Explaining the power of segmentation of hotel guests

Is market segmentation important in this regard? Segmentation, namely categorising hotel guests into specific market segments, allows revenue managers to tailor their strategies, pricing structures, and services to meet the unique needs of different guest groups. Guest segmentation plays a pivotal role in the hotel industry as it enables hotels to enhance guest experiences, boost customer loyalty, and ultimately increase hotel revenue. So let's dive into the specifics of the market segment world!

What is hotel market segmentation?

It is a key component of a viable hotel revenue management strategy. Hotel market segmentation is the process that allows the manager to determine existing customer segments by dividing the hotel's market into distinct groups of guests with similar needs and characteristics, such as price sensitivity – for instance, walk-in guests, on-budget and luxury travellers or free independent travelers and group business ones. This practice is crucial for understanding specific segments and their booking behaviours, enabling hotels to cater to unique needs, improve guest experience and develop effective pricing strategies.

Why is hotel guest segmentation important?

The importance of the hotel market division lies in its ability to identify new business opportunities, personalise guest experiences, target segments and boost revenue. Understanding the needs and expectations of various market segments allows hotel owners to propose suitable offers to the right guests, leading to increased conversion rates. Moreover, tailoring content and offers to relevant market segments increases ancillary revenue, enhancing the overall profitability of the hotel business.

Benefits of hotel market segmentation

Hospitality guest segmentation is a powerful strategy for analysing consumer behaviour and driving revenue. By segmenting your hotel’s clientele, you can attract similar customers, encourage guest loyalty, and maximise hotel revenue through targeted marketing and competitive pricing.

Here are the top benefits of grouping guests:

• Identifying new business opportunities – by analysing market segments, hotels can discover untapped markets and develop strategies to attract these guests.

• Personalising guest experiences – understanding the preferences of different guest segments allows hotels to offer personalised experiences, improving guest satisfaction and loyalty.

• Boosting revenue – tailored marketing and price strategies lead to higher conversion rates and increased ancillary revenue, maximising revenue.

Common hotel market segments

Revenue management software allows categorising guest segments into transient, corporate negotiated, group, wholesale, and other segments:

• Transient guests – these are individuals travelling for business or leisure. Examples include business travelers, backpackers, families, leisure guests and digital nomads.

• Corporate negotiated guests  – one of the most profitable guests. Business travellers whose companies have negotiated rates with the hotel. Examples include employees of corporate businesses like Amazon, Microsoft, or IBM.

• Group guests  – guests travelling in a group that has reserved a block of rooms at a special rate. Examples include elderly leisure travellers, school groups, retiree tour groups, and sports teams.

• Wholesale segment  – travellers who book through a wholesaler or bed bank that has negotiated net rates with the hotel. Examples include tour groups and production crews.

• Other guests  – independent travellers who do not fall into the other categories, such as guests travelling on government business or members of the military.

Examples of each segment and their characteristics

Here are the characteristics of specific target market segments:

• Transient  – backpackers typically look for budget-friendly options, families and leisure travelers may seek larger rooms or family suites, and digital nomads require reliable Wi-Fi and workspaces.

• Corporate negotiated  – corporate travelers expect amenities like meeting rooms, high-speed internet, and express check-in/check-out services.

• Group segment  – school groups and sports teams often require bulk room blocks and group dining options.

• Wholesale  – tour groups booked through tour operators or bed banks often have pre-arranged itineraries and may require coordination with tour companies.

• Other  – government or military personnel may need extended stays and specific billing arrangements.

The importance of hotel market segmentation

What yields targeted marketing efforts? Managing customer segments stimulates achieving the following objectives in the hotel industry:

1. Maximising revenue  – by identifying the most profitable market segments, hotels can allocate resources and tailor strategies to maximise revenue.

2. Targeting the correct audience  – segmentation enables hotels to determine customer segments and focus on improving campaign effectiveness.

3. Generating positive reviews – by catering to specific segments, hotels can enhance guest satisfaction, leading to more positive reviews.

4. Improving client loyalty  – personalised experiences and targeted marketing endeavours foster loyalty, encouraging r.epeat business and boosting direct booking

5. Enhancing operational efficiency – understanding the needs of each target market segment helps in planning and resource allocation, improving overall operational efficiency.

6. Developing competitive pricing strategy – segmentation informs dynamic price strategies that align with market demand and guest expectations.

Step-by-step guide to collecting and analysing customer data

How to analyse and collect guest data in the hospitality industry? Here are our top tips:

1. Collect data – gather data on current guests through bookings from online travel agencies (OTAs) or direct bookings via the hotel website or revenue management system.

2. Analyse data – examine the data to identify patterns and trends in guest behaviour, preferences, and demographics.

3. Use analytics tools  – Utilise analytics tools and hotel property management systems to expand knowledge about guest groups, including Google Analytics for website interactions and hotel management systems for booking data.

4. Identify market segments  – categorize the data to categorise guests into different market segments based on their characteristics and behaviours.

Tools and resources for data collection and analysis

How to create targeted marketing campaigns for specific distribution channels and client types? Rely on your expertise and the newest technological developments such as:

• Hotel management systems  – provide built-in reporting features that help track hotel market segmentation data.

• Google analytics  – offers insights into guest behaviour and interactions with the hotel’s website, aiding in understanding the target audience.

• Customer relationship management (CRM) systems  – help manage guest information and track engagement across different channels.

How to segment guests into groups?

Here's our instruction:

1. Identify booking behaviour  – analyse booking and property management system data to understand patterns in guest reviews, and reservations, including booking channels, lead times, and length of stay.

2. Create guest personas  – develop guest personas to represent typical guests in each market segment, detailing their preferences, needs, and booking habits.

3. Develop pricing structures  – create rate plans and pricing structures tailored to each segment, ensuring competitive yet profitable rates.

How to develop a customer segmentation strategy?

Follow these steps if you wish to develop effective strategies:

• Inform dynamic pricing  – use guest segmentation to inform dynamic pricing strategies, adjusting rates based on demand and market conditions.

• Offer flexible options  – provide flexible booking options and packages that cater to the unique needs of different segments.

• Create packages and promotions  – develop targeted packages and promotions for specific segments, such as family packages, business travel discounts, or group rates.

How to target the right hotel market segments?

Here is our formula:

• Use Channel managers – utilise channel managers to create effective distribution partnerships and ensure visibility across multiple booking channels.

• Focus on OTAs – concentrate on OTAs that reach your target geographic markets and demographics.

• Monitor distribution strategy results – regularly review the results of your distribution strategy to evaluate its effectiveness and make necessary adjustments.

Implementing and refining hotel market segmentation

Implementation and tracking are vital. Here's why and how to do it:

• Implement distribution strategy – roll out a distribution strategy aimed at reaching a global audience and chosen market segments.

• Track results – monitor the performance of the distribution strategy by analysing booking data, occupancy rates, and revenue metrics.

• Analyse and refine segmentation setup  – continuously evaluate the effectiveness of your segmentation setup and make necessary refinements.

• Solicit online feedback – gather feedback from guests through online reviews and surveys to better understand their preferences, improve services and foster a better guest experience.

Putting knowledge of hotel market segmentation into practice

Grouping hotel guests helps hotel managers, sales teams, and revenue directors to create the most relevant, effective advertising strategies for their target audiences and boost direct bookings. Now that you understand your hotel’s most relevant market segments, it’s time to develop targeted marketing strategies for each segment.