What’s the secret to running a profitable hotel business? For a start, it’s no secret—it’s all about knowing your guests.
You need to understand your guests physically and digitally—which requires clear, actionable data. This data lets you create guest segmentations, which lets you raise your occupancy rate, target your marketing, and inform big-picture business decisions.
This article is all about how and why you need an advanced guest segmentation strategy. We’re going to unpack:
- What market segmentation means for your bottom-line
- Why it’s much more than just asking your guests: business or pleasure?
- Plus our step-by-step guide to hotel market segmentation
Let’s get right into it.
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Advanced Guest Segmentation Explained
Hotel market segmentation means dividing guests into different groups based on shared characteristics and habits.
Every time you ask guests whether they’re traveling for business or pleasure, you’re using guest segmentation.
This strategy is important as hotel businesses rely on dynamic pricing to increase bookings and maximize revenue. I.E. A backpacker on a 3rd party booking site will likely get a cheaper rate than a business traveler booking last minute—they have wildly different needs, expectations, and spending power.
That being said, it’s getting harder and harder to source accurate information on your guests. A large percentage of guests often book through third-party booking platforms, and you might not have access to detailed information about their stay.
Plus the recent trend of “Bleisure travel” (leisure + business) makes it a challenge to fit these types of guests into any one category. That’s why we advise hoteliers to track market segments by the rate.
Some common guest segments include:
- Transient – Independent guests traveling alone.
- Corporate – Business travelers.
- Group – Tour groups or clubs often get a discounted rate for large bookings.
- BAR (Best Available Rate) – This could be further divided into public, direct, and indirect rates too.
- PR (Promotional Rate) – Such as online campaigns and special events.
- Other – Staff rates, loyalty club members, etc.
There are many different ways to segment your guests. It really depends on your location, type of hotel, and business situation.
Some businesses prefer to segment their customers in other ways, like grouping them based on behavior (how much do guests know about your services?), geography (age, gender, etc), and even demographics (what country are they from? What unique travel requirements do they have?).
Each of these groups has various subsegments. For example, transient guest subsegments could include walk-in guests, last-minute bookings, or simply individuals staying for less than three days.
It’s up to you to dive into your data and unpack what type of guests you have—the more detail and the more you can define this—the more useful this data will be to you later on.
By this stage, you should know your basic guest segments, along with their subsegments. Next up, we’re going to explain exactly why it’s important to figure this out.
Learn More: If You’re Not Using Profile Enrichment In Your Hotel, You’re Missing Out
How Market Segmentation Drives Revenue
Hoteliers that don’t implement market segmentation are leaving money on the table. A group of backpackers and a business traveler have completely different needs, preferences, budgets, and research processes.
So offering them the same guest experience and rate is counterproductive for the following reasons:
If you’re charging all your segments the same rate without taking into account purchasing power and expectations, you’re going to be missing out on revenue.
If you’re not targeting your advertising to reach your most profitable segments, you’re going to be driving less revenue.
If you’re not customizing your guests’ stay according to their segment, they’re less likely to purchase upsells and more likely to have a poor experience and leave a bad review.
Getting to know your guests is a crucial part of the hospitality experience. If you don’t know who is standing in front of you—how can you give them good service?
Duve’s co-founder and Chief Business Development Officer
If business slows down, you’ll be thankful you have all of this customer data. You’ll be able to figure out why things have turned down and retarget your marketing and variable pricing strategy according to the new reality in which you’re faced.
Let’s take a look at an example of hotel market segmentation in action.
Example: A local football team is in town for a tournament and wants to book 25 rooms for a week. While that might sound profitable, diving into the data could change your mind. With variable pricing and historic booking trends, you might make more profit by not letting them stay and leaving rooms open for business travelers instead.
Benefits Of Market Segmentation
Still not convinced? Here are 3 quick-fire reasons you need to implement hotel guest segmentation right now:
- Understand Your Customers. Guest segmentation gives you insight into guest behavior, booking patterns and purchasing power.
- Shotgun Marketing Doesn’t Work. Target your marketing with clear data and guest segmentations and you’ll see a stronger marketing ROI.
- Predict Market Trends And Pre-empt Problems. According to a study by Knowland, 58.3% of meetings and events will return in 2022, and 86.9% will return by 2023. If you have enough clear data on your guest segmentation you can steer your next quarter’s marketing strategy to targeting more corporate and group stays rather than transient or other.
Market Segmentation gives you flexibility and power to inform large business decisions. Without it, you’re essentially steering blind.
A Step-by-step Guide To Advanced Guest Segmentation
Here’s our three-step guide to implementing a hotel market segmentation strategy.
Without further ado:
1. Identify Your Guests
Gather all the data you can on your guests. There are three main ways to do this:
Booking: Did you ask them if they’re traveling for business or pleasure?
Interactions: Garner as much information as possible—did they have any special requests? Dietary or accessibility issues?
Online: Gather PMS, OTA, and CRM information on your guests as well as you can. The more information the better.
Data is king—the more detailed picture you have of your guest segments, the better you can inform your pricing, guest journey, and marketing strategies.
2. Analyze Most Profitable Guest Segments
Identify who your most profitable guest segments are. There are a number of ways to do this—think about which segments pay more per booking, buy more upsells, stay for the longest, etc.
Don’t forget to factor in the cost of acquisition per guest into this calculation.
Always verify the data you gather. If there are flaws in your data, then all of your efforts will be in vain. We recommend working with a tech partner that provides access to an RMS and understands the power of big data.
3. Target Highly Profitable Guest Segments
Once you know who your most profitable segment is, you can begin to target them.
Example: After diving through data, you’ve identified that a large portion of your guests are corporate travelers between 35-50 from China who stay for 3 to 4 days.
You might consider:
- Advertising on Chinese-language websites i.e. targeting qyer.com instead of TripAdvisor. Being on Baidu and not just Google Maps.
- Including Mandarin translation of your menu and guest app.
- Avoid putting them in Room 404 (the number 4 is considered unlucky)
By customizing and optimizing your strategy to your most profitable segments you ensure a better overall guest experience—which helps spread word of mouth and can lead to more 5 star reviews online.
This data can also help you react to market trends–if those 35-50 Chinese tourists start drying up you can consider why that is and pivot your strategy to the next most profitable segment.
Hotel market segmentation is the foundation of a stable and profitable business. If you know who your guests are, what they expect, and what they can afford, then you can take steps to target them, improve the quality of their stay, and boost your profits
CEO at Duve
Key Takeaway: proper guest market segmentation gives you the tools you need to make informed business decisions and drive up revenue.
It’s Time To Get To Know Your Guests
When it comes to implementing a hotel market segmentation strategy, hotel technology is your secret weapon. Without it, gathering and verifying guest data is next to impossible.
Investing in the latest in technology allows hotels to:
- Verify that guest data is clear, correct, and actionable
- Implement a profitable advanced segmentation strategy
- Deliver more profits
Duve has been helping businesses implement the latest in hotel technology for over seven years. We helped hotels of all sizes navigate the threats of COVID-19, inflation, and staff shortages. And we’re here to help with whatever comes next.
Ready to take your guest segmentation strategy to the next level?