THE HOTEL

REVENUE MANAGER’S
ESSENTIAL GUIDE TO:

SEGMENTATION

This eBook will help revenue

managers understand the basics
of revenue management in
order to create a sustainable
revenue management strategy.
 SEGMENTATION

TABLE OF
CONTENT

Introduction 1

What is Segmentation? 4

Transient vs Group Business Segments 6

Common Characteristics of Market Segments 8

Segmentation by Channel 10

Segmentation Strategy 13

THE HOTEL REVENUE MANAGER’S ESSENTIAL GUIDE TO: SEGMENTATION

INTRODUCTION
INTRODUCTION
Hotel revenue management is a discipline
that optimizes revenue by strategically
managing a property’s room inventory
and pricing based on predictions about
consumer demand. It means deciding
when to sell a room, at what price, and
through which channel. Basic strategies
include maximizing revenue during
high-demand periods and stimulating
demand during low demand periods.
Revenue management relies on market
data and its past and current trends.
A revenue manager must understand
and consider many factors, such as
changes in consumer behavior, the roles
of various distribution channels, and
the specific set of competitors in his or
REVENUE MANAGEMENT:
Selling the right room to the
right customer at the right
moment, at the right price
through the right channel.
THE HOTEL REVENUE MANAGER’S ESSENTIAL GUIDE TO: SEGMENTATION
her market. The manager also needs to
know how to use segmentation, create
forecasts, and implement pricing mod-
els. Having an overall understanding
of the property’s market, position, and
strategy allows a revenue manager to be
proactive rather than reactive.
Revenue management strategies and
technologies have evolved rapidly
over the last decade. Consumer
markets have changed dramatically
and the ways consumers conduct
research and purchase products have
been transformed by emerging digital
and mobile technologies. Technology
has also offered new insights into
consumer behavior that have never
before been available. A revenue
manager’s job now is to use all of the
available data to determine the strategies
that will yield the greatest revenue with
available inventory.
In addition, new distribution channels are
being introduced on a seemingly monthly
basis. Monitoring and leveraging online
travel (OTAs) agencies, such as Expedia
and Booking.com, is vital. At the same
time, Airbnb and VRBO.com are relieving
some of the pressure in high demand
periods, potentially affecting the prices
that can be charged in specific markets
on compression dates. These companies
offer user-friendly, readily accessible
online platforms consumers can
use to book room stays. They are also
masters of online marketing, with
impressive marketing budgets. A strong
revenue management strategy has
to rise to the same level if it is to
compete in today’s rapidly evolving
online marketplace.
The purpose of this eBook is to help
revenue managers understand the
basics of revenue management in
order to create a sustainable revenue
management strategy. Regardless
of the size of the hotel, a revenue
management strategy must incorporate
four basic components:
SEGMENTATION

A winning approach to revenue

PRICING
management requires a comprehensive
understanding of the market, incorporating
the latest predictive analytics customized
for the property, as well as consumer
demand insights generated from social FORECASTING
media and online review sites. All of this
information must be synthesized before
revenue managers can forecast demand,
set up dynamic room rates, and success- DISTRIBUTION
fully navigate the complex landscape of
online distribution channels.
WHAT IS
SEGMENTATION?
WHAT IS SEGMENTATION?
Segmentation is the practice
of aggregating prospective
guests into groups,
or segments, with common
behaviors or needs, and
respond similarly to
marketing tactics. It is
impossible to forecast demand
or examine data without
first breaking down the business
into customer groups.
Managers can not look at data as a
whole; rather, they must understand
that different segments of the business
have different acquisition costs,
behaviors, and levels of profitability.
Segmentation allows one to determine
which customers are the most valuable
from a potential revenue standpoint.
By identifying customer groups that
behave similarly, and assessing their
value, revenue managers can determine
how various lines of business contribute
to their bookings and profit. Then
strategies can be developed to balance
these segments in order to achieve the
optimal mix of business for their hotel.
TRANSIENT VS
GROUP BUSINESS
SEGMENTS
TRANSIENT VS
GROUP BUSINESS SEGMENTS
Segmentation by customer type is critical to revenue management. Various
segments have different booking habits, and this is important for forecasting.

