This document summarizes a presentation about rethinking hotel segmentation strategies. It discusses how segmentation has evolved over time as distribution channels have changed. Key considerations for segmentation include understanding customer types and behaviors, distribution channels, acquisition costs, and prices. The presentation then reviews a case study where Duetto helped a hotel optimize its segmentation strategy using a cycle of analysis, strategy, evaluation, and execution. Key takeaways are evaluating segmentation periodically based on questions like understanding customer mix and behaviors, and whether current pricing is maximizing occupancy.
2. About Duetto
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R&D
3. About: Nathaniel “Nat” Estis Green
Senior Global Solutions Engineer
Duetto family member since Dec. 2012
4. Agenda
▍ Segmentation 101
▍ Four Key Considerations
▍ Duetto Best-Practices Case
Study
▍ Key Takeaways
▍ Questions?
4
5. Revenue Management Introduction
“The application of disciplined analytics that
predict consumer behavior at the micro-market level and
optimize product availability and price to
maximize revenue growth.
The primary aim of Revenue Management is selling the
right product to the right customer at the right time for
the right price and with the right pack.
The essence of this discipline is in understanding
customers' perception of product value and accurately
aligning product prices, placement and availability with
each customer segment.”
Cross, R. (1997) Revenue Management: Hard-Core Tactics for Market Domination. New York, NY: Broadway Books.
Inventory /
Capacity Demand
Price
$
12. 12
looking for a good deal
but also wants to select
a specific property
Joe
13. 13
300 room property; has limited
segmentation to Retail, OTA,
Group, Wholesale, Corporate
Charges $215 across all
OTA channelsHotel ABC
14. 14
300 room property; has limited more
detailed segmentation to Transient,
OTA Merchant, Opaque, Group,
Wholesale, Corporate LRA,
Corporate nLRA
OTA Merchant - $225
OTA Opaque - $195Hotel 123
17. Evolution of Segmentation
17
1970s 1980s 1990s 2000s 2010s 2015
Separation of
ownership,
brand, and
management
Leisure & Group
Product
segmentation;
financial
engineering
Leisure, Group,
Contract/Corporate
First online
booking; enter
Expedia
New need for OTA
segmentation
Online
distribution
explodes
complexity
Complexity of
segmentation continues
with more channels
Crowded
value chain
Meta search;
enter tech
giants & new
gatekeepers
22. What is Segmentation?
The Right Segmentation
for YOU
Segmentation: to divide the marketplace into parts, or segments, which are
definable, accessible, actionable, and profitable and have a growth potential.
Economic Times
OR
34. Re-Segmentation Key Questions
34
1 2 3
Can you tell the
mix of business
(types of customers)
you have?
Can you tell booking
behavior of each
segment of customer?
ADR?
Booking lead-time?
Are your revenue or
sales and marketing
team’s pricing and/ or
promotional
strategies selling out
the hotel day-of?
35. Circle of Segmentation Optimization
35
Analyze current performance
Strategize
performance goals
Evaluate distribution
strategy
Determine
expected changes
and set expectations to
appropriate departments
Execute new
segmentation Segmentation
Optimization
Cycle
37. Key Questions to Evaluate
37
Can you tell the mix (types of customers) you have?
38. Key Questions to Evaluate
38
Can you tell the mix (types of customers) you have?
NO
Refer to “Circle
of Segmentation
Optimization”
39. Key Questions to Evaluate
39
Can you tell the mix (types of customers) you have?
YES NO
Refer to “Circle
of Segmentation
Optimization”
Can you tell booking behavior of each
customer segment? ADR? Booking lead time?
40. Key Questions to Evaluate
40
Can you tell the mix (types of customers) you have?
YES NO
Refer to “Circle
of Segmentation
Optimization”
Can you tell booking behavior of each
customer segment? ADR? Booking lead time?
NO
41. Key Questions to Evaluate
41
Can you tell the mix (types of customers) you have?
YES NO
Refer to “Circle
of Segmentation
Optimization”
Can you tell booking behavior of each
customer segment? ADR? Booking lead time?
YES NO
Are your revenue or sales and marketing teams pricing
and/or promotional strategies selling out the hotel day-off?
