Improve Your Hotel’s Revenue Strategy with Proper Segmentation

Segmentation is a key feature in any hotel’s revenue strategy. To set an overall goal for the year, hotels must break down their target markets and approach to focus on which areas of business they’d like to grow and develop.

Firstly, let’s nail down exactly what we mean by segmentation. For our purposes segmentation is “the process of defining and subdividing a large homogenous market into clearly identifiable segments having similar needs, wants, or demand characteristics.” Segmentation allows you to tailor your strategy to precisely match the needs of different aspects of your market, increasing bookings, revenue and guest satisfaction.

This segmentation can be done on several levels, depending on your end goal. In this article, we will focus on the 2 main types of segmentation usually looked at by the revenue manager: Business Type and Channel Segmentation.

Why Use Segmentation

In the simplest terms, segmentation gives you more insight and control over your guest relationships and the way they see and book your hotel. In order to gain a strong insight into your overall business, it’s important to break it down into more manageable parts to analyse and forecast.

  1. Identify who is using your property:
    • Why are your guests coming to your area and choosing your property?
    • Where are your biggest number of bookings coming from?
  2. Identify who your most profitable customers are:
    • How much does each type of customer pay per booking, and then spend when they arrive at the hotel?
  3. Identify trends in your business, and focus on developing these:
    • How have these types of customer changed in their behaviour in the past months or years? Should you focus on rebuilding lost business or shift your focus to a different type of customer?
  4. Set goals & KPIs for each segment:
    • Some goals will differ for channels, as they should have varying objectives. The reason you are breaking down the segments is because they are likely to behave differently in certain situations. Some might:
      • Deliver business from other geographic locations
      • Deliver business at certain times of the year or day of the week
      • Deliver ancillary spend for different areas of your hotel.

It’s very likely that your property already has a segmentation process in place.

However, this may have been in place for the past 10 or 15 years. It’s important to review this on a semi-regular basis (every couple of years) to ensure that it still meets the needs of your business, is specific yet understandable, and that it works operationally for your team.

Here are a few questions to ask when you look at your segmentation process:

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