Hotel Market Segmentation

Hotel market segmentation categorizes consumers based on varying needs and preferences, enabling tailored marketing and service strategies. This approach is crucial for maximizing revenue, enhancing guest satisfaction, and ensuring competitive advantage by accurately targeting and meeting the specific demands of diverse customer groups within the hotel and hospitality industry.

Key Takeaways

  • Geographical: Tailor services to location-based preferences, enhancing relevance and guest satisfaction.
  • Demographic: Segment by age, income, etc., to offer targeted amenities and marketing.
  • Transient: Focus on short-term guests with flexible pricing and convenience.
  • Behavioral: Customize experiences based on guest habits and preferences for loyalty.
  • Group: Offer tailored packages for events and large bookings to attract group business.
  • Special Offers: Use deals to attract different segments, increasing occupancy and revenue.
  • Corporate Negotiated Rates: Provide discounted rates to businesses to secure regular bookings.
  • Local Negotiated Rates: Offer special rates to local residents or businesses to boost local engagement.
  • SMERF: Target social, military, educational, religious, and fraternal groups with specific deals.
  • Wholesale: Partner with travel agencies or operators to sell rooms in bulk at reduced rates.

Table of Contents:

Introduction

Hotels want to attract as many guests as possible to maximize revenue. One of the best ways to achieve this is to segment the hotel market so that different groups of people can be targeted with different marketing messages, pricing strategies, and services. In this article, you will learn some hotel market segmentation tips and strategies for hoteliers to use, to generate the best results.

What is the Hotel Industry?

To understand the hotel market and segmentation, it is necessary first to understand what the hotel industry is and is not. A basic description would be the industry that revolves around hotels, with the word hotel meaning any property that charges money for short-term, overnight accommodation and related guest services.

In other words, the hotel industry also includes properties like hostels, motels, resorts, bed and breakfasts, inns, and holiday cottages. Excluded from this definition, however, are any forms of accommodation designed for long-term use by guests, or for use as a permanent place to stay for a tenant.

The article “Hotel Industry: Everything You Need to Know About Hotels!” breaks down this definition of the hotel industry further, while also offering information on hotel strategies, consumer trends, and more.

What is Hotel Market Segmentation?

Hotel market segmentation can be described as breaking down a broad hotel market, often made up of existing and/or potential customers, into smaller segments, based on common characteristics. This is generally achieved by using existing customer data, historical data, and broader industry data and trends.

The hotel market can be divided in several ways: by income, common interests, customer needs, customer behaviors, and reasons for booking. This allows your hotel marketing department to target different market segments with different messages, while other strategies, such as pricing, can also be targeted to optimize outcomes.

Video: An Introduction to Market Segmentation

Why is Hotel Market Segmentation Important?

Hotel market segmentation is important because it helps you to target hotel marketing, pricing, and services to the right audience, to generate revenue and keep customers happy. Segmentation can also help you better understand hotel guests and identify relevant trends within specific market segments.

Understanding your hotel market fully requires you to gather relevant data. This can come from direct bookings, third-party platforms, and customer interactions. At times, it may also be possible to infer certain things about guests, such as multiple guests staying at the hotel on a weekend, likely being leisure guests.

How Does Hotel Market Segmentation Help Your Business?

Understanding the different segments of the hotel market can help your hotel business to analyze performance more comprehensively. For instance, it may reveal that your hotel is very good at attracting business travelers and other corporate guests, but less effective when attracting leisure guests – or vice versa.

Equipped with such an understanding, you can also start to make changes to your hotel. This could help you to cater to your existing customers, or attract customers you are currently struggling to reach. Steps here could include altering some of your hotel’s additional services or changing where you promote your hotel.

Video: How do hotels segment their clients?

Hotel Market Segmentation Examples

In the sections that follow, you can learn about some of the most common hotel market segmentation categories:

Geographical

A geographical hotel market segment will be based on the physical location of guests. It allows hotels to know where guests travel from and for marketing to be targeted geographically. Broadly, geographical segments could be based on the country each customer or potential customer lives in. Still, hotel market segmentation could go further, breaking this down by city, or location within that country.

Demographic

Demographic segments are designed to group customers or potential customers based on factors like age, gender, income bracket, or the language they speak. It can help hotels to identify trends based on demographic data, such as which age groups prefer which services, or which experiences appeal more to one gender than another.