42. Key Questions to Evaluate
42
Can you tell the mix (types of customers) you have?
YES NO
Refer to “Circle
of Segmentation
Optimization”
Can you tell booking behavior of each
customer segment? ADR? Booking lead time?
YES NO
Are your revenue or sales and marketing teams pricing
and/or promotional strategies selling out the hotel day-off?
NO
43. Key Questions to Evaluate
43
Can you tell the mix (types of customers) you have?
YES NO
Refer to “Circle
of Segmentation
Optimization”
Can you tell booking behavior of each
customer segment? ADR? Booking lead time?
YES NO
Are your revenue or sales and marketing teams pricing
and/or promotional strategies selling out the hotel day-off?
YES NO
Evaluate re-segmentation in 6-12 months
Foundation of pricing strategy; if you have 2 customers that are different pricing characteristics in the same segment you’re missing revenue: over pricing one or under pricing one.
doesn’t have a preference other than star-quality and location;
Has a price of $200-250 in mind
Made decision between final two properties of 123 or ABC
Has a price range of 175-200
OTA Merchant – Expedia, Booking.com, Travelocity
OTA Opaque – Hotwire, Priceline, etc.
Jim doesn’t book because it is slightly out of his price range; Joe pays willingly and had some wiggle room to possibly spend more money – cheaper rate could enable ancillary spend including upselling if completed appropriately.
Jim books because the rate is within his price range (optimally at the higher side). Joe also purchases.
While there are many other things to take into consideration which I will get into later in the presentation this is a straight forward example how thought-out segmentation can lead to more bookings for your property.
Consumers were not always like Jim and Joe with so many options….
In the 50s: Group & Leisure; then corporate; as new channels come up new needs for segmentation: booking brands have controlled types of customers as they are marketing engines
Previously travelers booked directly with hotels - the stay brands.
Hotels competed with each other for the consumer and owned the relationship
There has been a bifurcation of travel brands and now there is a new class of brands in travel…
Think UBER/ LYFT today
New class = booking brands
The booking brands have become the dominant point of entry for the consumers
Consumers pass through these brands before they decide where to stay
And these booking brands are companies with massive power and high market caps – like Google, Expedia, Facebook.
Hotels are paying to get traffic from the booking brands & while still paying to compete with the other stay brands on guest experience
Competing with a new class of brands with larger budgets is why costs have risen so much
In fact we looked at how much the costs have gone up…
Explain Types of (Yielding v Market) Segmentation
Fight OTA or increasing acquisition costs: drive more direct Loyalty segmentation: total lifetime value for hotel customers --- this is a gamechanger: Average daily spend rather than average daily rate
Takeaways with Segmentation:
Segmentation for pricing and segmentation for marketing/promotional purposes; depends on what you’re using it for: pricing segmentation to segment business together into different rate buckets.
Need to think about categories of customers depending on what actions you want to take – training call center you wont think about qualified discount you will think about type of customer
Foundation of pricing strategy; if you have 2 customers that are different pricing characteristics in the same segment you’re missing revenue: over pricing one or under pricing one.
Ex. Seg:
Business- not always contracted rate: Sunday-thurs traveller v weekend traveller
Leisure
Group
Yielding & Market Segment:
Yielding: pricing; how are you pricing different channels and managing restrictions – will impact bottom line; has direct impact on performance.. More granular detail to enable better more flexible pricing – can also be beneficial for promotional purposes
Market Segment: budgeting and reporting. OTA and Opaque are priced different but reporting wise, finance guys prefer, 3rd party distribution lumped together – will impact reporting efficiency; marginal impact to bottom line with more efficient reporting (helps finance & accounting teams); Financial Segmentation is market segmentation – P&L (for management or ownership group); simple breakdown of looking at your business
Hotel Del (Customer) – confused by why needed to make more detailed segmentation “How would you break things down into more granularity”?
-- market segment for OTA and divide it up to merchant and opaque (able to look at bookings and ADR in more detail). Take Transient segment and breaking it down into retail, AAA, friends and family.
Expedia – starting to charge customers directly or have customers pay at hotel which offer different margins.
