Revenue for the future IV – Segmentation
by Julia Rey - 30 April, 2020
Robert G. Cross defines Revenue Management as the art and science of predicting demand in real time at micro market level, and according to this prediction, optimize the price and availability of the products. The demand forecast will provide us knowledge of the different market segments, understanding as a segment a homogeneous group of clients who are seeking the same products and react in a similar way to marketing actions. The importance of segmentation resides in the fact that a product can have a different value for each type of client, with this value conditioning the price that the client is prepared to pay. This makes it all the more necessary to develop a micro segmentation oriented towards price personalization.
In previous articles in this series, we have talked about price optimization and inventory availability. In addition, you can find some recommendations on demand forecasting in our forecasting ebook .
This week, we have seen how in many countries they begin to make confinement more flexible, plan the gradual return to economic activity and announce possible dates for the reopening of hotel properties. With this in mind, we continue our series of articles to help you prepare for the future. On this occasion, we bring you recommendations for reviewing your segmentation, so that you are prepared for the restart of the activity. Design a plan for the different segments, being proactive with the different possible scenarios.
Review your historical data for knowledge about your customers
Now is the time to spend a little more time analyzing your historical data than usual. Maybe you can discover some information that you had not noticed and can give you more insights about the normal behaviour of the different segments. Although there is some uncertainty about the modification of these behaviours, we must rely on data to be able to make decisions oriented to the profitability of our business.
Are you clear which are the most profitable segments for you?
Use objective metrics on the level of revenue generated per segment: ADR, RevPAR, breakfast rate, Total RevPAR, etc …
And metrics that inform you about the costs of each segment: average lenght of stay, sales by channel, average commission, …
As well as other indicators that can help you decide on certain marketing actions for each segment: lead time, conversion rate in each channel, cancellation ratio, …
Identify emerging segments
Emerging segments are always a topic of conversation among hoteliers. In response to the COVID-19 crisis, many hotels in different markets around the world reacted by targeting specific offers for new segments: offering full-board packages for tourists who were unable to return to their country for a period, people who decided to get in voluntarily quarantine for having mild symptoms or having been at risk of contagion, etc …
These segments disappear as the emergency begins to be controlled, however others will emerge that can only be identified if we know our guests well.
It is important to ensure that the fields in the PMS reservations allow to clearly identify what type of guest is staying. Review the types of segments you have configured on your systems and reflect on whether you need to rearrange them or add any new segments. This is also the ideal time to train your frontdesk and reservations team to ensure that the information they handle is generated and recorded efficiently.
We know that the return to economic activity will be progressive, and with many preventive measures to keep the health crisis under control. In this regard, we must bear in mind that the opening will be carried out first at the local and regional level, and the travel restrictions will be gradually lifted. We can anticipate that international travel will take some time to be allowed.
That is why we must be very aware of our domestic market. It is important to think about the strategies to be carried out through the distribution channels, choosing our intermediaries well and carrying out the necessary communication campaigns to attract this segment.
The Staycation concept became popular after the 2008 crisis and it is expected to return stronger now: some families have seen their purchasing power decrease in the current circumstances, and they may choose a proximity stay, before giving up on their vacations entirely.
Although we are already getting used to working from home, now that many countries are easing up on the lockdown, while business offices will not open yet, some workers may be looking for a change of scenery to work a few hours. Some hotel groups already announce day use offers for this segment.
First of all, we want to remind you that you should not lower the rate of current corporate accounts, since if you do, that reduction will consolidate quickly, and it will be difficult to recover the price level before the crisis. In contrast, put the emphasis on the values offered by your brand and your service, especially the new safety and health protocols that you have implemented, as well as additional services on arrival, in-room amenities, upgrades, late check out, etc.
It is advisable to review your accounts and be in contact with them to find out their travel intentions in the coming months and renegotiate accounts that have not been producing for a long time. If there are opportunities for new contracts, it is interesting that special conditions are used to attract that account, but revisable after 3 months, giving the opportunity to adjust to changes in the macroeconomic situation. Keep in mind that work-related travel will be the first to be allowed domestically.
Design your strategy for 2021. Some hotel groups have decided not to carry out the RFP process and maintain this year’s rates. In addition, it is a good time to introduce dynamic pricing in this segment, take this opportunity to present it as an advantage for the client and so you can get better performance from these accounts.
The unpredictable MICE segment
In the current situation, where we have seen face-to-face business events canceled, postponed indefinitely, or held virtually, the MICE segment becomes one of the greatest uncertainties for the future. To a certain extent, the market will rethink the need for each of these events and will focus on carrying out only those that are truly profitable and that can be carried out in safe sanitary conditions.
The professional organizers of congresses and companies specialized in the MICE sector foresee that small and local events will be recovered in the first place, and that the rest will be conditioned by the good practices that are implemented. Many recommendations have already emerged from the Convention Bureaux and other organizations: from health safety and social responsibility, to the flexibility of booking conditions and an effective communication plan.
Crews can precede the behavior of other segments
A hotel that works with airline crews has very good opportunities to learn about the near future of the market, in addition to being able to opt for a healthier market mix. This segment will be reactivated as travel restrictions are lifted and airlines return to normal. You should consider not lowering the contract rates, or at least not for more than three months. Crews can increase your occupancy volume, but you must take care of your ADR, whose impact is much more important in the bottom line.
What about group business?
From now on we can start thinking about the group business strategy for the future. It is difficult to make an accurate forecast at the moment, but you can analyze your history and get in touch with your regular clients.
It will be difficult to project the second half of the year with confidence, but it is important that you keep an eye on business opportunities.
Make sure that there is always someone available from your team for possible requests for information, even if your property is closed. Constantly communicate on your social networks and your website about your opening plans, you must be present in the different channels when potential customers begin to search.
Each group works as a different customer and the purchasing behaviours vary from one to the other and therefore they must be considered independently. Remember the key questions to quote a group: Congress, convention or incentive trip, etc? Who pays? What days of the week are the most important of the event? Has it been previously held at the hotel? Do you know any hotelier who has already had the group to have a reference? Has the same event been held in other destinations? If you already have this detailed information on your past groups, you can somewhat anticipate the behaviour of this segment in the future.
Use rate fencing efficiently
From a Revenue Management perspective, micro segmentation will allow us to offer personalized pricing. In this sense the analysis of competitive positioning made by Beonprice via HQI™ will allow us to understand what price each client is willing to pay for a particular level of integral quality, and consequently we will be able to offer each client the price he expects to see, thus increasing the probability of sale.
The effect of Customer Centric Revenue Management is the optimization of income and the maintenance of long-term positive results. The personalisation of pricing also encourages client loyalty. Thanks to data science we can identify the most profitable clients for our properties and in this way, we can improve their experience during their stay, and constantly improve our quality and online reputation, which will also have an impact on the results of the hotel.
Our recommendation is that you pay special attention to rate fences, to avoid cannibalization of rates. The cheapest rates must have reservation conditions that prevent those segments willing to pay more from accessing them. The difference between one rate and another must be a benefit for the hotel and an advantage for the customer. You can use two types of fences:
Physical fences: differentiating the price based on the physical characteristics of the product, for example, different types of rooms, or different attributes.
Non-physical fences: a price differentiation is created based on the different needs and buying behaviours of the potential customer, for example, the lead time or the length of stay. For this, you can use sales restrictions such as Arrival or Minimum Length of Stay.