amount of data you can bring in or the different ways you can use it. That’s why it’s vital to have members of your marketing team who can help you to segment your guests and leverage the data you collect in the most meaningful ways. 

By identifying the market segments that are most valuable and learning how best to market to them, it’s highly likely your hotel will see unprecedented levels of success.

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