Things to talk to (or ask questions about), but leave open for follow up:
Casino/Loyalty Segmentation
Multiple Segmentation for different purposes
Depends: do you have huge gaps of occ (low season hotels) or fill shoulder days or key periods of needs (smaller groups so going after more granular detail with yielding segmentation)
Make sure your promotions are best on your website (loyalty) or at least equal to the market; many people offer better promotions on hotel tonight or other platforms which are not ideal
- Talk to Marco at Starwood W in SF
Yielding & Market Segment:
Yielding: pricing; how are you pricing different channels and managing restrictions – will impact bottom line; has direct impact on performance.. More granular detail to enable better more flexible pricing – can also be beneficial for promotional purposes
Hotel Del (Customer) – confused by why needed to make more detailed segmentation “How would you break things down into more granularity”?
-- market segment for OTA and divide it up to merchant and opaque (able to look at bookings and ADR in more detail). Take Transient segment and breaking it down into retail, AAA, friends and family.
Expedia – starting to charge customers directly or have customers pay at hotel which offer different margins.
Market Segment: budgeting and reporting. OTA and Opaque are priced different but reporting wise, finance guys prefer, 3rd party distribution lumped together – will impact reporting efficiency; marginal impact to bottom line with more efficient reporting (helps finance & accounting teams); Financial Segmentation is market segmentation – P&L (for management or ownership group); simple breakdown of looking at your business
Things to talk to (or ask questions about), but leave open for follow up:
Casino/Loyalty Segmentation
Multiple Segmentation for different purposes
11th edition segmentation
Transient – Retail, AAA, friends and family
Corporate – nLRA, LRA
OTA – Opaque,
Consortia
Group: Corporate, city-wide, SMERF (social military educational religious fraternal –war memorial vets, Eagles, frats-), wholesale-group (similar as “wholesale” segment) specifically coming in for X (coming from overseas)
Wholesale (Vacation or City-wide): wholesale is going to come from pre-Negociated wholesale agreement
It is necessary to “tick” all the boxes in the following in appropriate order: in order to reach optimal segmentation for yourself.
Is it group or individual?
Leisure or business – pay for yourself or you don’t?
Are there relevant mix of business within a certain segment?
We had this big European hotel who’s largest segment was fixed rates: formerly only had one segment. We had to create sub segments – corporate high, corporate medium, corporate low, corporate distressed – create sub segments to create true ability to analyze data. With new strategic distribution strategy they were able to renegotiate corporate contracts to open up some yieldable business which in turn resulted in shrinking corporate sub segments from 4 to 2.
It is important to keep in mind segmentation is constantly evolving. Managing all aspects of the business will mean that your property will likely have shifts in customer behaviors as you move towards full profit optimization; and even when fully optimized as new channels or means of distribution comes online it changes the strategy for the property. Don’t hesitate to re-evaluate segmentation shifts: just be sure to have revenue and other systems that can store historical data and historical segmentation to appropriately do analysis of how the changes impacted your business.
First look at pricing behavior (extended stay v. 3rd party internet v Opaque v Advanced Purchase v Packages); 2nd look at channels and distribution. Segment by price consumer is willing to pay or segment by cost per channel.
Distribution -- how are we getting people to hotels; what strategies can we do to approach these mix of channels?
Need to evaluate you needs as a property: what distribution channels fills your property best? Remember what your needs are today does not mean it’s where you will stay forever: you need to develop a strategy of where to be today and how to get to where you want to go:
If you are an independent in a tertiary market you may be more reliant on OTAs, corporate, and wholesalers to attract business; do you want to shift to having more direct bookings? Ensure a good stay and allow for personalized rates on your booking engine to entice guests to book directly rather than through other high-cost channels – though those channels are still beneficial at getting a customer through the door who may have never before
Many resort companies, especially those in major resort markets like S.E Asia, Mexico, etc., are reliant on heavy wholesale business; this may be the safe move and sells out the hotel well in advance, but do you want to shift to be more of a direct tourist hotel? That may mean following the OTA move into also creating fenced rates around your booking engine to entice specialized rates only directly.
If you are a airport hotel you will be a big corporate account property; do you want to shift into having more meetings and groups which you can optimize and have more flexibility with pricing than fixed rates?
