Pricing Strategy:

Identify Your Hotel’s Demand Segments

A New Way of Thinking About Segments

November, 2016

The traditional way of approaching hotel demand segments was straightforward: general demand for any hotel could be divided into a small number of large segments, depending on the nature of travel - for example: Business Travellers, Meetings, Leisure and Groups. To be successful, a hotel needed only to fix prices for those four, and wait for the bookings to roll in.

How times have changed! Today’s competitive hotels need to look across many more dimensions and address many more variables when developing a successful demand segmentation analysis and a responsive pricing strategy. Instead of just four or five large segments, smart hoteliers are dividing their potential market into dozens, or hundreds - or sometimes even thousands - of micro-segments, and dynamically generating prices that are precisely calibrated to attract customers within each segment. Variables such as demographics, geography, social-media data and purchase history profiles all play a role in creating a rich, dynamic and successful demand segment model.

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The challenge may seem intimidating for the independent hotel owner. But the good news is: powerful data analytics and information technology is on hand, helping to simplify complex market analysis problems. You can now gain in-depth intelligence about your potential guests like never before, using tools that access social media, data mining, sales channel analytics and also to information provided directly from guests themselves. Thanks to the information revolution, sophisticated pricing strategies are more accessible than ever.

The Right Price for the Right Demand Segment

Once you understand your hotel’s demand segments, you can exploit this knowledge by offering prices that are targeted precisely to each segment. As every hotelier knows, different guests want different things. And they are willing to pay different prices to get what they want. The art lies in curating attractive packages of amenities, services, features and conditions that give your guests what they want at a price that wins their business.

The Two-Fold Challenge of Pricing

Hoteliers face two key dangers when it comes setting prices to attract demand segments.
1. Leaving Money on the Table: Faced with immense competition, a practically transparent market for prices and unrelenting cost pressures, hoteliers can be forgiven for dropping prices to the bare minimum in order to keep rooms filled. However, if you have an accurate understanding of your demand segments, you’ll quickly realise that low prices aren’t the only pull factor for your guests. You can set higher prices that win loyal customers who know that you’ll provide the experience they actually want.
2. Cannibalising Other Segments: You tailor an attractive midweek short-stay deal for Millennials, for example, knowing this will help win business from this important segment. But after a few weeks, you realise that your higher-profit business guests are cashing in of this deal too. The impact on your bottom line is disastrous, and you know it’s going to be difficult to convince those business guests to return to the standard higher prices. This is the danger of cannibalising: one segment eats into the profits of another. The solution to the danger of cannibalisation is to focus on each channel separately, and to boost truly personalised pricing offers.

Address Each Channel Separately

Hotels have access to more distribution channels today than at any other time in history. As new channels continue to proliferate at an ever-increasing rate, independent hotel operators have more and more opportunities for generating revenue through them. Each channel reaches a different part of the global accommodation market, so each will produce its own unique insight into demand segments for your hotel. So it makes sense to analyse your top four or five channels and to understand how demand segmentation works within each of them. To avoid cannibalisation, develop segment pricing for each different channel, targeted as precisely as possible at the segment you want to win. Take a different approach in marketing, pricing, and demand generation for each segment. The winning strategy: focus on the valid, profitable segments, and then to grow each of them slowly.

Personalisation: The Ultimate Segmentation

Ready to take your demand segmentation strategy to the highest possible resolution? Duetto CEO Patrick Bosworth points out, “More segments mean more insights”. As traveller motivations, expectations and spending patterns become increasingly fragmented and diverse, your hotel’s demand segments become smaller and smaller, until ultimately, a “segment” is a single guest. Personalisation is the pinnacle of demand segmentation. Specialist firms such as Duetto offer revenue strategy tools that help you get the biggest yield from the smallest segments. Duetto is a global partner of Worldhotels. To learn more about Duetto’s powerful revenue-management solutions, simply visit their website:

http://duettoresearch.com/

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