By Laura Pratt
The more a hotel knows about its guests, the better it can entice them to book and the better it can meet their needs on site. This illumination is facilitated with hotel market segmentation, a key component of a viable hotel revenue-management strategy. Market segmentation is the practice of categorizing hotel guests based on shared behaviour and characteristics, and it’s a fundamental piece of revenue management that extends its benefits to marketing, operations, and the guest experience.
Back in the day, hotels had a summer rate and a winter rate and they didn’t much mind who their customer was or whether they visited on a Tuesday or a Saturday. With market segmentation, instead of treating all guests the same, hoteliers can tailor marketing materials, guest communications, services and pricing to meet the needs and expectations of each segment. Here, hoteliers collect guest information (at touchpoints before, during and after their stay); identify booking behaviour, including such details as city of origin, stay patterns, booking channels and preferred room types; determine their most valuable market segments (prioritizing those that generate high revenue and ADR); create guest personas to represent typical guests in each market segment; adjust their inventory management strategy; and develop pricing structures that acknowledge segments’ booking behaviour and price sensitivity.
Through this exercise, operators learn whether it’s millennials or Baby Boomers booking their rooms, and if they’re doing so to facilitate business or leisure travel. Hoteliers know that group guests — who typically book well in advance and reserve multiple rooms — behave differently from transient guests — who book anytime they please and typically reserve a room at a time. Armed with this knowledge, along with guests’ travel intentions, preferred dates of stay, and even age range, gender and place of origin, hoteliers create packages and promotions that drive direct bookings, while enhancing brand recognition and maximizing revenue along the way.
IHG is a great practitioner of market segmentation, says Tarandeep Singh, regional VP of Commercial, Marketing & Revenue Management, Canada, IHG Hotels & Resorts. The company, which has aligned its market segmentation approach across all its global hotel brands, starts by exploring visit purpose.
“From there, we take a closer look at market segment data and the channels and timing guests use to book,” says Singh. “This information helps us create and refine our customer profiles in line with travel and stay needs.”
Going forward, Singh says the expansion of data will increase hotels’ ability to “conduct more in-depth behavioural analysis and uncover distinct guest segments based on demographics, booking trends and preferences.” Through better and broader data analytics, along with AI and other emerging technologies, he says, hotels “can anticipate activity and proactively tailor services and offerings. Ultimately, this knowledge inspires more personalized guest experiences and improved guest satisfaction.”
Singh believes hotel market segmentation — and the better understanding of guest behaviours, profiles and preferences it affords — offers several advantages for owners and operators in an increasingly competitive hospitality landscape. “This engagement can enhance the guest satisfaction and loyalty so essential to our growth and success,” he says, adding that segmentation also allows for smarter and more seamless operations through the implementation of dynamic pricing, ideally timed promotions and reduced costs per customer acquisition through more targeted marketing.
“Segmentation enables hotel owners to tailor offerings to different groups and expand their revenue capture potential,” continues Singh. For instance, hotels can emphasize efficiencies through co-working spaces, faster check in and check out, and loyalty rewards to attract business travellers while at the same time enticing leisure travellers through a reiteration of family activities, spa services or proximity to notable tourist attractions.
IHG, he says, also explores opportunities for potentially untapped or overlooked customer segments. An example is its engagement with airlines, highlighting potential needs for soundproof rooms, corridors and in-room dining to attract flight crew groups. And IHG acknowledges the prominence of sports travel throughout Canada with its recently launched IHG Youth Sports program, which targets this segment by anticipating the needs of parents, players, team organizers and event sponsors. This hotel behemoth also maintains partnerships with Esso and the Alberta Motor Association to catch the attention of Canadian road trippers.
In simpler times, Nooshi Akhavan, director of Revenue Performance & Distribution at Coast Hotels, remembers guests fell into just a handful of buckets — at least according to operators’ understanding of them.Twenty years ago, she says, there were just four segments: transient guest (business and leisure weren’t divided then), group guest, tour and wholesale, and crew. “Today, I’ve seen hotel brands that have 18 market segments,” she says.
Hotel market segments can vary by property type, but now they typically fall into five categories: transient (guests travelling for business or leisure, who might be further divided according to categories such as OTAs, direct bookings and packages); corporate negotiated (business travellers whose employers have negotiated accounts with the property that reward minimum bookings with discounted rates and other benefits); groups (guests who reserve room blocks in advance at special group rates); wholesale (travellers who book through wholesalers who re-sell rooms to third-party retailers); and other (including independent travellers who don’t fall into other categories).
CoStar Group started tracking hotel guest segmentation in January 2002 to allow for deeper analysis of customer segments. “Hotels are sophisticated now when it comes to revenue management,” says Laura Baxter, director of Hospitality Analytics, Canada, CoStar Group. “And there’s some sophisticated software that allows this to take place. A well-organized hotel is definitely using segmentation and analysis to their advantage. If it has a certain amount of base business, it can set its rates higher, understanding that the pickup will be strong based on previous years.”
This third-party data provider offers a forward-looking predictive tool that looks at the past to predict the future while acknowledging what bookings are in the market at the moment — all with a view to supporting a hotel’s pricing. It tracks past business — essentially occupancy on the books per day and pickup — and issues forward-looking data for the next year. “Data points that suggest type of pickup or what future booking demand looks like in the market gives hoteliers tools to make better-informed decisions,” says Baxter.
The channel from which a traveller originated plays into the equation now more than ever, given this characteristic’s ability to impact behaviour. It’s why Akhavan underscores the importance of understanding customers’ purchase paths.
“A channel direct is less cost to me than an OTA, so I’m trying to encourage them to come direct,” says Akhavan. “If we can understand each market segment and the channel from which they feed, we can put more energy into those channels. Managing them to maximize revenues for the day is hugely beneficial.”
The trick to mastering this part of the game, she says, is having a good revenue-management software system to see segmentation coming in, having a good business intelligence tool to let you know what channels are working and measuring those results regularly enough that you can anticipate the future. A revenue-management tool now allows operators to extend an almost unlimited number of rates that are reflective of guests’ history and length of stay, a property’s busyness and so much more.
The expanded view has expanded business. “If you had a summer/winter rate and nothing else, and it didn’t matter who your customer was, your revenue was capped out; you couldn’t go beyond that,” says Nicole Nguyen, SVP, CBRE Hotels. “Now a hotel has recognized that, if a guest wants to stay on Saturday when it’s hard to get a room, it can charge $5 more and that $5 goes directly into its pocket.” Like dynamic pricing on airlines and ride-sharing apps, hotels can earn incremental revenues that drive incremental profits.
Many RMS tools are no brainers, says Nguyen. “You plug it in and it more or less operates on its own.” Some are decision-based systems that make and push through rate decisions based on historical data. Others are merely suggestion tools, inviting the hotel’s revenue manager to take the lead.
Going forward, Akhavan believes, AI will play an expanded role in guest assessment. “Technology is catching up to the hotel industry and hoteliers are finally paying attention.”