Acquisition – Acquisition is result of distribution when looking at all channels; good acquisition is minimizing costs. Do you know your costs of acquisition and what are your costs of acquisition? Have they been increasing while profits haven’t been?
Kalibri Labs is a key player in evaluating this; we have a partnership to allow us to ingest their data to optimize distribution analysis.
Price – segmenting customers on buying behaviors can be useful because you can offer them different things: which means you segment by price. 1) Key Questions: Is this person traveling for business or pleasure?
2) Are they price sensitive? 3) What products are they buying? 4) Do they have ancillary spend? 5) Are they routine guests?
Behavior – a product of price.
In response to price key question:
Majority of your city-wide business is coming through a conference so because theyre coming due to a conference on a business account you can anticipate a price based off of this behavior.
Behavior – a product of price.
**Chicken before the egg: does price impact the buying behavior of your customers (and general market) or do the buying behaviors of your customers (and general market) impact price? Does behavior control price or does price control behavior?
There’s a situation where if you don’t align your price with market and consumer behavior your value perception will be off what the market perceives it as and you will have either an over or under priced hotel for the perceived value. Maintaining brand image is important when considering behavior and price.
Story: Encore – slash opaque and package (which are easier to hide from public perception) to fill the property and maintain the image of highly esteemed property while keeping direct and public rates up; utilize certain segmentation to maintain brand image while also filling the property to not impact future price. Mix of price optimization around various customer behaviors to maintain image and also optimize profit.
Response:
Market behavior (or market placement/ perception v comp set) can impact consumer behavior which then impacts the prices you can charge.
Mix of both: depends on availability/demand in the marketing. You cant entirely predict market behaviors so you need to anticipate some when setting prices, but you cant just set prices without anticipating market behavior or you could out or under price yourself.
Depends: some customers only buy on a good deal; other customers don’t care and will buy regardless of price. Analyzing how customers came in through channels is a good way at determining this: if a customer buys on hotel tonight same day it’s a different behavior (and should be approached different) relative to buying 6 months in advance direct or calling in.
End Goals
Key for sales and marketing and RM to be in sync: S&M can target consumers with different buying behaviors and RM can target consumers via different price. Finding the mix is appropriate.
1) Can you tell mix of business (types of customers) you have?
No: Refer to circle of segmentation optimization
2) Yes – Can you tell booking behavior of each segment of customer? ADR? Booking lead-time?
No: Refer to circle of segmentation optimization
3) Yes: Are your revenue or sales and marketing team’s pricing or promotions decisions selling out the hotels too early or not enough?
Yes: Refer to circle of segmentation optimization
No: Evaluate Re-segmentation in 6 months
Segmentation is constantly evolving not something set in stone
People need to look at segmentation again when they don’t know what is in a segment anymore?
Analyze current segmentation: is the mix profitable? Has your performance been increasing with the aligned marketing strategies? Is your owner happy?
Ensure the incentive structure is aligned at the property to make sure people are rewarded as the property does better; you don’t want conflicting incentive structures
Strategize performance goals: where do you want to be? What are your goals for profitability? Is the owner trying to get the hotel into a certain financial situation before trying to sell?
Evaluate Distribution Strategy: what mix of business is appropriate to reach these goals? Do you have the pieces in place and the appropriate people staffed in the hotel to help you get to that performance goal? Are people at the hotel resistant to changes in current operations or mix of business shifts?
Determine expected changes: Ops, S&M and RM need to be aligned is key for successfully re-segmenting in the most profitable way possible: implementing a new distribution strategy is not just about price, which RM controls, but includes the other three factors: distribution, cost of acquisition, and consumer behavior which are all impacted by operational and S&M departments at a hotel.
Execute new segmentation: roll out your decided new segmentation and strategy around this segmentation. Spend time evaluating the variances as you may need to make minor tweaks to ensure you have sufficient m
How to determine segmentation: look at historical reservations by price, source/channel, market code. Best way to determine segmentation is to see how customers purchased in past.
Look at total production year-round: El Cortez runs 90% so EDC customers coming wont have much impact. Look at overall revenue impact from type of customer. Ask Nevin if there is a threshold of revenue directed by a certain customer that justifies creating their own segment.
