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How to set up effective hotel segmentation in 7 steps [In-depth Guide]

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Hotel segmentation

Every seasoned hotelier would agree that hotel segmentation is one of the key components of a viable hotel revenue management strategy. Not only does it help you understand your guest segments and their booking behaviours, but it also allows you to cater to their unique needs and match different budget levels more effectively.

Unlike a cookie-cutter approach to your pricing, hotel segmentation also enables hoteliers to play it smart and earn more revenue by providing different services at varied prices to different consumer groups. The best part is that you can apply guest segmentation to both your hotel room inventory and upselling management.

Explore how to leverage hotel segmentation and which guest segments you can consider to group your audience into to provide more targeted offers and calibrate your pricing to fit different budgets.

What is the most common market segmentation in the hotel industry?

Regardless of the type of hotel, guests are placed into segments based on behavioural patterns and price sensitivity. Some of the typical customer segmentation in the hospitality industry looks as follows:

  • Transient – the transient segment comprises people who travel individually and do not belong to any group or company. They make bookings based on their own choices, aiming to catch the best available rates (BAR).

  • Corporate – this segment refers to companies or corporates that house their employees in the hotel. Companies usually get discounted rates and other perks at the hotel.

  • Group – As per its name, this segment refers to a group of people who have travelled together to the hotel. Many hoteliers often give groups reduced rates.

  • Wholesale – The wholesale segment consists of booking agents and tour operators. They usually make bookings in bulk at discounted rates.

  • Other – This segment usually consists of complementary and overbookings segments, walk-in guests or guests staying through bartering (e.g., influencers).

To group your guests further and create more detailed segments, you can also take into account the following factors:

  • Geographical – This refers to segmentation based on the physical location of your guest, such as a country, city, etc. This helps identify where the guests are coming from and their economic status.

  • Demographic – This factor encompasses aspects such as age, gender, and ethnicity. It will help you identify which group of people prefer which experiences and make arrangements based on them.

  • Psychographic – This factor includes psychological characteristics such as personality, values, and beliefs.

  • Behavioural – It is based on the behavioural patterns of the customers, such as user response, attitude and customer loyalty. This helps identify which marketing methods work for which customers.

By keeping all these factors in mind, you will be able to shape well-thought-through offers and deals that will more resonate with your guests increasing your chance to drive more ancillary revenue.

Why is hotel segmentation important? [5 benefits]

As mentioned above, hotel segmentation will help deepen your understanding of your target guest groups, get more insight into how they are making bookings, and learn about their expectations. With this information up your sleeve, you can tailor your offers and increase your revenue by suggesting the right offer to the right guest — be it a room upgrade or an upselling add-on.

But the benefits of defining your hotel guest segments go far beyond. One of the major advantages is that hotel segmentation can give you all the data you need to harness your full hotel’s potential.

1. Understanding your guests' expectations

While suggesting all your deals to every customer might seem like the right thing to do, it could become confusing for your guests and overload them with unnecessary information. Irrelevant upselling deals or room upgrades that do not match the guest’s budget are bound to lead to low conversion rates and affect the guest experience.

For instance, suggesting a romantic dinner for two to a solo traveller might not only seem bizarre but will also ruin your personalisation efforts. Therefore, it is best practice to do your homework and work out detailed guest profiles to map them to corresponding deals to always delight your guests with relevant upgrade suggestions.

2. Personalising your offers and guest experiences

You’ve identified the different kinds of guests your hotel attracts and come up with a number of engaging offers and add-ons. The main challenge you now face is proposing the right offers to the right guests. On the bright side, now you know your target guests, so you can shape offers for different guests' profiles and set the best pricing per segment.

Personalising your offers based on customer profiles can lead to increased conversion rates.

Individualised offers show guests that their needs have been considered by you and will most certainly make them feel appreciated. And since your guests can customise their stay exactly the way they want to, they’ll have a more memorable, enjoyable experience and be more likely to come back and spread positive word of mouth.

