January 21, 2013

Market segment pricing

When creating or developing a revenue management system, the first step to take is to understand who is using your products or services, and who could / would, and then segment the offer in order to meet these markets.

A market segment is a subgroup of people sharing one or more characteristics that cause them to have similar products needs.

Market segmentation is the process in marketing of dividing a market into distinct sub segments that behave in the same way or have similar needs. Because each segment is quite homogeneous in their needs and attitudes, they are likely to respond similarly to a given marketing strategy. That is why all businesses need to write a marketing plan focusing on their market segmentation.

Like this, they are likely to have similar feelings and ideas about a marketing mix comprised of a given product or service, sold at a given price, distributed in a certain way and promoted in a certain way; this process leads to targeting and positioning.

i.e: have a look to your business cost of distribution percentage, between:
- How much business do you generate, from your own internal department (Sales team, manager, your website, your marketing collaterals, your existing client word of mouth, your Facebook page...),
- How much business does any third party is bringing in revenues to your business?

If you consider your business too dependent from the third party distributors, or any other business that bring you clients through their platform (Global Distribution channels, Online Travel Agencies, Online Portal) but you estimate that you pay high marketing / distribution cost, then the only way to assess well the market, is to have a detail sub market segment that will tell you, perhaps on weekly basis, who is contributing to your success.

The intent is to identify groups of similar customers and potential customers, to prioritize the groups to address; to understand their behavior; and to respond with appropriate marketing strategies that satisfy the different preferences of each chosen segment, in order to improve revenues.

Once the different segments have been identified, you can design a method to attribute different segments at different prices. Our Revenue Management Training company can help you with the process, because once you have it right, you are on the right track to collect data and then analyze and draft your strategies.

The segmentation is not linked to profits. If segmentation is about choices and about the search for opportunities where resources such as sales and advertising can be applied to yield the greatest opportunity, then the segmentation must yield a way to evaluate the different opportunities. One segment may be more difficult and more expensive to reach, or may use products that have a higher cost and lower margins. Any segmentation should link not only to revenues but also to profits, so that the choices about which segment to address and how to address them, can be made in a mannner that boost the bottom line. 

No revenue management, business maximization can be well executed if the market segmentation has not been discussed, challenged and implemented.

The challenges of market segmentation in the future will definitely be a top topic. Consumers change, market shifts, distribution channels evolve, and products reach new generation. To avoid becoming obsolete, any segmentation must be updated over time to stay at edge from your competition.

Make it happen!

Contact us for more information

Romain Saada


  1. This comment has been removed by a blog administrator.

  2. Thanks for good post...Market segmentation is the grouping of customers who all require the same beneficial need. The marketing challenge is explaining to that group how your product meets those needs. marketing analysis


We thank you for participating in our Revenue Management discussions, and look forward to bring you the best of our ideas. For more information, please visit our company website at www.rsvp-hospitality.com