Market segments for hotels: How to optimize distribution and pricing

Hotels are no exception.

The key difference between sectors isn’t just who the audiences are but how many distinct audiences they have. And hotels have a surprising number of distinct audiences – or guest segments.

While there are many ways to build on this insight, this blog will explore how leveraging the right data and tools to analyze your segments can enhance your distribution and pricing strategy.

But first, let’s recap the importance of hotel market segmentation.

The importance of hotel market segmentation

As discussed in our recent podcast, “the Art of the Sellout”, hotel market segmentation is crucial in the hospitality industry because it allows you to effectively target and cater to specific groups of guests, optimizing both guest satisfaction and revenue.

Here are five key areas where market segmentation provides valuable insights.

Understanding your guest needs

Market segmentation categorizes guests, such as leisure, transient, group business, or corporate travelers, based on their preferences.

Identifying these needs allows you to tailor services, amenities, and packages to specific segments.

Personalized marketing

Targeted marketing campaigns consistently outperform generic approaches. For example, offering flexible check-in times to business travelers or family-friendly packages for leisure guests ensures your message aligns with their priorities.

Optimized your revenue management

Market segments help you manage inventory and pricing strategies more effectively. For instance, segmenting high-demand business travelers allows for premium pricing during weekdays, while you might target leisure guests with discounted rates during off-peak periods.

Better resource allocation

Understanding market segments enables efficient allocation of resources, such as staff training, marketing budgets and operational focus, to meet the expectations of each of those guest segments.

Staying competitive

Segmenting the market means you can respond to trends and shifts, such as emerging demand from bleisure (business + leisure) travelers or eco-conscious guests, ensuring your offering remains relevant and competitive.

In summary, by leveraging market segmentation, you can craft strategies that attract the right guests, improve their experiences and maximize profitability.

Why traditional segmentation doesn’t work for modern hoteliers

Typically, there have always been two overarching market segments: transient and group travelers, though these segments are also made up of a range of sub-sections. It’s vital that you identify and target these groups separately.

Technology has changed travel in every way, becoming part of the entire traveler journey. As a traveler, think about how you now use technology to research, book and share travel experiences. Thanks to the accessibility of travel through the internet, it’s all at your fingertips, no matter where you are.

As a result, traditional segmentation is becoming less relevant, prompting a shift in focus toward marketing to individuals rather than grouping guests into broad categories. Each segment can instead be transformed into a detailed persona, representing your typical guest within that group.

This means that you don’t just use demographics, but also behavioral factors. 

Ask yourself:

• Why are they traveling?

• What do they value?

• How do they make their bookings?

• When do they travel? 

• How often do they travel?

• How often do they stay with you?

Market segmentation isn’t a fixed activity. Dig into any accurate guest data at your disposal to regularly update your segmentation strategy and recognize your most important guests.

By using a business intelligence solution as part of a wider view on market intelligence, you can identify the most profitable segments at your hotel, along with cost of acquisition and the booking value for each channel.

When you have a deep understanding of your market segments, you can offer competitive and flexible pricing, promotions, and discounts to effectively convert potential guests - and maximize potential revenue in the process.

How to understand your market segments as real-world guest personas

Driven by evolving traveler expectations, fluctuating demand patterns, intense competition and continually evolving tech to support these needs, the hotel industry is more dynamic than ever. 

Guests today have access to a wealth of information and choices, making competitive pricing, distribution and marketing strategies essential for success.

In this new landscape, we see:

• Increased competition: Online travel agencies (OTAs), metasearch aggregators and review platforms give guests instant visibility into pricing and offerings, making it critical for hotels to stand out.

• Diverse guest needs: Travelers now seek personalized experiences, from luxury to budget-conscious options, requiring hotels to better understand and cater to distinct segments.

• Dynamic demand: Trends like remote work and bleisure have diversified how and why people book stays, demanding a nuanced approach to segmenting and targeting guests.

Given this backdrop, competitive strategies must be underpinned by a good understanding of your market segments as real-world guest personas. 

These will help you:

• Develop targeted pricing strategies that resonate with each segment’s expectations.

• Optimize distribution channels, ensuring availability where specific personas are most likely to book.

