One thing every business owner in the hospitality industry should keep in mind is that they won’t be able to attract every customer in the market to their business. This is because customers are all different and behave differently. Therefore, both independent and chain hotels must segment the market. This will allow them to tailor their offerings and help them develop more effective marketing strategies.
In this regard, most hotels focus on one or more market segments and develop their products or services based on that particular segment or those specific segments.
So, the market is the process by which the market is divided into smaller groups, each of which still exhibits distinct characteristics and behaviors, thereby requiring the application of a marketing mix that is more focused on the digital realm. Therefore, according to experts, segmentation is the first step in any marketing process.
When you successfully segment your market, you’ll not only have greater clarity in implementing marketing strategies, but you’ll also gain a better understanding of the types of travelers or guests who stay at your hotel. This allows you to tailor other aspects—such as rates and services—to meet consumer needs. In this way, you can increase revenue.
Table of Contents
Main market segments
Market segmentation is a broad process, as it can be divided according to factors such as geography, demographics, and behavior. In this case, we will consider five segments that may implicitly include the variables mentioned above:
Individual
This segment refers to those customers or guests who are not affiliated with any company or group . And, generally, this type of segment is looking for the best rates.
Temporary
This market segment primarily consists of customers who travel for business or leisure . This group typically books directly with the hotel or through online travel agencies (OTAs).
Corporate
This corporate segment consists of business travelers. In most cases, the company they work for has some kind of partnership or agreement with the hotel. Under these agreements, the hotel’s sales department requires a certain number of room nights in exchange for flexible rates and additional services.
The groups
This refers to clients traveling in groups . These groups typically book several rooms in advance. Group sizes can vary, but they generally occupy between 6 and 10 rooms per night.
Wholesale Customers
This is a market segment in which travelers make reservations through an intermediary. This intermediary may be a tour operator or a travel agency, which negotiates with the hotel. On the other hand, wholesale guests travel for leisure and pleasure.
Others
This segment is used for those customers or travelers who do not fit into the previous categories. An example includes customers who travel for political or military reasons.
Advantages of market segmentation
Market segmentation is a key part of the marketing process for your independent hotel, as segmentation brings with it the following advantages:
- Segmentation helps the hotel better understand guests’ tastes, preferences, and needs. This is key to offering personalized services and improving the guest experience.
- It identifies the market segments that are likely to be the most profitable and that best match the hotel’s profile.
- It helps identify which segments are a priority. Since there are so many segments, it’s necessary to target those with the greatest purchasing potential.
- It facilitates the analysis of our competitors—which segments they target and what actions they take toward those segments—so we can act and make decisions accordingly.
- It allows you to tailor your hotel’s marketing efforts toward your ideal guest or toward multiple segments at once. For example, if a particular market segment doesn’t travel during a certain season, the hotel can shift its focus to another market that does. This increases the likelihood of bookings.
- Increase revenue and improve profitability. Market segmentation allows you to identify where the highest demand will come from across various segments. This, in turn, enables you to develop strategies to increase occupancy and rates.
- Save on operating costs. When we segment the market, we can better determine the behavior of certain customers. This, in turn, allows hotels to better organize their operational processes. One example would be planning for the food and beverage area—that is, purchasing the right foods to avoid excess inventory.
How to identify your target market
When evaluating our target market, it is necessary to consider aspects such as the size and growth of the segments, the attractiveness and objectives of each one, and the resources available to our hotel establishment.
Analysis of Sales Data
First, the hotel should analyze sales data by segment and, based on that, determine the growth rate and profitability generated by each segment. This allows the hotel to identify the largest segments and those experiencing the most growth. However, caution is needed, as smaller hotels may not have the resources or capabilities to serve the largest and fastest-growing groups. It is best to target groups that are more profitable, even if they are not as large.
Second, given the above, a group may have growth rates adequate, but it does not offer attractive benefits for lodging. For example, high competition in a specific segment—such as the corporate market—may be unattractive. In addition, there is the purchasing power of customers, which can also affect attractiveness. For example, if a specific segment—such as wholesalers—needs 30 rooms, they will try to negotiate a low rate. In this case, large hotels with greater capacity to provide the service will be able to lower their prices. This will allow them to better control the segment. However, this may not be the case for other types of hotels, which need to set certain rates to remain operational.
Hotel Objectives and Resources
Finally, the hotel’s objectives and resources must be taken into account. Some segments may be very attractive, but they may not align with our objectives from an economic, social, or environmental standpoint. For example, the corporate segment is often very demanding when it comes to luxury services. And, more recently, in terms of environmentally friendly practices. Therefore, if a hotel cannot offer facilities that meet those needs, it should not target that segment. It is better to enter a segment where it can meet the needs and gain a competitive advantage.
When determining the most appropriate market segments for your hotel, it’s best to seek advice from a specialized hotel consulting firm like IHCS. This way, you can achieve the best possible results, tailored to your hotel.
