19Sep

The Importance of Hospitality Segmentation

Author: Avanti Joglekar

The practice of aggregating prospective guests into groups is known as segmentation. These guest segments have common behaviors or needs, and respond similarly to marketing tactics. It is impossible to forecast demand or examine data without first breaking down the business into customer groups. Managers must understand that different segments of the business have different acquisition costs, behaviors, and levels of profitability.

Segmentation allows one to determine which customers are the most valuable from a potential revenue standpoint. By identifying customer groups that behave similarly, and assessing their value, revenue managers can determine how various lines of business contribute to their bookings and profit. They can then develop strategies to balance these segments in order to achieve the optimal mix of business for their hotel.

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Transient guests are individuals or families that may be traveling for business or leisure. Generally, leisure bookings comprise weekend dates or longer lengths of stay. Short mid-week stays are more typical for business travel. Group business is a booking that comprises multiple rooms, whether by an association, large family, corporation, or conference. Group business often includes other revenue producing components besides lodging, such as food & beverage, and meeting space.

The more a revenue manager can diversify booking sources, the better she or he can segment clientele and reach out to them on their preferred channels. When creating segments, it is important to think about whether customers from different channels tend to pay a similar price, and how early or late they tend to book (the booking window). It’s best to keep customers with early and late booking windows in separate segments.

How much further to break down these categories depends on the individual business. For example, if most bookings come in through the OTAs and each OTA performs differently, it may be useful to look at each one as a separate segment. Or it may be more useful to segment OTA bookings according to leisure vs business, or by length of stay.

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Wherever distinctions are found, sub-groupings can be created to address them. The more groupings and sub-groupings that are created, the more options revenue managers have to push different room rates and offers to those segments. In other words, a manager can maximize each piece of business, once it is known how those pieces typically behave. It is important to understand which channels contribute significant revenue. If the hotel historically receives only a small number of bookings through a particular segment, it probably does not warrant additional subgroupings.

Want to learn the steps to developing and maintaining a hotel segmentation strategy? Download the Rainmaker Guide to Hotel Revenue Management for the entire cyclical segmentation process from start to finish. 

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