Why Should Hotels Focus on Market Segmentation?

Hotel market segmentation is a method of segregating potential guests into various groups based on a set of shared characteristics. Your hotel revenue management system needs to focus on market segmentation so that you can target and market to a variety of consumer groups with an offer that matches their needs and budget level.
Simply put, market segmentation is a way to optimise your hotel’s profits.  

Importance of Hotel Market Segmentation

There is a lot to be gained from market segmentation. And the more specific you are with your market segmentation, the better are your chances to find customers who will rave about your hotel. Once you know which segment you are targeting, your sales and marketing efforts will be focused towards attracting this targeted segment. Some benefits of market segmentation include:
  • You get identify the booking behaviour of your guests that include the length of stay, total revenueper room, total revenue per client, cancellation %, booking lead time, and no show ratio.
  • Your marketing and sales efforts are more focused and therefore are both more profitable and easier to measure.
  • You attract more guests and also increase revenue per customer.
  • You can confidently invest in high-valued features, upgrades and deals, knowing that your guests will love them.
If you’re wondering where to get started with market segmentation, we’ll tell you how it can be done.

Step 1. First, determine your customer groups. To do this, you have to classify the distinct features of your customers. Some of the segments that have been accepted in the hotel industry include:
  • Transient
  • – The guests belonging to this group are usually individual travellers, leisure travellers, or families and are not associated with any group or company. They make individual bookings at publically available dynamic charges or your Best Available Rate (BAR).
  • Corporate
  • – The guests staying at the hotel include businessmen, corporate travelers, etc. are offered negotiated company rates. The discounted rates are offered on a contract basis to corporate clients who frequently stay at your hotel.
  • Group
  • –This customer segment stays at your hotel at contracted rates for an event or a large group, such as conferences, meetings, training, weddings.The rates are flexible depending on the requirements.
  • Wholesale
  • –Rooms for this segment are offered at discounted rates. They include tour operators and airlines or booking agents on buying bulk tickets.
Step 2.Once you have determined your customer segments, identify the segment which contributes more to your hotel profit mix within a strategy or plan.

Step 3. Calculate how much money you are investing for each segment to successfully pull customers from these segments to stay at your hotel (accommodating them). This calculation will be your cost of acquisition & cost of distribution.

Step 4. Measure the net profit (Net RevPar, GOP) you are making from these segments.

Step 5. After you have figured out your most profitable segment, you can direct your marketing and sales efforts towards it. To do that you first need to identify the channel segments based on how you receive bookings. Channel segmentation will help you ensure your hotel revenue management strategy is optimised for greater ROI. So, let’s look at the channels:

  • Direct
  • –This channel segment involves direct bookings done on phones or emails.
  • Website
  • – This segment secures bookings through a hotel booking engine or hotel reservation system on the hotel’s website.
  • OTAs
  • – OTAs are online third-party travel agencies. People make OTA hotel bookings for various hotels through their platform.
  • GDS
  • – Global distribution system (GDS) is a wide network that connects hotels and travel websites.
  • Others
  • – This channel segment includes various categories such as industry rates, complimentary rates, rates available to the staff, etc.
Step 6. Analyse all the data you have obtained and use the insights to optimise your strategies, such as your pricing model, sales and marketing. Integrate these strategies into your channel management technology and also in your most profitable channel for more conversions.

Step 7. Revisit all the above six steps periodically.


Defining your hotel market segmentation is a crucial step towards growing your hotel business. Once your market segmentation is complete, you can apply targeted actions to your profit mix.
That said, market segments will differ from hotel to hotel. But, regardless of the type and location of the hotel, market segmentation will take your hotel business to another level of financial performance.
Getting started with market segmentation? Aiosell can help. Our revenue management software seamlessly integrates with existing hotel systems to help you optimise your strategies based on market segmentation.

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