Knowing who your guests are, why they book, when they book, and what they're willing to spend is crucial for optimizing your marketing efforts, advertising spend, inventory management, and staff allocation.
It's the number one thing that ties your different departments together and impacts your bottom line.
We're not talking about the abstract creation of target audience personas, but about identifying who your existing guests are and what characterizes them. We're talking about hotel market segmentation.
Hotel market segmentation is the process of categorizing a hotel's target market (prospects, leads, and hotel guests) into distinct groups based on their geographic, psychographic, demographic, and behavioral elements. It helps hotels understand which market segments drive most revenue and allows them to create targeted marketing campaigns, pricing strategies, and offerings to increase direct bookings and guest satisfaction.
Some examples of hotel market segments are:
Your hotel likely attracts a range of guests, and dividing those into different market segments benefits your entire organization, from your marketing department to customer service and your frontline staff.
Here are the main reasons that make hotel market segmentation important.
By categorizing your guests into segments, you can tailor marketing strategies to each of these groups and develop marketing campaigns that are much more effective than if you were to promote your hotel to all your target audiences in the same way.
A good segmentation strategy also helps you reduce your acquisition costs as you target travelers with marketing messages they're actually interested in.
Guest segmentation also allows you to implement different pricing strategies for each of your target segments based on their price sensitivity, spending habits, and likelihood of purchasing cross-sells and upsells, such as room upgrades.
Taking into account each group's spending limits and patterns, and customizing promotions per target guest segment, increases your chances of winning direct bookings. Furthermore, it improves your revenue potential as you're offering travelers exactly what they'd be open to buying, nothing more, but also nothing less.
Hotel guest segmentation also benefits the guest experience. When you know what individual market segments want, you can tailor your services to their expectations and desires.
Senior travelers might prefer a room on the ground floor or close to an elevator, while couples might want to stay in the quieter corners of your property. By anticipating guest preferences, you can increase guest satisfaction.
It also helps with building loyalty as you can offer tailored rewards to different segments.
Hospitality trends are constantly shifting, and the target segments you defined a few years ago may not look the way they did anymore. At the same time, analysis of your data may lead you to discover new guest segments consisting of travelers who previously barely booked with you and are now becoming an increasingly important group.
Frequently reviewing your market segmentation is crucial for making sure that you're still targeting relevant market segments with the right marketing strategies.
By analyzing the booking patterns of different market segments, you can better forecast when you'll be busy and adjust your staff and inventory management accordingly.
You'll also be able to tell which times of the year (or month, or week) you'll need to increase your marketing efforts, and because hotel market segmentation tells you which of your guest segments brings in the most revenue, you can optimize your marketing spend to reel in more of those guests.
Creating guest segments from scratch can be daunting, especially if you have a lot of data.
While each hotel needs to define its own guest segments based on the unique composition of its audience and what makes sense for its business goals, the hotel industry in general distinguishes between a few common segments based on how stays are booked and at what rates.
These can be a good starting point for your own market segmentation efforts, but they don't tell the full story. We'll have a look at them before we discuss how you can create your own segmentation strategy that doesn't just take into account booking type, but also guest behavior, travel purpose, and more.
Transient travelers are business or leisure guests who travel individually, versus in a group or with a company, and book at non-discounted rates. Transient leisure travelers are also referred to as free independent travelers (FITs).
They book through various channels, stay for different lengths of time, and book depending on a wide variety of factors. As such, it's a segment that usually can be divided into multiple sub-segments. A few examples of such sub-segments could be:
This group segment refers to guests who travel and book as a group. They may request bulk room blocks, a discounted group rate, or other perks such as complimentary breakfast.
Oftentimes, group bookings have one organizer or point of contact for the whole group. This can be either an individual person or a group travel organizer.
Hotels often have a dedicated segment for Social, Military, Educational, Religious, and Fraternal groups (SMERF). These can include social workers, military personnel, educational conference attendees, spiritual organizations, and college fraternities.
Corporate Negotiated Rates refer to a market segment that consists of business travelers who stay at special rates previously negotiated by their companies or travel management companies (TMCs)
They often value convenience, including airport transfers, complimentary breakfast, strong Wi-Fi, and flexible booking options.
Similar to CNRs, the Locally Negotiated Rates segment consists of local businesses, associations, or government organizations that negotiate special rates for guests who'll attend workshops, conferences, or other types of events these businesses put on.
