Market Segmentation for Effective Revenue Management in Hotels

Segmentation strategies in the Hotel industry have always played an important part in its growth. But over the years, they have seen many changes. Bookings are no more done just over phones and emails; online bookings through various channels contribute significantly to reservations in hotels. Google trends reveal that by the year 2023, 700 million people will be booking their hotel stays online. Therefore, Channel segmentation has become an important part of Market segmentation.

Align your revenue growth strategy with marketing and operations strategies and you will certainly see a significant increase in profit.

But before we get into understanding channel management, let’s have a look at various market segments in the hospitality industry.

Hotel Market Segmentation

Market segmentation involves analyzing the target markets for the hotel industry and segmenting them based on the pricing sensitivity and booking behaviors. Market segmentation in the hotel industry helps identify the reason for a drop in the bookings. Based on the nature of the downturn, unique Sales and Marketing efforts are applied to increase bookings, hence the revenue. There are 5 market segments:

1. Transient – These are the guests who are not linked to any group or company. They are the ones that make individual bookings at your Best Available Rate (BAR) or publically available dynamic charges.
2. Corporate – These are the guests that stay at the hotel at discounted company rates. The discounted rates are available on a contract basis to corporate clients who bring in frequent business.
3. Group –This segment of the guests stays at your hotel under contracted rates for a large group or for an event. The rates are flexible depending on the requirements.
4. Wholesale –Rooms under this segment are available at discounted rates to tour operators or booking agents on buying bulk tickets.
5. Other – This segment consists of different categories such as complimentary rates, industry rates, rates available to the staff, etc.

Channel Segmentation

Once you define market segments, you must identify channel segments based on how you receive bookings. Doing this, you will be able to ensure that your hotel revenue management strategy is optimized to generate maximum revenue. But before we discuss how, let’s look at various channels.

• Direct –This segment consists of direct bookings with the hotel done over phone calls or emails.
• Website –Under this segment, secure reservations are made through a hotel reservation system on the hotel’s website.
• OTAs – OTAs are online third-party travel agencies that allow people to make reservations for various hotels through their platform. For example, Trivago, TripAdvisor, etc.
• GDS – GDS or global distribution system is a large network that acts as a conduit between hotels and travel sites.

Based on this segmentation you can identify various booking patterns. You can identify the channel that brings in the most bookings and alter your Marketing and Hotel revenue management strategies accordingly. You can ask yourself these questions:

• If a particular channel is eating up high commission but has a low booking outcome, is it worth investing in its maintenance?
• Would the profit be increased if the focus towards a channel with lower commission cost is increased?
• Should the Marketing efforts towards a channel driving higher booking rates be increased?

With accurate data, you can stay in control and devise ways to increase revenue growth. Channel and market segmentation are critical for powerful revenue management in the hospitality industry.

With the right data, you can assign reservations to the right channel and market segments. Identify what’s boosting reservations. It could be anything such as the ease of booking through a channel or a discounted corporate package. Align your revenue growth strategy with marketing and operations strategies and you will certainly see a significant increase in profit.

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