Transient

Transient travelers are travelers who are often on the move. They will generally look for short-term stays, and may book late or even turn up as walk-in guests. Often they will be business travelers or digital nomads, although this is not always the case. Transient travelers often have simple needs – a clean room, reasonable rates, and good service.

Behavioral

Segmentation can also be based on patterns of behavior. Examples of some of these patterns could include repeat customers, customers who have left positive or negative feedback, guests who eat at the hotel, and so on. Behavioral segmentation allows hotels to understand which behavioral trends to be aware of and focus services towards.

Group

Group bookings are a vital hotel market segment because they allow hotels to sell blocks of rooms simultaneously. Often, group bookings are negotiated at a discount rate, because they guarantee a large number of customers. Examples of group bookings include wedding parties and large business conferences. Events in the local area, such as concerts or sporting events, may also lead to larger group bookings.

Special Offers

Many guests are offered a discount, but the special offers hotel market segment most commonly refers to significant discounts associated with sales, customer loyalty programs, event discounts, and other special offers. While some of these customers may not reliably visit the hotel outside of these offer periods, customer loyalty program customers are repeat visitors, and there may be an opportunity to earn approval and attract repeat business from others.

Corporate Negotiated Rates

A corporate negotiated rate (CNR) is a specific rate, which has been agreed between the hotel and travel planners from a business. This hotel market segment can be important for many hotels, because it represents regular business from corporate travelers. This segment of customers tends to want short stays, at a good price, with reliable Wi-Fi. There is also the potential to attract business for conferences, business functions, and other business activities.

Local Negotiated Rates

A local negotiated rate (LNR) is a specific rate, which has been agreed between the hotel and a local business. It allows employees from that business to stay at the hotel for the agreed rate, whenever they need. Again, it can be an important hotel market segment for many hotels, because there is in-built customer loyalty and the potential for business activities to bring in additional guests, or revenue from other relevant services.

SMERF

The SMERF hotel market stands for “social, military, educational, religious, and fraternal” groups. Examples include weddings, military conventions, school sports teams, religious groups, and college or university fraternities. These are reliable market segments, and can help hotels attract guests away from peak season.

Wholesale

The wholesale hotel market refers to buying bulk room blocks, often by groups requiring many rooms, such as agents and tour operators. These are generally sold at a discounted rate. Some good examples of guests in this group include bands, television production crews, and other touring entertainers.

Undefined

The undefined hotel market segment is an umbrella term, including groups that do not neatly fit into other market segments. Guests who could fall into this category include hotel employees staying for free or at a heavily discounted rate, or guests who have been given a complimentary room for any reason. From a hotel management perspective, they are generally unreliable regarding revenue generation.

How to Identify Your Hotel Market Segments?

Not all of the aforementioned hotel market groups will be relevant for hotels. This is why hotels and other accommodations types in the hospitality sector need to take the time to understand which hotel market segments are visiting the hotel, how many are visiting, and what their typical behaviors are.

It is also sensible to try to identify the reasons behind different hotel market segments visiting your property. This then allows you to get a better understanding of their expectations, needs, and preferences. It also allows your hotel operations to be optimized, to cater to them properly.

The easiest way to identify hotel market segments is to use data gathered during booking. This is relatively simple to achieve with direct bookings, because you can design the booking process to extract this information. You can also use in-person interactions, your CRM system, and other tools to learn about market segments and their needs and expectations. This is especially important with hotels that attract large numbers of bookings from online travel agencies.

Knowing which hotel market segments are present in your hotel can help you with revenue management and marketing. It allows you to tailor strategies toward different groups. On top of this, it enables your hotel to understand different segments you are not currently attracting in sufficient numbers so that you can address these problems.

4 Tips & Strategies to Maximize Benefits From Hotel Market Segmentation

Below, you will find four tips and strategies to help you to maximize the benefits of hotel market segmentation.

Create Hotel Guest Personas

One of the best ways to get the most from hotel market segmentation is to create hotel guest personas. These personas are used as a representation for what a guest in each segment of the market may be like. So, you might specify where they have come from, how they booked their room, their reason for traveling, and so on.

