Know Your Customer is the number one rule of every successful business and this is especially true in hospitality. The closer a hotel can get to understanding its guests and fulfilling their needs, the better. But guests come in many different shapes and offering a one-size-fits-all service just doesn’t cut it. However, strategically enhancing individual guest satisfaction and driving profitability is possible by utilising hotel market segmentation. It’s the basis of effective pricing and price discrimination strategy.
While every guest is different, there are broad categories that highlight these differences. For example families with young children don’t have the same needs as business travellers. And while it’s true that being ‘all things to all people’ is an impossibility, understanding market segmentation in the hotel industry can go a long way to improving the guest journey and fulfilling a hotel’s goals. Segmentation helps to identify and measure the price sensitivity of demand.
Looking at segmentation
Let’s look at some hotel market segments to establish the principles.
- Transient guests form the vast majority of the market. They are those people who may be selecting a hotel in your locale for the first time, having searched OTA sites and social media channels to see what’s available. They will have a wide variety of criteria ranging through convenience, location and price, so segmenting this segment takes quite a lot of research!
- Leisure guests tend to book for weekends and during vacation periods. They often look for cheaper options and do so well in advance of their stay. They may not have chosen a ‘destination hotel’ but rather one that conveniently enables them to visit a nearby tourist destination. They may be less exacting of the hotel because they are not visiting primarily for the experience of staying there.
- Business travellers are almost always short-stay and book weekdays. The time between booking and stay is often short as they are responding to commercial demands, and they are therefore not particularly sensitive to prices and will pay the asking rate. Their choice of hotel tends to be determined by convenience rather than price, but they do respond to loyalty programs and other ‘sweeteners’ such as discounts for personal stays. Once a business traveller has found their hotel they stay with it whenever they’re in the locale. For large hotel chains, encouraging loyalty is therefore paramount as guests will be more likely to stay at sister hotels.
- Corporate negotiated bookings are easier to get a handle on since the parameters will already have been set up in advance of most stays. Pricing and service levels will be established, along with any special deals or ‘perks’ that corporate guests expect. Corporate guests tend to make weekday bookings, and expect business-friendly facilities such as excellent wi-fi. The Meetings, Incentives, Conferences, Exhibitions (MICE) segment is large, potentially very rewarding, and certainly demanding! It’s also a great way of ensuring high occupancy levels.
- Group stays typically also have pre-negotiated terms for levels of service, types of accommodation and arrangements such as group check-in and catering, often with set meal times and menus. A group can generally be defined as ten or more guests, but are they elders travelling on a bus tour or young families meeting for social activity? You have to drill down to find out, and then satisfy that particular demographic with pricing and services appropriate to their needs.
- Wholesale travellers are guests coming through a third-party booking organisation. Online Travel Agents form the most significant part of this segment with their massive market coverage and ability to dictate prices, terms and conditions to hotels. The advantage of working with OTAs is that they increase the visibility of your hotel, but they do control how your business is seen, and also take a cut of your profits. Other ‘wholesalers’ buy up rooms in advance, especially ahead of significant times such as concerts and sporting events. The wholesalers drive prices down, but can benefit the hotel with improved occupancy. They might sell to any demographic, so it’s difficult to categorise what the wholesale market looks like.
- Discount guests are driven by deals almost more than the features of your hotel. They want a low price and are less interested in whether you have great leisure facilities or a fantastic menu. Parents with young children may well be searching for discounts over luxury accommodation. Discount guests are also attracted by special deals such as drink vouchers or reductions on future bookings.
By identifying some general segments such as these it is possible to start the process of more clearly segmenting to cater for the personalised needs of guests. And of course the list may be shorter - if you don’t have the facilities for MICE, you can ignore it as a segment! But once you start deep diving into a segment, the list grows longer again. For example, ‘Vacationers’ are a definite segment, but not every vacationer is looking for the same services and facilities.
As well as price segmentation, the other key differentiator between segments is the booking window, or the time between a guest making their booking and their actual stay. As we’ve seen, business travellers tend towards short booking windows, and are therefore more accepting of higher prices, while vacationers plan over a much longer booking window and can be initially more tempted by a more attractive price.
Understanding the benefits of hotel market segmentation
If the myriad possibilities of market segmentation in the hotel industry can seem a little overwhelming, keep in mind the potential benefits of clear market segmentation:
- Enhanced guest experience can be created by tailoring your offering to a particular segment. This may include seasonal promotions and an awareness of special events that will be attractive to particular market segments. Guests that have a great experience are more likely to return in future, and to spread the word about the excellence of your hotel.
- Targeted marketing is enabled by knowing who guests are and what drives their booking decisions. For the segment most interested in price, you can focus your messaging on that; whereas the luxury conscious segment will receive different communication. Knowing the booking windows for different segments also leads to more accurate marketing initiatives. Instead of ‘broadcasting’ the same marketing to everyone, you create more cost effective and accurate messaging to smaller and more segmented groups.
- Revenue management and optimisation is increased by leveraging what each guest-type is willing to pay, using contemporary dynamic pricing systems that constantly monitor other hotels within your compset, adjusting prices in real time according to demand - often numerous times in the same day.
