One of the most overlooked tools hotelier have is the ability to create and use rooms market segmentations.
NB: This is an article from the Hotel Financial Coach
Market segments are customer types not geographical. In the manufacturing world, like the old days with VCRs, you have one company making several differ lines of VCRs because they cannot sell all of their manufacturing capacity to just one segment. There are different types of VCR customers. The same goes for hotels and that is what this piece is all about: customer rooms market segmentations.
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The reason why we do not use geography for rooms market segmentation application is we want to know the different primary reasons why people choose to stay with us. Where they are from is important too but not for our segmentation. People choose your hotel because of 3 broad basic reasons:
- For a getaway or a holiday – Leisure Segment
- For a single person on a business trip – Corporate Segment
- For a meeting/convention at your hotel or in your location – Group Segment
We want to be able to market the hotel to each one of these segments differently and, ultimately, we provide the means for our segmentation to be successful on a broad base. This way like the old saying goes – we do not put all of our eggs in one basket.
The other very important application we gain by having the proper segments tracked is we can track the rates separately. This leads us to the point where we can ultimately access the profitability by segment. Which one is giving the hotel the greatest volume and average rate?
Let’s look at the segments a little closer.
Leisure can be further expanded to include some additional sub segments, rack or best available rate, internet merchant model, packages and discounts are all great areas to track.
Expand the corporate segment to include published, preferred, volume and government.
Depending upon your hotel’s market you may want to expand the group segment to include corporate meetings, government, SMERF, conventions and associations.
With your market segmentation you will want to see the performance of each segment throughout your reporting systems. Pick up reports, daily sales and revenue reports, financial statements, budgets and forecasts. All can and should include the details of your segmentation: what is picking up, what are the targeted numbers and what actually happened. Paying close attention to the segmentation and the days of the week and seasons quickly tell us a great deal about how and when our customers from the various segments use our hotel.
The analysis of the segmentations is the backbone and the business intelligence that fuels our revenue management strategies. Knowing when the demand for our rooms comes from which segment is magic.
Studying the different cost attributes as well as the additional spend each one typically generates is also critical to your financial strategy. Every segment has a different profile.
Leisure customers often book through an OTA, they are typically gone all day unless the hotel is a resort, so the F&B spend is less and they pay using a credit card. Leisure customers tend to be weekends-, holidays- and summer-driven. Leisure guests can be a challenge to clean up from, “kids and Safeway bags.” This can mean more costs for labor and expenses in housekeeping. It also can mean more wear and tear on your physical product.
Corporate customers are a Monday to Thursday lot. Hopefully, we have a tight net, and they book directly avoiding most commissions, perhaps they have a negotiated rate that gives them last room availability. They often eat breakfast, and they are good for bar business, dinner too. They are gone all day and they are usually super easy to service. Some rooms do not even look like they have been used. They mostly pay with a credit card.
Group customers are more complex. We typically have to have a sales person and a group contract. This in turn leads to banquet event orders and in some cases a boat load of additional revenues for the hotel. But beware, this can be an expensive business to service. Often they book directly, or better still we receive a rooming list. They arrive and move throughout their stay at your hotel en masse. This can be great from an efficiency point of view. Lastly, they can pay their master account by writing you a check, avoiding those 3 percent credit card commissions, but make sure that is checked and spelled out in the contract. They may also want to pay with a points card so make sure you know ahead of time and maybe you can offer the right rate that includes a small bump or better price depending on the payment method.
It is not rocket science and unlike the VCR your rooms market segmentation is here to stay but using it and leveraging its story is optional. Which one will you choose?