A 7-step guide to effective hotel market segmentation
Every seasoned hotelier would agree that hotel market 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 develop more effective pricing strategies.
Unlike a cookie-cutter approach to your pricing, hotel segmentation also enables you to play it smart and maximise hotel 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 hotel market segmentation?
Hotel market segmentation is a way of grouping your hotel guests into several segments based on a set of shared characteristics. The purpose of using hotel market segmentation lies in catering to each guest's needs better and maximising revenue through personalised experiences.
What is the most common market segmentation in the hotel industry?
Regardless of the type of hotel, guests are placed into market 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 Negotiated Rates (CNRs) – 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.
Local Negotiated Rates (LNRs) – this segment involves local businesses hotel general managers and revenue managers have agreements with
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 includes booking agents and tour operators. They usually make bookings in bulk at discounted rates.
Other – This segment usually includes complimentary rates, industry rates, rates available to the staff and 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. Hotel guest demographics 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 market segmentation important? [7 benefits]
As mentioned above, collecting data on your market segments will help deepen your understanding of your target guest groups. It will provide you with insight into:
Booking patterns (how different guest segments make bookings, what channels they use, etc.)
Their needs and 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. Identify new business opportunities
Find out which market segments, such as business or corporate travellers, wellness tourists, or digital nomads, are visiting your area and identify the reasons for their visits. By understanding the needs and expectations of the various market segments, you can discover new business opportunities and learn how to better meet the needs of your most profitable guests.
2. Personalise 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.
Discover how Oaky, hotel upselling software, can help you improve personalisation efforts and make sure your special offers and deals are showcased to the right guest segments.
Discover what Oaky can do for you
3. Boost your ancillary revenue
Tailoring your content and offers to relevant market segments can have a significant impact on your ancillary revenue. Based on our analysis of three months' worth of data, segmenting your pre-arrival email communication with a guest can increase your hotel's upselling conversions and revenue. The data speaks for itself:
The deal approval rate increases by 6% (which means fewer request rejections and more satisfied guests)
A service deal gets requested 84% more often than not segmented service deals
Room upgrade deals get requested 72% more often than not segmented upgrade deals.
The data also shows that certain categories of deals see the most uplift in conversion when segmented. These categories include public transport, parking, eco deals, bike rental, and wellness deals.
4. Maximise revenue from your most profitable 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.
5. Target the correct audience with your marketing strategies
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.
6. Use the most effective pricing strategies
Hotel market segmentation is a key tool for hotels to set up effective pricing strategies tailored to the specific needs and preferences of different groups of customers.
For example, you may offer lower prices to business travellers during the week when demand is lower, and higher prices to leisure travellers on the weekends when demand is higher.
Additionally, hotel market segmentation can help a hotel understand the value that different groups of customers place on its services, which can inform pricing decisions. For example, you may be able to charge higher prices to luxury travellers who are willing to pay more for high-end amenities and experiences.
7. Generate more positive reviews
Guests appreciate you taking the time to personalise offers for them. Segmentation facilitates personalisation and improves the guest experience, 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 the 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
Upgrades and packages
Purpose of their trip
- Step 2 - Segment guests into groups of your choice
Define specific 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.
- Step 3 - Dig deeper into different market 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 your segmentation strategy 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.
Oaky tracks the coverage of each segment so you can see who your guests are and perfect your deals further. Group your guests based on the following criteria:
Guest personal details (Gender and Number of Guests)
Date and timing (Check-in and Check-out Day)
Reservation details (Length of Stay, Returning Guests, Travel Agent, Booking Source, Reservation Type, Hotel Room Type).
Loyalty program membership.
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 guest type
Customise your content to cater to different types of guests. As different market segments have different needs and preferences when travelling, tailoring content per guest type will boost their guest experience.
For example, business travellers might be more interested in hotel business facilities, while leisure travellers will appreciate the information about local attractions and things to do.
Here are a few different ways in which you can go about it:
Pre-arrival emails – Create different email templates for different guests, for example, for guests who book directly vs guests who book through an OTA. For guests who book through an OTA, your pre-arrival email is the first touchpoint with your brand. Therefore, craft your pre-arrival email with due diligence to communicate and present your brand from the best angle.
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 [An example of hotel market segmentation]
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:
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.