1) Can you tell mix of business (types of customers) you have?
No: Refer to circle of segmentation optimization
2) Yes – Can you tell booking behavior of each segment of customer? ADR? Booking lead-time?
No: Refer to circle of segmentation optimization
3) Yes: Are your revenue or sales and marketing team’s pricing or promotions decisions selling out the hotels too early or not enough?
Yes: Refer to circle of segmentation optimization
No: Evaluate Re-segmentation in 6 months
1) Can you tell mix of business (types of customers) you have?
No: Refer to circle of segmentation optimization
2) Yes – Can you tell booking behavior of each segment of customer? ADR? Booking lead-time?
No: Refer to circle of segmentation optimization
3) Yes: Are your revenue or sales and marketing team’s pricing or promotions decisions selling out the hotels too early or not enough?
Yes: Refer to circle of segmentation optimization
No: Evaluate Re-segmentation in 6 months
1) Can you tell mix of business (types of customers) you have?
No: Refer to circle of segmentation optimization
2) Yes – Can you tell booking behavior of each segment of customer? ADR? Booking lead-time?
No: Refer to circle of segmentation optimization
3) Yes: Are your revenue or sales and marketing team’s pricing or promotions decisions selling out the hotels too early or not enough?
Yes: Refer to circle of segmentation optimization
No: Evaluate Re-segmentation in 6 months
1) Can you tell mix of business (types of customers) you have?
No: Refer to circle of segmentation optimization
2) Yes – Can you tell booking behavior of each segment of customer? ADR? Booking lead-time?
No: Refer to circle of segmentation optimization
3) Yes: Are your revenue or sales and marketing team’s pricing or promotions decisions selling out the hotels too early or not enough?
Yes: Refer to circle of segmentation optimization
No: Evaluate Re-segmentation in 6 months
1) Can you tell mix of business (types of customers) you have?
No: Refer to circle of segmentation optimization
2) Yes – Can you tell booking behavior of each segment of customer? ADR? Booking lead-time?
No: Refer to circle of segmentation optimization
3) Yes: Are your revenue or sales and marketing team’s pricing or promotions decisions selling out the hotels too early or not enough?
Yes: Refer to circle of segmentation optimization
No: Evaluate Re-segmentation in 6 months
1) Can you tell mix of business (types of customers) you have?
No: Refer to circle of segmentation optimization
2) Yes – Can you tell booking behavior of each segment of customer? ADR? Booking lead-time?
No: Refer to circle of segmentation optimization
3) Yes: Are your revenue or sales and marketing team’s pricing or promotions decisions selling out the hotels too early or not enough?
Yes: Refer to circle of segmentation optimization
No: Evaluate Re-segmentation in 6 months
1) Can you tell mix of business (types of customers) you have?
No: Refer to circle of segmentation optimization
2) Yes – Can you tell booking behavior of each segment of customer? ADR? Booking lead-time?
No: Refer to circle of segmentation optimization
3) Yes: Are your revenue or sales and marketing team’s pricing or promotions decisions selling out the hotels too early or not enough?
Yes: Refer to circle of segmentation optimization
No: Evaluate Re-segmentation in 6 months
luxury hotel (loyalty segmentation, have strongest case for guest loyalty –emotional connection-, can be more exclusive to segmentation). Image based segmentation can be a factor. Experience based loyalty v Price based loyalty: how will revenue managers and S&M incentivize loyalty for high-end customers?
economy hotel (transient business, not many segmentation, straight forward inventory management)
resort hotel (heavily weighted on wholesale and package; better insight into customers then to create strategy about distribution)
city center (most complex segmentation; all channels –OTA, O and all types of people coming – business, conference, vacation, families, etc., most opportunity since there are most moving parts. 3-4 star is a HUGE sea of people and customer types. All downtown city center hotels will have impact by city-wide events
Airport (transient walk-in, corporate –mostly flight crews; global AMEX agreements w Brands-, park & fly -park and stay one night-, and meetings)
Convention (ASK NEVIN) – similar to city center; more granualr Group segmentation (specifically to convention),
Even though revenue management Is a broad topic the focus of the discussion will be price optimization.