Segmentation is a key feature in any hotel’s revenue strategy. To set an overall goal for the year, hotels must break down their target markets and approach to focus on which areas of business they’d like to grow and develop.
Firstly, let’s nail down exactly what we mean by segmentation. For our purposes segmentation is “the process of defining and subdividing a large homogenous market into clearly identifiable segments having similar needs, wants, or demand characteristics.” Segmentation allows you to tailor your strategy to precisely match the needs of different aspects of your market, increasing bookings, revenue and guest satisfaction.
This segmentation can be done on several levels, depending on your end goal. In this article, we will focus on the 2 main types of segmentation usually looked at by the revenue manager: Business Type and Channel Segmentation.t
In the simplest terms, segmentation gives you more insight and control over your guest relationships and the way they see and book your hotel. In order to gain a strong insight into your overall business, it’s important to break it down into more manageable parts to analyse and forecast.
It’s very likely that your property already has a segmentation process in place.
However, this may have been in place for the past 10 or 15 years. It’s important to review this on a semi-regular basis (every couple of years) to ensure that it still meets the needs of your business, is specific yet understandable, and that it works operationally for your team.
Here are a few questions to ask when you look at your segmentation process:
Your business type segmentation will generally break down customers according to their purpose for visiting, or the type of rate they’ve booked – e.g. a family summer plan vs a midweek break, or their stated purpose of business vs leisure.
Here’s a look at 5 common business types:
Some of these groupings may need subcategories depending on the type and needs of your property:
This will break down based on how the booking came to the hotel. The purpose of segmenting by channel is mainly focused on cost of acquisition. This ensures that your strategy is optimised to make the most profit from your bookings.
If a channel has a high commission and low booking value, is it worth maintaining rates and availability through this channel? Would it be more beneficial to increase focus for channels with lower commission costs?
We recommend looking at these channels:
You should focus on understanding these metrics:
You should analyse and have clear knowledge on what each channel (online & offline) is producing, and how this fits in with your hotel’s overall business objectives. This should be reviewed often, and alongside the Business Type segmentation, to ensure that it is a strong focus as well as being worked into your marketing strategy.
As part of your budgeting and forecasting process, we recommend creating a Channel Specific Strategy. Set specific goals for each channel in relation to your overall goals, e.g. a Book Direct Strategy, with the goal of moving bookings away from OTA channels into your direct channels.
This information should be critically evaluated to ensure that:
Your booking engine provider should be challenging you to look at your OTA business and put a value on the cost of this business. This allows you to highlight overall costs, trends and growth or decline in these channels.
Often, looking at this information can help convert stakeholders such as the GM, Sales Managers, and Reception Teams to get behind a Book Direct Strategy.
The biggest hurdle segmentation is having the confidence in the data & reports that you are analysing. Ideally, you should be able to pull a regular report from your Property Management System with the required information.
Accuracy of data is crucial – the quality of the data pulled in reports is only as good as the information input in the system! From personal experience, allocating bookings to the correct segments is often an uncertain process.
Here are a few common problems we run into, and the solution:
There is an exceptionally large number of bookings under the Segment “Other”.
Cause: The team inputting bookings doesn’t understand the purpose behind segmentation, so they don’t take the time to input them correctly.
Solutions:
The reports from my PMS don’t have enough information, or the reporting function isn’t up to par.
Cause: some older PMS systems may not have the capability to produce these reports.
Solutions:
As a Reservations Manager / Reservations Manager, I don’t have the time for all this reporting and analysis.
Solution: Unfortunately, the blunt answer to this is to make the time and prioritise the time for the segmentation and analysis. In the long run, these reports and analysis will have a serious effect on your bottom line.
The purpose of segmentation it to ensure that your business strategy is met and that decisions are well informed, data driven and optimised for each segment and channel.
The four fundamental factors of a successful strategy
Hotels must intelligently allocate their limited resources to support their core business strategies. Hotels’ annual business plan, sales & marketing plan and operation budget must all be aligned with stakeholders having a clear understanding and commitment to achieving these goals. Is your segmentation strategy up to scratch? What improvements can you make?