• Craft personalized marketing messages tailored to the unique needs of business travelers, families, or adventure seekers, whether through traditional channels, your website, or social media.

Market data is invaluable for identifying a hotel’s top travelers and uncovering what they value most in a guest experience – be it competitive pricing, personalized amenities or convenience. By analyzing booking patterns, preferences, and feedback, you can gain actionable insights into their most lucrative market segments.

Specialized software solutions, such as your customer relationship management (CRM) system, property management system (PMS) and revenue management platforms, streamline access to this data. These tools help you analyze guest behavior, preferences and trends, helping you to tailor experiences and strategies that resonate with your core audience.

Get this right and you can transform abstract segments into actionable personas, driving effective strategies that enhance both guest satisfaction and revenue growth.

Set data-driven room rates to support profitability

Getting your rate structure right is the cornerstone of revenue management and your number one priority. With so many elements to scrutinize, especially in a market that’s so fluid, setting the right rates has become more challenging than ever.

There are countless factors that can influence your pricing strategy – multiple channel partners to monitor, competition to keep an eye on, shifting traveler trends and demand forecasts to watch. That’s an overwhelming amount of information to analyze and a whole lot of time needed to do it.

It may be an art form, honed over years of experience in the field, but the key to a successful pricing strategy lies in the science. You need to be able to make confident decisions based on real-time, actionable data.

In a dynamic market, it’s simply not feasible to collect, collate, analyze and set a pricing strategy before your data has become outdated. That’s why market-leading rate shopping tools have become indispensable in the field of revenue management.

A rate shopping tool easily allows you to maintain your market positioning, thereby maximizing your bookings, revenue and average daily rate (ADR). Crucially, it gives decision-makers a bird's-eye view of what’s going on in the market. Equipped with a view of your competitors' up-to-date rates across all key OTAs, brand.com and GDS, you can make swift pricing decisions.

It allows you to monitor your own hotel’s on-the-books (OTB) performance, and helps you to benchmark your performance against the market to determine whether your pricing strategy is working.

By using high-quality data from a rate shopping tool, you can see your current positioning, long-term outlook and unlock new opportunities.

Why a dynamic pricing strategy is essential

It's critical that you have an effective pricing and promotional strategy in place. With limited resources in a fiercely competitive environment, you need to squeeze out every drop of revenue. If you’re using accurate data as your guide, you can develop a foolproof pricing and promotional strategy.

It might be a few years behind us now but the pandemic serves as a stark reminder of how quickly the market can change, emphasizing the importance of adaptability.

Pricing strategies that may have worked for you in the past have evolved, and a more dynamic approach to your rate strategy is needed. You must be prepared to pivot based on changing levels of demand.

In recent times, we’ve seen hotels offering more options in cancellation policies, length of stay discounts, upselling and discounts for mobile bookers.

This further complicates the pricing process – demonstrating that a basic rate shopping tool is not fit for the job. Instead you need a rate shopping tool that supplies advanced rate intelligence on a granular level.

Rate Insight’s Rate Strategy feature gives you an overview of your own property and the pricing, discounting and promotional strategies of your competition. 

In one dashboard, you can probe key promotional insights, and spot patterns in the data, from median breakfast cost, length of stay discounts and the percentage of hotels with mobile discounts, to semi-flex and non-refundable rates. It is insights like these that can give you the upper hand against your compset.

Why a dynamic pricing strategy is essential

It's critical that you have an effective pricing and promotional strategy in place. With limited resources in a fiercely competitive environment, you need to squeeze out every drop of revenue. If you’re using accurate data as your guide, you can develop a foolproof pricing and promotional strategy.

It might be a few years behind us now but the pandemic serves as a stark reminder of how quickly the market can change, emphasizing the importance of adaptability.

Pricing strategies that may have worked for you in the past have evolved, and a more dynamic approach to your rate strategy is needed. You must be prepared to pivot based on changing levels of demand.

In recent times, we’ve seen hotels offering more options in cancellation policies, length of stay discounts, upselling and discounts for mobile bookers.

This further complicates the pricing process – demonstrating that a basic rate shopping tool is not fit for the job. Instead you need a rate shopping tool that supplies advanced rate intelligence on a granular level.

