Have you ever wondered why some businesses seem to do better than others despite offering the same or similar services? This disparity may result from differences in decision-making styles.
Some people may rely on their "gut feeling" to make a decision; however, in today’s world, successful companies continuously collect data and use it to drive effective decision-making in order to generate revenue and increase profits.
There are numerous methods to gather and analyze data to this end — one such strategy is using market segmentation in the hospitality industry to boost revenue.
So, let's look at what hotel guest segmentation is, how it can be used to drive revenue in the hotel industry and how to collect guest data. Then we'll explore how to leverage information on different guest segments to get more bookings, boost profits and maximize hotel revenue.
See also:
-
How streamlining operations can increase your hotel’s financial metrics
-
Hotel operations can boost customer loyalty by tracking guest journey
-
Millennial and Gen Z travel trends shaping the future of hospitality
What is guest segmentation?
Guest segmentation (or hotel market segmentation) is the process of categorizing hotel guests into groups based on different booking habits/patterns. In doing so, hotels are able to recognize where their business is coming from at a given point in time.
There are four main segments that hotel guests are classified into:
-
Demographic segmentation considers basic information such as age, gender, occupation, education, income, and lifestyle.
-
Behavioral segmentation looks at customers' purchasing habits and their reasons for these purchases.
-
Geographic segmentation refers to grouping guests based on where they live, work or travel.
-
Psychographic segmentation takes into account personal factors like consumers' personalities, desires, attitudes and social status.
Based on these various market segments, higher-level categories can also be created (tourists, companies, or groups). Depending on the unique selling point (USP) of a particular location, there may be other hotel market segments that one can use to create more meaningful guest personas.
For example, if your hotel is close to an amusement park or other kid-friendly local attractions, an applicable market segment may be families with children who want to visit the park.
Similarly, if your property is near a convention center, a significant number of your hotel guests are more likely to be business travelers.
Why is guest segmentation important to drive revenue?
Marketing
Targeted ad campaigns can be created using insights from market segmentation. Hotels can appeal to existing guests through personalized incentives such as group or romantic packages. As a result, they would be able to attract new customers and increase loyalty among existing clients.
Identifying opportunity
Hotels may recognize gaps they could address to increase their appeal to members of specific market segments. With the ability to cater to a wider audience, they will have increased booking opportunities.
Pricing strategy
Through market segmentation, hotels can create a pricing strategy based on guests’ booking habits. For example, a hotel might recognize that there is a time of year when they receive a high volume of bookings from offices on a corporate retreat.
The hotel operators may then decide to adjust pricing or schedule promotional campaigns developed for this particular market segment to encourage more reservations.
How to collect data for guest segmentation
A recent study from IHG found that 78% of travelers are more likely to book with properties that offer personalized experiences, with almost 50% willing to share the personal data necessary to promote an individualized stay.
The millennial generation, in particular, has been vocal about its desire to seek experiences built specifically around their unique interests and to stay with hospitality providers that accommodate their personal preferences.
Hotels typically gather a lot of data even as bookings are made — it is simply a matter of picking the most relevant information, analyzing it, and using those findings to personalize guest experiences.
Here are some ways in which data can be collected for hotel market segmentation:
-
Booking details are a great reservoir of information. Some relevant pieces of information include the number of guests, their length of stay, room type and the purpose of their stay. Knowing this information allows a hotelier to create packages that incentivize guests to return or attract similar customers.
Other key information for successfully customizing customer experience would be any special requests or upgrades. For instance, if families with children frequently request adjoining rooms, this could be a part of family-friendly packages. This enhanced personalization would make packages more appealing to new or returning guests.
-
Analyzing guest reviews (for instance, Google's online reviews) is a convenient way of finding out which features of the current service guests enjoy while also identifying potential areas for improvement.
-
Sending post-stay surveys is another method of gathering any extra information that may be helpful in shaping future segmentation strategies. Whereas reviews are open-ended for guests to comment on what stood out to them, surveys can be more pointed and ask guests about their thoughts on specific matters.
For instance, surveys could include questions around the purpose of a guest's stay (if this information has not already been collected), or whether clients would be more likely to return if a particular feature/discount was added to the service.
-
Social media is also a rich resource of data about guests. As most people engage with some form of social media, it is an easy way of finding out what kind of content guests interact with. In doing so, hotels can customize their social-media strategy to increase engagement and establish their online presence
Having covered some basic ways of gathering data for hospitality guest segmentation, let’s look at how this information can be used to a business’s advantage.
Developing a customer segmentation strategy
Understanding how data for market segmentation is collected — and why this method of data analysis is an important contributor to decision-making — we already start to see a picture emerging of how this information might be leveraged to increase income.
Based on a particular segment’s features, hoteliers can create attractive packages and offer their guests a personalized experience during their stay. Based on their guests’ needs, hotels can up-sell certain amenities, which can be a great way to give a guest the VIP experience while also drumming up revenue for the whole hotel business.
The more relevant a package is to a certain group of guests, the more likely a hotel is to book new clients with similar needs while also increasing client loyalty and return guests. To take this a step further, businesses should also incorporate insights from guest reviews and surveys.
Of course, simply creating customized packages is not sufficient. Hotels must also carefully craft targeted marketing campaigns so potential guests find out about the services being offered.
Information from social media analyses can be pertinent here so the business can reach their target audience while efficiently advertising their services.
Market segmentation can inform dynamic pricing
This is where the concept of "dynamic pricing" can come into play, as market segmentation can inform a hotel business's revenue management strategy, allowing it to vary its pricing based on each target audience and their reason for travel.
According to WebRezPro, a Canadian company specializing in hotel management software:
It may be surmised that mid-week bookings on shoulder seasons are for work trips, whereas weekends are for leisure travelers. Since business travel is essential, perhaps midweek rates will be higher, for example. While revenue management software can automatically adjust rates using an algorithm, it can also be used to study guest behavior and determine existing customer segments by tracking when and how they book their preferred length of stay, and room preferences.
By identifying the spending limits of different types of travelers, or when certain groups are more likely to make reservations, hotels can create different pricing strategies. Consider, for instance, that research has shown that corporate groups care more for amenities than cost whereas student groups on vacation demonstrate more price sensitivity.
Flexible options for relevant market segments
Based on this finding, businesses may offer more flexible pricing options to these students while creating a cost-effective package that includes relevant amenities for the corporate market segment.
Effective forecasting is also key to ensuring profits in the future as well. As hotels keep collecting more data, they will be able to make more accurate predictions of guest behavior. In doing so, their revenue managers can better plan for their budget and pricing as well.
A powerful strategy for the hotel industry
Hotel market segmentation is a powerful strategy to analyze consumer behaviour and drive revenue. Segmenting your hotel’s clientele to better understand what different market segments require — or simply appreciate — is a great way to attract similar customers and to encourage guest loyalty.
In addition to using effective marketing strategies (so you’re not spending money on ads that do not reach your target audiences), you can also create competitive pricing campaigns to ensure you’re maximizing the hotel’s revenue.
Does your hotel employ a customer segmentation strategy to increase bookings? Let us know, and learn more about how we work with our partners in the hotel industry to help their properties stand out.