Download this guide that features first-hand customer stories about how Oaky’s segmentation tool has helped hotel businesses increase profits and improve their guests’ experiences:

3. Maximising revenue from your most lucrative guest segments

Once you dip your toes into hotel target market segmentation, you will be able to see how much your guests spend during their stay. Study how much it costs to get a reservation from a specific guest profile and measure the revenue they bring in. Identify which guest segments are the most profitable and tweak your strategy to maximise bookings from these specific segments.

For example, a good starting point would be to compare business vs leisure guests and those who book directly vs those who book through a travel agency. Then, once you’ve found where you make the most profit, think about how you can offer special deals to these guests.

4. Targeting the correct audience with your marketing campaigns

Guest segmentation also comes in handy in refining your sales and marketing efforts and choosing the most appropriate marketing strategies. Firstly, by keeping your target guest segments in mind, you will be able to select distribution channels where your target audience is present.

Secondly, based on your target personas, you can create customised marketing campaigns that will resonate with each segment you are aiming to attract. You can do this through email marketing, social media campaigns, and digital ads. Put together email templates to send to different guest segments.

For example, you could have one email template for business guests and a separate one for leisure guests featuring different room upgrades and add-on services (and, of course, at different prices).

You can also use targeted ads on social media for major groups of your customer base.

5. Generating more positive reviews

Guests appreciate you taking the time to personalise offers for them. Segmentation facilitates personalisation, as the most relevant offers reach the right guests at the best moment of their customer journey.

By having the possibility to customise their stay, guests will be more likely to rave about their experience, spreading a good word about your hotel across reviews platforms, which will boost your hotel’s reputation and revenue.

How to set up guest segmentation at your hotel in 7 steps

Kicking off with hotel market segmentation requires some extra work at the beginning, but its rewards are well worth it in the long term. Here is the best way to get started when setting up guest segmentation:

- Step 1 - Collect and analyse information about your guests

Get as much information as possible about all the current guests you have at your hotel. You can collect the following data through bookings from online travel agencies or direct bookings through your website:

  • Length of your guest’s stay

  • Number of guests

  • The type of room

  • Extra services

  • Upgrades and packages

  • Purpose of their trip

  • Booking channel.

- Step 2 - Segment guests into groups of your choice

Define market segments the way you see them using your practical knowledge. Your first segmentation draft does not need to be perfect; it should rather be the base that you will keep on building up once you do more detailed research. Here are a few ideas on groups you can start segmenting your audience into:

  • OTA bookings vs direct bookings

  • Business travellers vs leisure guests

  • Solo travellers vs couples vs families with kids.

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- Step 3 - Dig deeper into your guest segments

To expand your knowledge about your target guests, you can apply the following tactics:

1. Run surveys

Surveys will allow you to get first-hand information about your guests’ preferences and expectations. You can send a survey via email or just ask about your guest’s experience at the check-out. The questions that you might want to ask include:

  • What did you enjoy the most about your stay?

  • What was the purpose of your visit?

  • Do you have any suggestions on what can be improved?

  • How did you learn about our hotel?

2. Keep an eye on online reviews

Reviews are a valuable resource for learning what is important to your guests. You can also take a look at guest reviews of your competitors if you are sure they advertise their services to a similar audience.

3. Become a pro user of analytics tools

Google Analytics is a good start for anyone who wants to expand their knowledge about website users. By utilising Google Analytics, you will get data on where your customers are located, how they get to your website and what their interests are.

- Step 4 - Use automation to streamline your segmentation efforts

Once you have determined the different segments, you can start putting segmentation into practice. The best way to do this is to use a software solution.

Oaky's ever-evolving segmentation function enables hotels to apply guest segmentation to room upgrades and add-on upselling.

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Oaky tracks the coverage of each segment so you can see who your guests are and perfect your deals further.

For example, Apex Hotels use segmentation to send personalised pre-arrival messages to their business guests and offer custom services that make their stay smoother and more enjoyable. Hotel van Heeckeren sends different deals to singles and couples, so they each have appropriate offers to choose from.

The results of this personalisation effort are higher conversion rates and boosted ancillary revenues for hotels and, of course, happy guests who appreciate the tailored service and share the experience with friends and colleagues.

