Segmentation is the concept of grouping people with similar demographics and psychographics together. The combination of demographic and psychographic information can provide valuable insights into your best customers – allowing you to find more like them.
Demographics looks at characteristics of people that include age, income, education, occupation, household size, travel budget, travel frequency.
In the hotels, to price strategically, we need to know the price point any particular market or market segment is prepared to pay. We need to know what average rates we can get out of each segment, and what volume of business each provides.
To assist you, hotels are using market segments. We segment our customers according to these market segments, and then we allocate each of our rate plans appropriately. Through attaching a market code (each market code belongs to one of our strategic main market segments) to each of our price points, and knowing that each customer "has" his/her own rate code, each and every time a guest checks-in and rooms revenue is posted, we record market segmentation.
First, let's start with the three key segments, which are Transient, Group and Other.
INDIVIDUALS: Include all customer programs that are not Group or Other,
GROUP: A Group is either 10 paying rooms or 15 paying people on any one night and can be any customer program
OTHER: Air Crew (contracted), Complimentary (not paying any money for the room). It may also includes extra revenues.
Let's break it down a little further:
Individual Corporate: Individual business where the customer program is corporate
Individual Leisure: Individual business where the customer program is leisure
Group Corporate: Group business where the customer program is corporate
Group Leisure: Group business where the customer program is leisure
Crew / Airlines: Business from an airline crew, on a specific contract where the crew checkin in uniform
Comp: Complimentary room nights where no rooms revenue is transacted.
*** Case Study ***:
The hotel GREEN DIAMOND, is a four star hotel that feature 150 Rooms. It is located in a business district surrounded by corporate business offices (banks, lawyers, asset management, consultants). Its first museum is located at 6km from the hotel. The hotel has 4 main international chain competitors in its vicinity (2 km radius). According the General Manager, the GREEN DIAMOND hotel is a mix of leisure and corporate clients.
Last night occupancy rate (Tuesday) was 85%, meaning 127 room occupied. In appearance, Its hotel lobby is full of business people wearing suits and ties, jeans/shirts/jacket, probably attending conferences or business meetings, therefore we can assume the property is a business hotel. Am I right? well, it's hard to answer without having a look in your market segmentation or engage with your clients.
The General Manager asks his Revenue Manager to analyze the hotel market segmentation by extracting the reports from the PMS, and the following statistics are extracted:
BAR Best Available Rate 05 RNs,
CORP Corporate Contracted Rates 12 RNs,
EXPEDIA Web Rate sold on Expedia 20 RNs,
BOOKING Web Rate sold on Booking 29 RNs,
WEB Branded Web Rate 06 RNs,
DMC LOCAL Contracted Leisure 35 RNs,
T.O INTL Contracted International Leisure 20 RNs,
RNs = Room nights
DMC - Destination Management Company
T.O INTL - Tour Operator International
With a first look, we can assume that the hotel drives only 12 RNs from the corporate segment, the rest coming from leisure contracted rates and web bookings. So the hotel would have a predominancy to leisure bookers with a great support from Destination Management Company.
Well we recommend the GM to go an extra step, and therefore instead of making his decisions only with the market segmentation, the front office and guest relations departments were instructed to ask a simple question upon check-in: are you here for business or leisure?
The results turned to be that all clients staying at this hotel were coming on business purpose. So how comes there were booking leisure contracted rates, or how come the pricing structure was elaborated in a way to favor lower contributing ADR segments?
By understanding your clients through operational aspects, we realized that the hotel itself had a wrong perception of pricing / market segment. The pricing structure of the hotel was:
- BAR Rates AED 500.00
- Corporate Rates: AED 425.00
- Web Brand Rates AED 400.00
- Booking.com Rates: AED 375.00 - 20% Commission
- Expedia.com Rates: AED 385.00 - 25% Markup
- DMC Rates with Markup 25%: AED 345.00 - Lower impact on ADR
Discussing with the Sales Team of Green Diamond Hotel, we realized their low corporate room nights contribution was due to the fact that other businesses were undercutting them.
Therefore the hotel had an overall corporate client segmentation, driven by leisure rates. That is why you need to have a deep analytical mind to analyze deeply your operational hotel process in order to improve your profitability.
Revenue Management analysis is really the solution to help the hotel gather better information, makes better decision for better results.