Hotel market segmentation: how to target your most profitable guests

Applying sound revenue management practices and having a clear idea of exactly which consumer groups drive the most value is vital to positively impact your bottom line.

But to optimize your hotel marketing effectively, you’ll need to cater for different needs and different budgets, while continually monitoring your efficiency and cost-effectiveness.

Every one of your defined market segments will contain several unique business sources and each of these will carry different costs. However, this article focuses on bedbanks, OTAs and direct channel.

 

Weigh up the pros and cons of each channel

Hoteliers should not only know which market segments they should use to target their guests, but they should have a clear understanding of the advantages and shortcomings of each different distribution channel. 
And knowing precisely where their guests originate gives them maximum flexibility when it comes to analyzing and managing their business.
For example, what if you could skew your audience so that:

• 40% of all your bookings stay for at least six days in leisure destinations
• Your guests spend twice as much money on site
• You get bookings 55 days ahead

This is the typical profile of international bedbank customers sourced through the Hotelbeds network. And this is an audience that you can access more effectively with proper segmentation.
The better defined your market segments are and the clearer your insight into your distribution channels, the easier it will be for you to apply individual pricing per segment for successful revenue management. 
So let’s take a look at how this all works.

What is hotel market segmentation and why is it important?

In simple terms, segmentation is the process of defining and subdividing a large homogenous market into clearly identifiable segments with similar needs, wants or demand characteristics.
 

 

Once done, this process allows you to offer a unique price for each segment to reflect your different customers and their specific needs. It also means you can start to define and bundle specific sales and marketing efforts in a more targeted way according to the insight you get from a thorough analysis of each segment.

Done well, this allows you to create a specific strategy, relevant to the needs of your market, leading to increased bookings, higher revenue and improved guest satisfaction. 
Effective hotel market segmentation helps you to:

Understand who is using your property

• Where are the highest number of bookings coming from?
• Why are your guests coming to your area?
• Why are they choosing your property?

Know who your most profitable customers are

• How much does each customer pay per booking?
• How much do they spend while at the hotel?
• How long does the guest stay?

Identify business trends

• Should you focus on rebuilding lost business or refocus on a different kind of customer?
• Which distribution channels usually serve the highest-value guests? 
• How has customer behaviour changed over the past months or years?

Target market segments

Identifying the relevant market segments for your hotel gives you a solid base for an effective pricing strategy. Effective segmentation considers different approaches to booking behaviours and how sensitive to price your customers are. 
You can segment customers in several ways, including:

• By booking channel (retail travel agency, tour operator, airline etc.)
• By rate type (double bedroom on half-board basis etc.)
• By reason for visit (leisure or business)

Ultimately, this will help you optimize your distribution mix and manage your distribution costs efficiently while enabling you to monitor inter-channel movements from one channel at a much more precise level.

Effective channel segmentation can also help you to reduce acquisition costs through an optimized strategy designed to deliver maximum profit.

Tip
Effective channel segmentation can help you reduce acquisition costs through an optimized strategy designed to deliver maximum profit. When you work with Hotelbeds, you can rely on a dedicated team of experts to help you tailor your offers to the most valuable customers.

Take a good look at these source channels:

• Your website, direct channel
• Online Travel Agents (OTAs)
• Bedbanks

Focus on understanding your acquisition cost per customer, average booking value and ancillary spend.

Track essential metrics:

• What is the lifetime value of customers?
• Are they loyal returning guests?
• How often do they come back to the hotel, if ever?
• What is the booking lead time?
• What is the average cancellation rate?
• What is the geographic location?
• What is the average length of stay?
• Are bookings midweek or weekend?

Segmentation in practice

So what are the real-world benefits of segmentation for you?

For example, if you’d like to access higher spending international travellers, you could start by finding out which channel your preferred source market uses most often. 

At Hotelbeds, more than 60% of our bookings originate from non-domestic source markets.

Bedbanks drive incremental high-value bookings from B2B travel trade sources such as tour operators, travel agencies, airlines and point redemption schemes. Bedbanks also offer easy access to hard to reach travel buyers from source markets that would otherwise be difficult or too costly for a hotel to access directly. See how Mandar Vaidya, CEO South East Asia & Middle East from OYO Rooms, explains it.

 

Improved understanding of guests is your key asset

If you’re looking for more control over your business, then defining your hotel market segmentation is an essential first move. Try to establish which customers are already staying and what their buying patterns are like.  It also pays to understand their maximum budget and how they made their booking. 

The more you know about your guests, the easier it will be to decide on the best approach for your specific business mix. It will also help you to take the most appropriate and targeted actions for your particular business mix, leading you to greater efficiency and more profits. 

Tip
Bedbanks like Hotelbeds offer more than just a powerful hotel extranet. You get bespoke assistance from a hotel revenue expert who helps you segment and optimise your revenue strategy and maximize your yield.

Finally, if you're interested in getting access to our portfolio with over 71,000 travel distributors, register your property today for free!