Rate Insight’s Rate Strategy feature gives you an overview of your own property and the pricing, discounting and promotional strategies of your competition. 

In one dashboard, you can probe key promotional insights, and spot patterns in the data, from median breakfast cost, length of stay discounts and the percentage of hotels with mobile discounts, to semi-flex and non-refundable rates. It is insights like these that can give you the upper hand against your compset.

How understanding your audience supports distribution

Channel segmentation is a powerful tool for optimizing your hotel distribution strategies. It involves aligning specific market segments and guest personas with the channels they prefer to use when booking accommodations, such as direct bookings, OTAs, GDS platforms or wholesalers.

By understanding guest personas – such as business travelers who favor corporate booking platforms or leisure travelers who prefer OTAs – you can:

• Prioritize your key channels: Focus efforts on the channels that deliver the most valuable guests for each segment and for which you can set good negotiated rates.

• Tailor offers: Customize pricing, packages or promotions for specific channels based on guest preferences.

• Maximize reach and revenue: Balance distribution efforts to capture a broad audience while minimizing costs associated with commission-heavy channels.

This data-driven approach ensures that you meet your target audience where they are, increasing bookings and enhancing profitability.

Why channel managers can be helpful

The more booking channels you can dip in and out of, the better for spreading your load and maximizing the right bookings. But monitoring these channels becomes increasingly time-consuming and complex as their number grows. This is where channel managers come to the rescue.

A channel manager is a software tool that allows you to manage your listings across multiple OTAs – such as Booking.com, Expedia and Priceline, but there are many more – as well as other types of distribution channel we namecheck above.

Crucially, though, it’s all controlled in one single platform; while you could theoretically interact with individual channel platforms directly, the value a good channel manager brings – alongside running its algorithms, crunching data far quicker than a person could and avoiding human error – is putting it in one place, meaning you can make channel management decisions based on a full view of the landscape.

This is fundamental to good revenue and distribution management, making the choice of software critical. Which leads neatly to the next section.

How to uncover valuable data insights about your hotel guests

We’ve demonstrated how hotel segments add value by breaking down your audience into specific, actionable groups based on shared characteristics, such as demographics, booking behavior or travel purpose.

We can summarize the benefits these segments bring you as:

• Understanding guest preferences: Gain insights into what each group values most, from luxury amenities to budget-friendly pricing.

• Personalizing experiences: Tailor services, offers, and communications to meet the unique needs of different segments, enhancing guest satisfaction.

• Driving strategic decisions: Use segmentation to refine pricing, marketing, and distribution strategies, ensuring they align with the expectations and behaviors of your core audience.

Lighthouse's Channel Manager makes it easy for revenue managers to identify and understand all of this and more.

It distinguishes itself from other providers by allowing users to:

• Optimize their distribution with AI-driven dynamic pricing

• Maximize visibility and revenue by connecting to 200+ online sales channels

• Save time by automating pricing, promotions and syncing of availability

• Get more commission-free direct bookings through their hotel website

But channel managers don’t sit in isolation, as we’ll see in the closing section.

Learn how insights into your guests can improve hotel management

As a hotelier or revenue manager who wants to better understand your target market segments so you can improve your revenue management, distribution, marketing and guest experience, you should start with a review of your tech stack.

Lighthouse’s intuitive platform offers a variety of tools designed to uncover actionable insights and support better decision-making..

Our solutions include:

• Business Intelligence for revenue management – forecasts, reports, assessing your metrics: this is the platform to understand your hotel and drive revenue management strategy, and you can incorporate abandonment rate data into it.

• Market Insight – spot and analyze demand patterns and get a view on trends before your competitors.

• Distribution Insight – real-time intelligence to optimize distribution performance.

• A range of other tools which help manage indirect and direct bookings, assess competitors’ prices, increase occupancy and forecast revenue.

• And of course the aforementioned Channel Manager.

By analyzing your market segments and aligning them with data-driven pricing strategies and optimized distribution channels, you can create tailored offers that resonate with your audience. 

With the right technology in place, this process becomes more efficient and impactful - ensuring you capture the right guests at the right time through the right channels. This strategic focus on segmentation will not only maximize revenue and guest satisfaction but also better position your hotel for long-term, sustainable success.