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How to Evaluate Market Segments

04 May 2021
All hotels that would like to see a fast recovery need to focus on a few attractive target groups. Carefully evaluate each segment and then focus on segments where the hotel has the best chances to attract more guests than competing hotels.

Focus for faster recovery

Selecting and focusing on a few market segments means that the hotel focuses its scarce resources (commercial team and marketing costs)
on attracting guests where the hotel has the best chances of becoming successful. Hotels cannot simply afford to spread their scarce resources too thin. Focus is the keyword for the next couple of years.

Most hotels can realistically actively manage between three and five segments. To be active means that the hotel has a marketing plan for the segment and assigns necessary human and financial resources to attract and capture customers and guests. Too big or too small? It is wrong to focus on a segment that draws less than ten percent of total room revenue. If a market segment has more than one-third of total revenue, split it into at least two parts.

Evaluating market segments

When evaluating different market segments, a hotel business must look at three factors.

Segment size and growth

A hotel is depending on filling rooms with guests. Therefore a target market needs to be large enough worth pursuing unless the selected segment is growing fast. It may be profitable if it reaches a bigger size in a few years and with targeted marketing.

Segment structural attractiveness

Another reason for choosing a specific segment is if the competition is weak and has no intention to go after this target audience. Suppose there are few substitutes, the attractiveness increases. A less attractive market is when few buyers dominate the market, such as very few large corporate customers. Powerful agents could also make a target group less attractive due to price pressure. Lack of transportation to the destination is another drawback. Consider all these reasons when evaluating the attractiveness of market segments.

Company objectives and resources

Finally, hotels must consider their objectives and available resources to go after each segment. Hotels should even dismiss attractive market segments because they do not align with the hotel's long-term objectives. Select the target audiences that are compatible and attracted to the hotel's culture and strategy. Assess the skills of the commercial team to fully understand if they will be able to win the business. Before deciding on the target markets, it is also essential to understand the costs involved and secure that the hotel has the resources needed.

The correct market segmentation is probably the fastest way to recovery. Download the white paper to the right to get a complete overview and relevant templates to develop the hotel's focus market segments.