A summary of the different market segments that a hotel usually serves. It is the basis of revenue management.

1. Market Segmentation in Revenue
Management
When I was in the college, I was going through a book called
Principles of Management. There, I read these lines by Peter
Drucker,
“Every business must know who our customers are, and what
do they value, or want.”
The topic that we are going to discuss now does exactly that.
Let me first start with a typical definition of the Market Segment
that you often might find in textbooks, notes, blogs, and Google
search results:
“The market segments are the groups of customers that are
definable, accessible, actionable, and profitable and with
growth potential.”
Before I decode this technical sounding definition, I would like
you to go back in memory, to your first semester Front Office
class, where you first learnt about the concept of Hotel
Classification.
Why do we classify hotels?
We classify so that we can explain to a customer, what kind of
services they could expect from us, and at what price. It is then
used for marketing our hotel to our potential buyers.
Market segmentation is a link that connects marketing the hotel
with revenue management.
What is marketing? I hope you know.
it is reaching your target market with the right message,
through the right medium and at the right time, with minimum
expenses and without breaking any law or ego!

2. The purpose is to inform and influence the buyer. Marketing,
quite naturally, results in sales.
What is the connection of market segmentation with revenue
management, then?
Market segmentation helps us to identify a few broad
categories of travellers, who frequently stay in our hotel. Each
group behaves differently in terms of type of room, day of the
week, type of season and the price level that they select.
Another very important factor for revenue management is the
Booking Lead Time, or the Booking Window, for different types
of customer groups. Booking Lead time is a measure, of how
far in advance the reservation is made. Some people may book
more than six months in advance, hoping to gain some early
purchase discount. And then there are some others, who would
book at the last minute, not because they want to you, but
because they have to.
Let us recall some of the customer groupings we already are
familiar with from our earlier classes.
 Business Guest & Leisure Guest
 High Disposable Income & Budget Traveller
 Free Independent Traveller & Group Inclusive Tour
 Psychographic Segmentation (Introvert & Extrovert)
 Geographic Segmentation, like Domestic & Foreign
 Demographic segmentation like young and middle aged;
with children or without children
I wouldn’t like to waste your time by discussing these
classifications all over again. Revise, if you need to.
Now I would like to start sharing you some basic ideas on
market segmentation that are relevant to Revenue
Management.

3. We need to consider the following aspects of a room booking,
to classify customers into meaningful segments.
 Length of stay (long or short stay period)
 Days of the week (weekdays or weekends)
 Total revenue per room
 Total revenue per guest
 Booking lead time or booking window
 Cancellation rate (risk of revenue loss at the last moment)
 No show rate (these rooms are hardest to re-sell)
 Wash factor (extra rooms blocked for a group, by travel
agents, that do not materialize)
Before I list here some easily identifiable market segments in
five star hotels, I would like to draw your attention to the fact
that market segments are always unique to every hotel, every
city, every region and every country. Reason, purpose of travel
and attractions of a destination don’t always match up.
Let us now look at 8 prominent market segments in top class
hotels
1. Leisure, Individual: this segment pays the highest rates
from their own pockets, books in advance and prefers to
use OTA apps.
2. Leisure, Groups: These pay low rates, but book large
numbers of rooms, and book much earlier.
3. Business, Individual: pays higher rates, but does not care.
Bills are paid by the company. Often has to make last
minute bookings.
4. Business, Group: They pay good rates and spend extra on
other hotel services. Early bookings.
5. Corporate negotiated rate: They pay from low to good
rates, and are a regular source of business. Really a great
deal for low seasons.
6. Conference groups: They pay low rates, even for the full
meeting packages. Preferable during off- season because

4. they have very high spend in other departments. Think of
“Total Revenue”.
7. Airline crew: The Company pays good rates, and crew
are a very regular source of business. Excellent for the
slow days of the week.
8. Wholesale and Tour operators: They generally pay low
rates, but provide regular, high volume reservations. They
also pre-pay, and are able to bring in guests from very far
off places, which the hotel might never have reached.
Now to give you an idea of the benefit of market
segmentation, for maximizing profit through revenue
management system; you can think of the booking Lead
time and, the different price points.
Which segment books early and pays better rates? We
shall book them first. As rooms keep filling, we would
gradually increase the prices, so that the last minute
bookings are given to the segments paying the highest
prices.
This should give you a rough idea of how revenue
management process selects the most profitable
bookings, by anticipating the behaviour of each segment,
in response to any changes in price. All customers are not
the same. Some are needier than others; a few are richer
than others.
Now I would like to outline the major benefits of market
segmentation;
It helps in making accurate forecasts of room
reservations.
It helps to optimise the market mix. Market mix is the
set of market segments a hotel serves.
It helps to prepare special marketing strategies for each
segment.
It helps to prepare special pricing strategy for each
segment.

5. I would now like to conclude with the concept of Native
Segmentation. This is the segmentation unique to every
property, identified by the Revenue, marketing & Finance.
I would also like to share another way of segmentation.
 Transient (AAA, Seniors Discount, Family & Friends)
 Corporate
 OTA (Merchant, Agency, Opaque)
 Consortia
 Group (Local, City wide)
 Wholesale (Tour Operators)
 SMERF (Social, military, education, religious and
fraternal meetings)
All said and done the most basic criteria for market
segmentation are just three;
 Booking Lead time
 Price
 Other department income
As we cover more aspects of revenue management in
next lessons, like Forecasting, Budgeting Performance
Evaluation, Key Performance Indices and Open Pricing,
we would get a very strong grip on the fundamentals of
Revenue Management and Yield Management.
Thank you for staying till the very end. Have a pleasant
day.
Presented by Praveen Jha, Senior Lecturer
Institute of Hotel Management, Hajipur (Patna), Bihar