Guest personas allow you to view the different market segments as people, rather than as a more abstract business concept. It can assist you in understanding the kind of booking journey they are likely to go through, the key decisions they will need to make along the way, and what their priorities and preferences are likely to be.

Hotel Market Segmentation - Buyer Personas
Image attribution: YouTube

Improve Your Hotel Room Availability Strategy

Another great way to segment the hotel market and reap the rewards is to develop a good room availability strategy. This involves managing your hotel inventory intelligently and adopting a more strategic approach to distribution.

For instance, there may be certain room types that you can try to reserve for a specific segment of the market during times of the year when that segment is most likely to book. Alternatively, you might try to attract direct bookings from one segment, so hold back on the number of rooms made available to third-party platforms, like OTAs.

Create Special Amenities and Packages for Your Segments

You should also create packages and amenities targeted toward specific hotel market segments to optimize a segmentation strategy. For example, packages aimed at transient travelers could include short-term stays, a faster internet connection, meeting room access, and other relevant hotel technology.

By contrast, wedding parties and similar groups could be offered discounted rates, access to spa treatments, and other services to make their experience memorable. If you attract many couples, certain hotel rooms could be kept back for them to book for honeymoons, anniversaries, birthdays, and other celebrations.

Create a Marketing Strategy Based on Different Segments

Finally, you need to target different hotel market segments with different marketing strategies. What appeals to one market segment may not necessarily appeal to another. It is also fair to say that spending on marketing is not equal, and you need to optimize your strategy so that money is being spent on high-value targets.

Social media is a useful way to target specific demographics with different messages. Your marketing department can also look into the demographics that use different online platforms and your channels, including your Facebook, Twitter, YouTube, and Instagram channels, and use the right platform for advertising to the right demographic.

Optimize Your Use of Hotel Package Deals

If you are a hotel owner looking to maximize revenue and attract more guests, it can be beneficial to capitalize on hotel package deals. Hotel packages can vary, from meal packages that include breakfast, to wellness packages, which bundle in spa treatments, gym access, or classes, and can be targeted to specific hotel market segments.

In “Hotel Packages: Tips to Optimize the Use of Hotel Package Deals“, you can find out much more about hotel package deals, their benefits, the common types, and how they can be used to maximum effect.

Using the Right Pricing Strategies

A significant part of a good hotel market segmentation strategy involves setting prices based on the segment you are trying to attract. There is a wide range of different pricing strategies available to hotels, from discount codes aimed at attracting direct bookings, to a rate parity strategy to boost transparency.

In “10 Pricing Strategies to Increase Your Hotel Revenue“, you will learn about 10 of the most common pricing strategies and how they can be used to generate more business for your business.

Hotel Market Segmentation FAQs

Hotel audience segments are subgroups of the market. These groups may be defined by shared characteristics, behaviors, needs or preferences. Common examples include individual travelers, families, corporate travelers, and leisure travelers. Hotels can tailor marketing efforts and services to different demographics.

A hotel’s target market is the group of people with shared traits that have been identified as the most likely to be interested in using the hotel and its services. Once the target market has been identified, a hotel can aim its marketing, services, and other resources towards this group.

Hotels can reach various segments of the market by creating relevant marketing content and using targeted advertising campaigns. They can also partner with third-party platforms that target different market segments, offer hotel services that will appeal to different demographics, and create targeted packages.

Psychographics is a kind of market research that focuses on studying customers based on psychological factors, such as personality, viewpoints, interests, attitude, behavior, and lifestyle. Psychographic segmentation allows hotels to divide the market into smaller groups based on these variables.

For hotels, niche market segmentation provides opportunities to target very specific groups with unique needs. By catering to these needs, hotels can often generate repeat business and potentially charge higher prices in return for delivering the kind of specialized services these customers require.

Breaking down the hotel market into segments allows your hotel to more effectively target different groups with the right marketing messages, pricing strategies and distribution methods. It also allows different hotel departments to optimize their services and cater to the needs of high-value market segments.

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This article is written by:

Martijn Barten
Hi, I am Martijn Barten, founder of Revfine.com. I am specialized in optimizing revenue by combining revenue management with marketing strategies. I have over 15 years of experience developing, implementing, and managing revenue management and marketing strategies and processes for individual properties and multi-properties.