- More accurate forecasting is made possible by gaining an understanding of each segment and what its needs are. Some demand may be seasonal, and knowing patterns of booking and occupancy greatly help plan resource allocation and staffing rotas. Good forecasting makes for increased effectiveness in budgeting, further benefiting the bottom line.
Identifying the appropriate segments
So, how to analyse and understand market segmentation in the hotel industry? Hoteliers can look in two directions for information. Firstly, by creating and then querying their compset. This is a clear-eyed collating of information about all the competitor hotels in the immediate area which offer similar facilities and services, making it possible to define the segment your hotel is in. Budget, boutique, business, luxury, wellness… the list goes on. Define what your hotel does best and what you most need to communicate about your offering, to the appropriate target audiences. And note that ‘audiences’ can be plural. For example it’s possible to look to the family segment during school summer holidays, but then concentrate on gatherings and seasonal events towards the end of the year. If you know what differentiates your hotel from the competition you can build on that knowledge to give your guests more of what they want, and strengthen your offering to them.
All hotel managers know from experience what their core market is, but in the day to day business of guests arriving and departing, it can be difficult to define patterns. She was a business traveller, they were having a weekend getaway, he was attending a nearby arts festival… Fortunately there are now ways of understanding guests and their motivations in more granular detail.
Getting granular with hotel market segmentation analysis
Property Management Systems such as the industry-leading PMS from SabeeApp contain a mass of information about guests, from their first contact, through booking, during their stay, and on beyond post-stay. The PMS is a vast repository of data which can be tapped into to understand who is staying in your hotel: Where they come from, how long they stay and their reason for staying:
- Were they open to upsells, or were they on the lookout for discounts?
- Were they solo travellers, couples or in a group?
- How much did they spend in-stay on meals, leisure facilities or excursions?
- Did they arrive by car?
- What special needs did they have in the way of diet or health issues?
- Did they respond to any sustainability initiatives you were running?
- Were they celebrating an anniversary or other special event?
These and many other questions about guests can be revealed because the data is already in the hotel’s PMS.
Collecting the data and using it to increase effectiveness
Accessing data by querying a well-functioning PMS is easy because much of the information will have been entered directly by the guest themselves. A PMS will also contain a Booking Engine, where guests first enter their own data, and which can then be used by the hotel in future marketing initiatives. In contrast, if a potential guest has to return to an Online Travel Agent site to make their booking, then a vast amount of data is withheld and can’t be exploited by the hotel. And although the ideal is to have guests make their reservation directly with your hotel, it’s also essential to have an integrated Channel Manager to ensure automatic connection to the wider ecosystem including the Global Distribution network and the OTAs, allowing the 24/7 updating of rates and availability in real-time. That way overbooking is also avoided and occupancy can be maximised.
Ensuring the right segment at the right time
In addition you can survey guests both in-stay and post-stay with questionnaires and even a live communication app such as GuestAdvisor which allows the guest to be in touch with the front desk in real time. It also allows hotel staff to update guests about special events, exciting menu offers and any other news of what’s happening locally. And every interaction with a guest is a datapoint which can be mined later to understand the market segmentation. As that becomes ever clearer, increasing opportunities to target specific segments are revealed. Marketing initiatives can be age-specific, such as to retiree couples, or activity-specific such as art or cookery courses. People who have searched on price and responded to discounts can be targeted again with offers of attractive future offers, and so on.
The point is that through the hotelier’s own experience, coupled with the rich data from the PMS and associated Smart Solutions, precise targeting can be accomplished to the chosen segment. That means a decrease of ‘wasted’ marketing initiatives, and more successful future business and increased occupancy from the right segment at the right time. The hotel operates the right price discrimination strategy with the right booking window for the right audience.
Mining data
Hotel market segmentation touches on lifestyle, personalities, and in Knowing Your Customer at the segmented level, it’s possible to create truly personalised experiences on the guest journey. The beauty of using a system such as SabeeApp’s proven suite of solutions is that data gathering and analysis is produced automatically. Facts and figures are always available and market segments can be easily interrogated. In addition to all the rich information about preferences and personalisation, the ‘hard’ data can be readily examined such as:
- Typical length of stay
- In-hotel spend on food and facilities
- Lead time on bookings
- Percentage of cancellations
- How often are there failures to show
- When bookings peak - or slump - on a weekly or monthly basis
- How sensitive to pricing changes each segment is
- Changes in booking patterns depending on dynamic pricing adjustments
- Average Daily Rate and Revenue Per Available Room
- Supplier and staffing costs tracked against ADR and RevPAR
- Demand for late check-in or check-out
Building the brand for long-term success
Understanding all of the detailed information about market segments leads to a clearer picture of which segments are most valuable and deliver the best bottom-line results. Hotel market segmentation analysis can reveal previously hidden opportunities and help show the spending preferences of different types of guests. The relationship between price and booking window, along with service levels and initiatives such as special offers can be tracked more accurately. This creates opportunities for personalised promotions and enhanced pricing strategies.
Hotel market segmentation is a strategic tool which should be deployed to help hotels stay competitive and profitable. Leveraging segmentation helps balance occupancy and rates while minimising dependency on the OTAs and building strong and lasting brand value.