market segmentation

Modern Segmentation in Hotels: A Blessing and a Curse

Defining a useful segmentation strategy for a hotel can be very complex. The main obstacle is that hotels experience limited flexibility. Quite often, chains provide segmentation structures that were defined 20 years ago and don’t allow hotels to make changes based on their individual properties’ specifications or developments.

In the past, emphasis was placed on market segments defined by the purpose of the traveler’s hotel reservation, such as leisure or business. As highlighted by Janel Clark in a blog post on determining the right pricing strategy, it is critical that your segmentation strategy follows the MAAS (Measurability, Actionability, Accessibility, and Substantiation) principle. With the shift to today’s internet based booking landscape, it became nearly impossible to tell who the client actually is, let alone why the hotel room was booked. To make it even more complicated, it is not uncommon for travelers to combine a business with a leisure trip (what is sometimes known as “bleisure,” I know, but I didn’t make it up!).

As a result, hotels have learnt to focus on channel segments rather than market segments, to track where the booking was coming from rather than why the guest made the booking.

A well-defined set of market and channel segments coupled with correct pricing per segment is the foundation for successful Demand Management. Let’s take a closer look at the possibilities.

Market Segments

Regardless of the current trend, market segmentation should not be forgotten. It is still the cornerstone for a successful pricing strategy. Each market segment shows different booking behaviors and price sensitivity. Hence, each segment has a unique pricing and stay restriction strategy and requires distinctive sales and marketing efforts. The aim is to create the ideal market mix, which brings the highest possible profits to the hotel.

Market segmentation also allows us to identify the reason for downturn periods. With year-on-year comparisons we can analyze which market segments are performing better or worse and plan our sales and marketing strategies accordingly.

Let’s now look at a market segmentation example (stay tuned, trust me, it’s worth it!):

Market Segment #1: Transient

A hotel usually has different BAR (Best Available Rate) levels, which are non-restricted and available to all customers. Guests booking these rates don’t have access to qualified rates (contracted rates). BAR rates are highly dynamic and are usually changed very frequently. Many other rates, such as non-refundable promotions, are derived from BAR (% off BAR).

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