Hotel Market Segmentation - Importance, Types & Examples

Hotel market segmentation is an effective strategy that allows a hotel to stay in touch with its guests and market its most basic to ambitious campaigns to the audience that would most appreciate them. Market segmentation is a marketing technique that helps a business hit the bull’s eye. It helps communicate the right message, to the right people. Hotels use it to entice a suitable group of guests for offers, deals, and promotional campaigns 

This blog is all about hotel marketing segmentation. From hotel target market segmentation benefits, and types to examples, we cover it all below, so keep reading to leverage its simple yet super-effective marketing technique.

What is hotel market segmentation?

Hotel Market Segmentation is a marketing strategy that helps hotels categorize their guests into groups/segments based on different parameters such as tastes and preferences, behavior, booking patterns, travel purpose, habits, etc.   

This practice helps a hotel to offer the guest whatever he/she seeks. The hotelier or hotel staff approaches the guest keeping in mind the guest’s requirements based on the purpose of travel and indulgences and leverages the information to best serve him/her.   

As a result, the hotel can cater to a guest’s demand, maximizing his/her satisfaction and ultimately business and hotel revenue. It’s a win-win for both parties.   

Furthermore, marketing segments in hotels help businesses to keep up with the changing guest and hospitality trends and revise their strategies accordingly. The data helps hotels to identify and study important business factors such as length of stay, revenue per room and client, booking lead time, etc.   

What does psychographic segmentation mean for the hotel industry?

Psychographic hotel segmentation is about understanding your customers based on their interests, preferences, and lifestyle. You don't consider the demographics of travelers, such as their age and gender.

Instead, consider the personality traits of guests and refine marketing messages accordingly.

Think about a scenario where you may want to attract eco-friendly guests, and one of their unique traits is that these travelers prefer accommodations that value sustainability.

While this might be a different case when your hotel attracts luxury travelers, your entire focus shifts to providing exclusive experiences to them.

Why is market segmentation important for your hotel?

Market segmentation is important for hoteliers as they can identify what type of travelers usually book the most so they can retarget their marketing campaigns accordingly.

Without market segmentation, you don't know which travelers would spend the most, and your pricing and sales strategy will go flat. However, effective market segmentation doesn't consider psychology and spending patterns but rather the geographical region as well.

A coastal region attracts different travelers than a business hotel located in an urban area.

The next step is to focus most of your time and energy on deciding the channels where guests spend the maximum amount of time. Try providing them with experiences that increase their engagement.

Best part? Guest segmentation becomes easy when you can access their detailed profiles in one place stored in PMS.

What things to consider before segmenting your hotel guests?

Understanding your guests is the first step in hotel market segmentation. If you don't know the demographics of travelers, then you can't create effective strategies.

Before segmenting travelers, you need to consider the following factors which are as given below -

• Who are your ideal customers? Where do they belong?
• Why are those people traveling? Are they leisure travelers or bleisuretravelers, or are they corporate travelers?
• What is their ideal length of stay? Are most of them repeat customers?
• What are their expectations for a stay?

Once you keep this information handy, you get an idea of whether these travelers are the dominant group. Are there similar sets of people you can target for your hotel?

You need to find profitable guests who spend the maximum amount on their stays. You can calculate this metric either from the highest F&B spend, guests who spend longer stays, or increase your ADR. 

These guests reduce your operational costs in the long run and maximize your bottom line.

Significant types of hotel market segments

Based on guest behavior, travel history and habits, and price sensitivity, hotels segmentalize guests to better organize and target their services and campaigns. Guests are usually segmented into the following categories:   

• Transients: These guests travel without any group or organization association, at non-negotiated rates. They usually book for shorter durations or stays, and their purpose of travel could be either leisure or business. Their booking style may be a booking in advance, a walk-in, or same-day online reservations.   
• Group: This is one of the biggest market segments of hotels including a group of people that are visiting the hotel together. Their rooms are typically reserved at discounted rates. These groups either book through a request for proposals (RFPs), through travel agents, or directly with the hotel.  
• Corporate travelers: This group includes all the travelers who have been sent through organizations or corporations on business to the city/state, for hotel accommodation. Hotels generally create subscription models and offer corporate discounts and other incentives to such travelers.   
• Wholesale: This last segment consists of bulk bookings made through trip operators or booking agencies. These bookings are generally made at cheaper rates for tourists, tours, symphonies, traveling musicals, bands, and production crews.   
• SMERF: This is an umbrella term for a group market segment that includes Social, Military, Educational, Religious, and Fraternal travel groups.   

Further guest segmentation can be done by categorizing guests based on geography, demography, psychographic traits, and behavioral patterns.   

Benefits of hotel market segments

Hotel marketing segments allows a hotel to keep thorough knowledge about its guest. With the gathered and segmented data, a hotel can target the needs of its guest, ensure resource optimization and enhance guest satisfaction. Thus, the importance of hotel target market segments cannot be undermined, especially for any customer-facing business.   

Let’s look at some of the benefits of hotel target market segments:   

Understanding and targeting what guest seeks 

Hotel marketing segmentation helps a hotel to know a guest better and understand his/her requirements. Guests are categorized into groups based on their behavioral and booking patterns, service and amenity choices, etc. This data is then used to serve the guests according to their tastes and preferences.   