The wholesale segment consists of wholesale hospitality industry partners like travel agencies that contract rooms at negotiated rates to then resell those rooms to retail travel agents, tour operators, OTAs, and other travel resellers.
Discount refers to travelers booking hotel room nights through your loyalty program, credit card rewards, traveler programs, holiday sales, or other types of promotions.
This segment is a catch-all for guests who don't fit into any of the other categories. Examples include government officials traveling in that function, those who travel at employee rates, or journalists who get press rates.
The guest segments listed in the section above are based on how and at what rate bookings are made. But we have many more ways of segmenting hotel guests. For example:
The Meetings, Incentives, Conventions, and Exhibitions (MICE) segment, for example, is an important target market segment for many hotels, and it's based on why guests travel. MICE travelers can be solo business travelers, travel in groups, book at a discounted rate, and so on.
This example shows how there can be overlap between different guest segments, which means you can get really granular:
To decide how granular you should get, a good rule of thumb is that each segment should be
With that in mind, you can start building your segmentation strategy by doing the following.
In general, the hotel industry uses four broad groups of traits for identifying market segments:
These four can be broken down further to identify more specific market segments.
Geographic market segmentation creates guest segments based on location. This includes where guests are based (their home country, town, or region) as well as any cultural preferences they may have.
Demographic market segmentation groups hotel guests by quantifiable traits such as gender, income, age, education, relationship status, and family status.
Psychographic market segmentation identifies market segments based on things like lifestyle, values, interests, and personality traits.
Behavioral patterns refer to the booking patterns your hotel guests display. Relevant data you can gather in this regard is:
Note that booking and distribution channels are not the same. The former only indicates the places where people book a stay with you (at the reception, by calling, via your website, via an OTA), while distribution channels include these places as well as all the channels through which consumers can find you and make their way towards a booking.
For example, Google's Hotel Search is a meta search engine. People cannot make a booking directly on Google Hotels like they can on an OTA like Booking.com, but they can click through from Google Hotels to your website and book a room there.
Knowing where your guests find you and make their purchasing decisions is an important data point.
An effective hotel market segmentation strategy requires sufficient guest data. Chances are, you are already gathering a lot of valuable data about your guests and their booking patterns throughout the booking process. You can supplement that with data from:
First, you can use your guest data to define your current guest segments. When doing so, try combining different variables to find your most relevant (or profitable) segments.
For example:
Next, you can analyze how these segments contribute to your bottom line by looking at the following:
This allows you to identify your most profitable segments so you can double down on your marketing efforts towards them.
Once you've defined your guest segments, you need to keep gathering data and run new analyses regularly. This allows you to refine your market segmentation and spot it as soon as a new segment starts to grow.
Hotel market segmentation isn't a one-off activity. Guest segments evolve based on several factors (the economy, geopolitical events, hospitality trends, …), and new segments may arise as the market changes.
Because data lies at the core of hotel market segmentation, you need the tools to gather and then analyze that data. This includes:
Hotels can reap many benefits from doing market segmentation, but might also face some challenges.
Hotels have never been able to gather so much data about their guests as today. But as an increasing number of consumers show privacy concerns, we need to take into account that some segments might be more privacy-minded and that we won't have as much data on those.
Analyzing large data sets isn't easy either, especially when data comes from different hotel management systems, marketing data analytics tools, and third-party platforms.
It's key to find software that easily lets you import all your data and helps you analyze everything in one place. It should also deliver actionable insights and create visually clear reports you can share with stakeholders.
Guests might fall into multiple segments, making it harder to customize their experiences and tailor your marketing for them. To handle this, prioritize the segment that best fits each guest and put rules in place for dealing with overlapping segments that include this prioritization.
If, for example, someone usually stays with you at a corporate negotiated rate but then one time stays as a leisure traveler, you'd categorize them into the CNR segment first.
It's very easy to get overwhelmed by all the data you have and get stuck in analysis paralysis. Data analysis should always support action, not be a goal in and of itself.
You can prevent this by setting clear desired outcomes and deadlines for your market segmentation efforts, such as:
Hopefully, it has become clear by now that market segmentation is a performance driver. The better you know who your guests are and which of them bring in the most revenue per stay, the more you can optimize your marketing to reel in the most profitable guests.
Hotel market segmentation also allows you to improve your resource allocation and inventory management, reducing costs while making everything run more smoothly.
Hotels with a strong segmentation strategy can reap a lot of benefits, as long as they gather sufficient quality data and don't get stuck in the analysis phase.