Market segmentation is the process of dividing a market into distinct groups of buyers who might require separate products and/or marketing mixes. In turn, it allows you to price each segment according to the type of customer you target. It is a key element in preparing your hotel for success.
Markets can typically be segmented based on the following:
- Geographic segmentation (regions, countries, etc). Where are the guests coming from? And what are their travel and stay requirements?
- Demographic segmentation (age, gender, etc). Is there an age group which is likely to find your hotel more attractive?
- Psychographic segmentation (social class, lifestyle or personality characteristics). What is the affordability of your hotel for different groups of people? And is it speaking to the new Millenials?
- Behaviour segmentation (knowledge, attitude, use or responses to a service). Are you appealing to a certain group of people who view certain things as more important when choosing a hotel? Sustainability is often cited as a key factor.
Choosing the Right Market Segment
The attractiveness of market segments can be evaluated based on the following:
- Measurability: Degree to which a segment’s size and purchasing power can be measured. Is it possible to establish how much a certain group of people are willing to pay for staying at your hotel?
- Accessibility: Degree to which a segment can be accessed and served. If your segment is primarily based thousands of miles away, accessing them to promote your hotel can be expensive.
- Substantiality: Degree to which a segment is large or profitable enough. How large is the segment in relation to the number of rooms that you are looking to fill every day?
- Actionability: Degree to which programs can be designed to attract and serve the segment. Is it possible for your hotel to create targeted initiatives that can attract this segment?
Feasible market segments can then be chosen based on the following parameters:
- Size and growth: Current segment sales, growth rates, and expected profitability.
- Structural attractiveness: Presence of strong competitors, the relative power of buyers, presence of powerful suppliers
- Organization’s objectives: How the segment fits in with the organization’s objectives or philosophies.
Strategies Based on Market Segmentation
The following are some common strategies based on market segmentation:
- Undifferentiated marketing strategy: Ignore market segmentation and go-to-market with one service offer across the board. Not recommended for boutique hotels because of the targeted approach required
- Differentiated marketing strategy: Target different several market segments with specially designed/customized offers for each segment. This is important especially if your boutique hotel has a larger number of rooms
- Concentrated marketing strategy: Concentrate on one single segment with a specific service to get a large share of that market segment. This approach probably works best for smaller boutique hotels
In simple terms, hotel market segmentation tends to come under the following categories
- Leisure – within this broad segment, there are usually multiple sub-segments and this can also vary based on channels of bookings. Typically these are unrestricted or public rates which are bookable on the brand website, and online travel agencies (OTAs). Discounted offerings also tend to feature in this segment.
- Corporate – they receive an offering that is tailored along with a rate where you have agreed on the level of discount with a corporate client that will be made available to that specific company.
- Groups – these are usually dealt with on an adhoc basis and usually do not feature as a core segment for boutique hotels.
The choice of market segmentation strategy also depends on the following:
- Company resources: The less the company’s resources, the better it is to opt for a concentrated strategy. Typically for boutique hotels, we expect that they will be missing the resources available to a large chain which leads to a concentrated marketing strategy.
- Product homogeneity: The greater the differences in services, the better it is to use either a differentiated or concentrated strategy.
- Market homogeneity: The greater the homogeneity in customers, the better it is to use undifferentiated strategy.
- Competitors’ strategies: Depending on the market scenario, use the same or a completely different strategy from that of the competitor. This is vital in establishing authenticity and differentiate from the competition.
A thorough market segmentation exercise allows optimum use of resources, impactful pricing and along with positioning plays a critical role in the success of your boutique hotel.