Customer Segmentation

This article looks at Customer Segmentation, how you can apply it, and why it is important.

What is Customer Segmentation

Customer segmentation means dividing your customers into categories with common characteristics, developing products suitable for each segment, and then marketing appropriately to each segment.

For example, you might have noticed that most of your guests are business people attending conferences (Monday to Thursday), and couples without children (weekends). So you could develop slightly different products and packages for them. During the week, you might provide a free business magazine, or a map with the layout of the convention centre and discounts on food at the convention centre cafe. However, on the weekend, you might offer a free bottle of champagne.

You could also market separately to them. For example – you could promote your hotel through conference management companies to attract the business travellers, and through Red Balloon to attract the couples.

Why is Customer Segmentation important?

If you try to be all things to all people, you will end up appealing to no-one. The couples will go the hotel that appeals to couples. The business conference delegates will go to the hotel that appeals to conference delegates. The young families will stay in the hotel which appeals to young families. Retirees will stay in the hotel which caters for them. Chinese tourists will stay in the hotel which has reception staff who speak Mandarin. And who will be left to stay in your hotel?

You will be more successful if you target specific segments and then build your product/promotions around that segment. Not only will you be more attractive to those segments (who are the people who typically stay in your hotel anyway), but you will be able to charge a higher price too!

What’s more, there is nothing to stop people from other segments staying in your hotel as well.

In working out which segments are most attractive, you should consider the price elasticity and budget of each segment. That is, what price are they prepared to pay?

What are examples of segments?

There are no pre-defined rules when it comes to defining your segments. Common examples are based on:

• Age
• Stage of life (single, couple, families, retirees)
• Business v leisure
• Local v Interstate v International
• Special Interest e.g. Yoga, sport, entertainment, gambling, cooking, art
• Length of stay

If you aren’t sure which segments your guests fall into then all you need to do is ask! A simple question “what brings you to the ABC hotel” upon check in will give you some great insight. You can combine this with an estimate of their age and the number of guests staying in each room to get a pretty good idea of which segment they fall into.

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