- Step 5 - Craft different content and upselling offers per each guest type

Customise your content to cater to different types of guests. Content tailored to each segment will appeal more than generic and bland content.

Here are a few different ways in which you can go about it:

  • Pre-arrival emailsCreate different email templates for different guests, for example, for guests who book directly vs guests who book through an OTA.

  • Segment-specific offers – Offer different services and packages to upsell deals based on specific guests' needs; for example, takeaway breakfast for business guests vs breakfast in bed for leisure travellers.

Here is how your potential segmentation setup as well as deals tailored to each segment might look:

  • Check-in day (weekday vs. weekend): for weekenders your special brunch deal might be interesting. Guests staying during the week might be keener on an offer for a fancy dinner which could help fill up your restaurant on slow days.

  • Length of stay (short vs. long): the longer guests stay, the more time they have to test the hotel’s facilities and the more likely they’d grab a combination package which could include airport transfers, meals, spa treatments and entertainment.

  • Single guests vs. couples: Send couples to 7th heaven with a romantic package or offer solo stays fun social activities to join.

  • Travelling with or without children: guests with kids might jump on the chance of a hassle-free airport transfer or child-friendly meals.

  • Country of origin: guests from some countries are known to book with a long lead time or to spend more money. Offer them exclusive services or special packages for added revenue.

  • Booking source (OTAs vs. direct bookings): if guests from a certain OTA usually fall into a particular segment, they are easier to target while direct bookers can be rewarded with extra advantages and discounts.

- Step 6 - Take advantage of optimised rates

Optimise your pricing strategy based on your guest segments. For example, you can offer discounted room upgrades for travellers who have booked directly through your business website. The trick here is to offer guests the corresponding offers in the pre-arrival email.

With Oaky and Duetto integration, you can automatically price different room upgrades based on demand, guest segment or channel of booking, rather than offering upgrades to all your guests for the same static price. Find out how Oaky and Duetto work together to maximise your earnings by watching this on-demand webinar.

- Step 7 - Analyse and refine your segmentation setup

Now it is time to analyse your deals' performance and optimise or remove the underperforming ones. This will help you focus on packages and segments that bring in more revenue.

Keep combining different offers and customising them to suit various guests. For example, you can even have the same deal but tweak it for different profiles. You can do this by:

  • Changing the deal's name

Same deals can have different names depending on who they are being offered to. For example, a reserved spot at the rooftop bar can be named “Conference on the Roof” for business guests or “Love is in the Air” for couples.

  • Tweaking the deal description

You can tweak the description of similar deals to cater to guests who have similar profiles. For example, swimming pool activities could apply to romantic guests and a group of friends on holiday. So even though the offer can be the same, the description can be different depending on the audience it is targeted at.

  • Changing the featured image

This is a quick and easy way to refine your segmentation setup. For example, if you are sending an offer to a younger audience, you can use a picture with more youthful individuals for the featured image. You can also use older people for an older audience.

The most common types of guests to include in your segmentation list

There are many different types of profiles you might come across when doing segmentation for your hotel. Here is a list of the most common types of guests to include in your segmentation list:

  • Backpackers

  • Retirees

  • Families

  • Solo travellers

  • Couples

  • Vacationers

  • Adventurers

  • Medical tourists

  • Business travellers.

Hotel guest segmentation: a brief checklist to get started

Hotel segmentation may seem like a lot to process, but it is not something that you have to get right on the very first try. Let’s go through what we have learned:

  • The transient, corporate, group, wholesale and other segments are the most common customer segments.

  • Hoteliers can also make segments based on geographical, demographic, psychographic and behavioural factors.

  • Expand your knowledge about your guest groups by surveying your guests, analysing your deals’ performance and using an analytics tool to further polish your segmentation setup and offers.

  • Test your deals to figure out what works best for your guests by tweaking deals’ descriptions, names and featured images.

Let Oaky help you on your upselling journey

Any questions about Oaky? Feel free to reach out!

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Marieke Wisse
Head of Marketing
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