Marketing campaigns are also sent across as per guests' likes and dislikes.   

Personalized offers and experience 

Guest information and segmentation help hotels offer personalized offers and experiences to guests. Hotels gather and study data related to guest behaviors, indulgences, etc., and provide similar services and amenities to the guests. Personalized guest experience enhances guest satisfaction and boosts repeat business as well as new business through positive mouth publicity.   

Targeted marketing 

The hotel marketing segmentation and the data gathered based on that help a hotel communicate the most suitable marketing campaigns, offers, deals, and discounts to the targeted groups. This increases the chances of conversion rates.  

Identification of new business opportunities 

It helps a hotel identify and leverage the new and booming market segments. Hotels make their multiple strategies according to the latest market trends and Hotel Market Segmentation opportunities to capitalize on new market trends.    

Helps with pricing strategies 

Their data helps a hotel identify and charge prices tailored to specific needs and groups.  

Market segmentation data helps with dynamic and seasonal pricing. Additionally, it helps a hotel identify different values placed by different groups of guests on its services and amenities and form informed pricing strategies.   

Positive feedbacks 

Hotel market specialization facilitates personalized services and experiences. This in turn enhances guest satisfaction and allows hotels to garner positive feedback, reviews, and ratings on online review platforms, social media, etc. This helps massively in the hotel’s online reputation management and brings in new business. As a result, the hotel boosts its sales and revenue.   

Examples of hotel market segments

Hotel market segmentation to group guests into different segments and allocate rates accordingly. Some examples could be:  

• Hikers, aged 18-35 from India and Pakistan 
• Families, from Hungry, with children aged 3-15 
• Unmarried guests aged 18-34 from Spain 

Now let’s look at some examples of hotel market segments and the related rate categories:    

1. Public 

These rates are known as “BAR” or Best Available Rate. These rates have the following variations:  

• Website – These are the best available rates on the hotel website.   
• Direct – These are the best available rates sold directly over the phone, email, or fax.   
• Indirect Commissionable – These refer to the best available rates that are grabbed through commissionable online travel agencies or OTAs  
• Indirect Net – These are the best available rates sold at net rates through OTAs.   

2. Promotions 

Promotions include any discounted rates that fall under categories such as Opaque or hidden discounted programs by the hotel, flash sales, mobile website or app discounts, online and offline campaigns, and special events.   

3. Groups 

This example of the hotel market segment includes rates that are charged from a group that may be traveling for leisure, business, incentive, wedding, events, crew, conference/banquet, etc. The stay might be a combination of two or more purposes.   

4. Negotiated Rates 

These are generally the unpublished rates offered to businesses and corporations in exchange for the guaranteed number of rooms that will be booked during a certain period. These rates can be classified as:   

• Corporate dynamic and flat rates   
• Government   
• Crew  

5. Others 

The others segment includes:   

• Complimentary rooms  
• Barter  
• Walk-In  
• Overbooking (from another hotel)  
• House Use  
• Timeshare  

How can BOTSHOT help you drive more hotel revenue through market segmentation?

Market segmentation is important for hoteliers to target the right customers, as all your customers do not behave the same way as they used to. 

To target each traveler, you need to have revenue, pricing, and distribution strategies.

This means you need to decide which type of traveler is price-conscious and loves spending on accommodations that offer discounts.

At BOTSHOT, you can manage your guest profiles with ease using a property management system based on their demographics, psychographics and the type of traveler. By knowing the ins and outs of guests, you can personalize their stay experience.

Once you've created different market segments, you know what type of marketing strategy to create or what type of message you can send to appeal to those demographics.

To run your marketing campaigns and deliver the right message to the right traveler, e-Mark-IT is meant for you. You can send them personalized messages, engage them, and provide instant resolution to their queries.

FAQs

Q1.) What tools can hotels use for effective market segmentation?

A1.) There are different tools that hoteliers can use to target travellers effectively-

• Once a guest makes a booking, PMS gets all the details. This way, you can create detailed guest profiles, segment them, and offer personalized campaigns.
• Study the audience's behavior on your hotel's website through Google Analytics. See what pages they are interacting with the most and where they spend the maximumamount of time.
• It's better to talk to your guests directly and take feedback from them by sending them post-stay survey forms. Ask them what they like most, know their preferences, and adapt your offerings as per their expectations.
• You can even check out online reviews and see what they say on social media. This way, you can appeal to the target audience.

Q2.) How should hotels approach pricing strategies based on market segments?

A2.) Hoteliers create different pricing strategies depending on who they want to cater to. If you set the same price for each guest, then you won't make your hotel profitable. That's why market segmentation is important for setting the right price.

For instance – If you were to attract low-segment travellers, you could offer them discounts. Though this reduces your hotel revenue, it increases revenue for each booking.

But it boils down to what type of guests you serve. Are they high-income class people who are willing to spend extra?

Q3.) Is hotel market segmentation only useful for large chains or also for boutique and independent hotels?

A3.) Hotel market segmentation is important not only for large chains but also for boutique and independent properties.