CUSTOMER TYPES
Traditional hotel segmentation
focuses heavily on two main
customer types:

TRANSIENT GROUP

Transient guests are individuals Group business is a booking

or families that may be traveling
for business or leisure. Generally,
leisure bookings comprise
weekend dates or longer lengths
of stay. Short mid-week stays are
more typical for business travel.
that comprises multiple rooms,
whether by an association,
large family, corporation, or
conference. Group business
often includes other revenue
producing components
besides lodging, such as food
& beverage, and meeting space.
COMMON
CHARACTERISTICS
OF MARKET SEGMENTS
COMMON CHARACTERISTICS
OF MARKET SEGMENTS
Market segmentation can help build a fundamentally sound revenue
management strategy by helping to identify the following characteristics
and trends for specific groups of customers:

LEAD ROOM
DAYS TIME TYPES
LATE
OF WEEK BOOKING

NO SHOW
CANCEL- EARLY
RATIO
LATIONS BOOKING

REVENUE LENGTH
PER REVENUE
PER OF STAY
ROOM
CUSTOMER

Which of these metrics proves to be proving to be useful or profitable over

most valuable depends on the business.
As many sub-segments can be added
as is needed, as long as they give
meaningful insights into guest behavior.
Over time, it is important to reduce and
eliminate those segments that are not
time. Flexible segmentation enables
revenue managers to continually
reassess the way they analyze their
business, and the strategies they
implement in response to that analysis.

THE HOTEL REVENUE MANAGER’S ESSENTIAL GUIDE TO: SEGMENTATION

SEGMENTATION
BY CHANNEL
SEGMENTATION BY CHANNEL
Another way to segment business is according to the booking channel. Examples include:

HOTEL BRAND WEBSITE OTA (ONLINE TRAVEL AGENCY)

GLOBAL DISTRIBUTION SYSTEM CALL CENTER

(GDS)

GROUP RFP
(REQUEST FOR PROPOSAL)

The more a revenue manager can differentiate booking sources, the better she or
he manage the mix of business to optimize revenues. When creating business sources,
acquisition cost must be considered. In the era of rate parity, customers typically pay
the same irrespective of the booking channel. However, a hotel doesn’t collect the
same dependent on the channel. Being able to understand the flow of business relative
to cost is the only way to be able to manage revenue in order to optimize revenues.

11

THE HOTEL REVENUE MANAGER’S ESSENTIAL GUIDE TO: SEGMENTATION

 It is important to understand
which channels contribute
significant revenue.

Wherever distinctions are found, sub-groupings can be created to address them.

The more groupings and sub-groupings created, the more options revenue managers
have to manage those channels. In other words, a manager can maximize each
piece of business, once it is known how those pieces typically behave. It is important
to understand which channels contribute significant revenue relative to cost.
Understanding channel mix relative to cost helps a hotel create action plans to shift mix
and ultimately impact profit.

12

THE HOTEL REVENUE MANAGER’S ESSENTIAL GUIDE TO: SEGMENTATION

SEGMENTATION
STRATEGY
SEGMENTATION STRATEGY
Developing and maintaining a segmentation strategy is a cyclical process.
A sustainable segmentation strategy process has five steps, which should be
repeated on a regular basis to ensure that the business is benefiting from
the optimal mix of customers.

ZE L SET
Y
AL RICA CE & O STR
BJ
N O AN EC AT
T M T
A

EG ES
O
PE HIS

IV
Y
RF

PL NICATE
FLEX I B L

U P D AT
BE

ANS
MU
E

M
E

C
REVIEW
PRO
GRESS

14

THE HOTEL REVENUE MANAGER’S ESSENTIAL GUIDE TO: SEGMENTATION

SEGMENTATION STRATEGY

1 2
ANALYZE HISTORICAL SET STRATEGY & OBJECTIVES
PERFORMANCE Establish benchmarks for channel
Take a strong look at the hotel’s mix and market segmentation
performance from a market by season and potentially day of
segmentation and channel mix week. Create action plans for each
perspective. Is this is the optimal substantial shift.
performance for your hotel(s)?

3 4

COMMUNICATE PLANS REVIEW PROGRESS

All key stakeholders need to be Create regular check points
aware of the changes to keep (weekly at least) to monitor
them focused on the end game. progress to goal.
Every department needs to have
their own action plans to achieve
the goal.

A sustainable segmentation
strategy process has five steps,
which should be repeated on a
regular basis to ensure that the
business is benefiting from
the optimal mix of customers.
5
BE FLEXIBLE
If there are problem areas, or if
objectives are not being met,
formulate solutions quickly, in
conjunction with other stakeholders,
to formulate a better plan.

15

THE HOTEL REVENUE MANAGER’S ESSENTIAL GUIDE TO: SEGMENTATION

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