Segmentation is critical to a successful revenue management strategy. Without accurate segmentation, it’s nearly impossible to have accurate forecasts or budgets. After all, if you don’t know who is booking your property and what channels they use, how will you know where to target your efforts to attract those guests?
NB: This is an article from Rainmaker
But if you haven’t set up your segments, where do you start? If you have segments in place, how do you know if they’re working? Depending on your specific property, there’s more than one ‘right’ way to set up your segmentation. However, regardless of every property’s unique characteristics, these are a few standards that apply to every segmentation plan.
Identify Your Guests
One of the first steps in determining your segments is to Identify where the majority of your business is coming from. Segmentation based on booking method, called channel segmentation, not only helps you to identify your target segments, it also determines the cost of acquisition for each segment. There are dozens of different ways that your guests are booking your property, including your brand’s website, OTAs, group travel companies, corporate travel agents, and your property or brand’s call center. Once those high level groups are identified, you can start breaking them out further into more specific categories. For example, let’s say that a significant portion of your guests are booking by using OTAs. With the proper data, you can break that segment down into more precise groups, such as which OTA the guest used, whether they purchased the room as a standalone or as part of a package, when those guests are booking, their cancellation rates, and so forth.
Another way to segment your guests is called business segmentation. This is a more straightforward method that typically groups guests according to their reasons for travel. Those segments are typically leisure, business, group, and corporate. They can also be broken out into subcategories, such as whether the guest booked their room at a discounted or rack rate. For guests that don’t neatly fit into any of those segments, it’s important to use data that they generate during their stay. That way, you’ll be able to backfill their segment without having to relegate that guest to the ineffectual ‘other’ category.
Identify Your Most Profitable Guests
Once you’ve properly identified your segments, revenue data will help you identify which one is the most profitable. It’s important to remember that profitability in this case isn’t just how much revenue is brought in by each segment, it’s also based on the cost of acquisition for each guest and their ancillary spend. If a guest booked from an OTA at a rack rate, but your property has to pay a commission to the OTA for the booking, it’s much less profitable than a guest who booked directly. However, if the OTA guest has a high ancillary spend and the direct booking doesn’t, that will balance their relative value.
Verify Your Data
Developing a thorough and accurate segmentation strategy is predicated on the premise that the data you’re using is correct. You must have a well designed, high performing revenue management software system to produce accurate and timely reports. Unfortunately, many RMS systems are too outdated or unsophisticated to be able to break your segments down into the most useful categories. You’ll need to make sure that your RMS can recognize and parse out the myriad factors that affect your segmentation strategy and the resulting impact on your bottom line. Once you’ve determined that your data is correct, it should be re-evaluated and reviewed at least every six months to make sure that the segments you’ve set up are still the most accurate.
With multiple booking channels and a highly diverse guest population, segmentation is more complex now than ever before. Focusing on the right segments for your property will not only drive profits, it will also ensure that valuable resources aren’t being wasted on the wrong strategies. The better your segmentation strategy, the more insight you’ll have into who your guests are and how to meet their needs for maximum revenue.