With so many ways to reach potential guests, developing an effective distribution strategy is more important than ever. Leisure demand is slowing down after years of exponential growth post-pandemic, while other segments, namely international, corporate, and group travel, are starting to pick up again. For hotels seeking to increase their bookings and maximize their revenue, it is crucial to explore ways to capitalize on various market segments.
5 Most Common Market Segments and How to Find Yours
2024 is the year of chasing demand without alienating price-sensitive guests. For that reason, increasing online visibility will be key to creating a diverse distribution strategy that attracts a variety of market segments.
To create an effective distribution strategy, it’s vital to understand the market segments that visit your property and have a clear vision of the ideal guest you intend to attract. Market segments vary depending on the property, but in general terms, we can identify five main ones:
- Transient: these guests travel for business or leisure and usually book directly on a hotel’s website or through OTAs. This group might include families, backpackers, and digital nomads.
- Corporate negotiated: this segment refers to business travelers from large corporations with a pre-negotiated hotel agreement. These corporate deals typically go through the hotel’s sales department and require the company to book a specific number of rooms each year for discounted rates and other benefits.
- Group: these guests travel with a group and receive a special group rate by reserving a block of rooms (usually at least six to ten) in advance. Examples of group bookings include school and senior groups, sports teams, and wedding parties.
- Wholesale: these travelers book their rooms through a wholesaler or a bed bank that has negotiated net sales with the hotel. Wholesalers buy rooms in bulk and resell them to travel agencies, tour companies, and OTAs, who then sell them to travelers. Tour groups fit into this category.
- Other: this segment includes any other independent travelers who do not fit any of the above-mentioned categories, like government employees traveling on official business and military members.
To identify your market segments, leverage your Property Management System (PMS) and Customer Relationship Management (CRM) system data. Identify prevalent traveler types visiting your property and consider subdividing segments when necessary, but avoid excessive segmentation to maintain clarity and consistency over time.
Understanding your guests’ preferences and behaviors is also important. Analyze where your demand comes from and determine why guests choose your property over your competitors. This insight can help you develop and refine guest personas within each market segment, enabling you to create targeted strategies to attract and retain them.
Additionally, make sure that you are engaging with your guests directly. Actively seek feedback from your best guests and pay close attention to both positive and negative reviews on platforms like TripAdvisor to better grasp their motivations, expectations, and general satisfaction. This information can help guide your service and marketing efforts to effectively attract the right guests for your property.
How to Attract the Right Guest Segments
Attracting the right guests for your property type is paramount for fostering the right ambiance and maximizing profits amidst a competitive landscape. To reach your ideal customer, you need to choose the booking channels your target markets are most likely to use. There are five primary channels that lodging businesses can use to reach their ideal guests: direct bookings, online travel agencies (OTAs), metasearch engines, global distribution systems (GDS), and wholesalers.
- Direct bookings via a hotel’s website allow hoteliers and hosts to transact directly with bookers without paying commissions to third parties.
- OTAs like Expedia, Airbnb, and Booking.com provide significant exposure and access to a vast pool of potential customers in exchange for high commission fees.
- Metasearch sites like Kayak, TripAdvisor, and Trivago allow consumers to compare prices across OTAs and a property’s website. Hotels can bid on metasearch advertising placements and pay when consumers click on the ad.
- Global distribution systems (GDS) distribute the inventory of hotels, flights, and other travel services to travel agencies and businesses.
- Wholesalers like TUI and Hotelbeds reserve hotel rooms in bulk and resell them through OTAs, travel agencies, and tour operators.
Each channel has its business model, so it’s crucial to understand their differences when deciding on your channel mix. Some channels, such as OTAs and metasearch sites, can provide a steady stream of bookings thanks to their vast reach and marketing capabilities. Direct bookings, on the other hand, tend to be more profitable since you don’t need to pay commissions or referral fees. A GDS is a suitable channel for properties looking to increase their corporate bookings, while bed banks might be perfect for getting group business.
Even if certain channels pose advantages when it comes to attracting specific segments, it’s always better to have a diverse distribution strategy. This safeguards against over-reliance on any single channel in case there’s a decline in demand.
Tips for Developing a Solid Distribution Strategy
Developing a robust mix of channels that align with the specific needs of your hotel business is critical in increasing bookings. According to data gathered by Cloudbeds, properties that have 21-50 rooms can increase their revenue growth by 70% by increasing their OTA channel connections from 2 channels to 3; each subsequent channel connection results in an average uplift of 12%, which levels out at 6 channel connections.
Once you have identified your target market and decided which hotel distribution channels are better suited for your property, optimizing your distribution channel listings is important. Make sure that the content you share includes all the information travelers need to book a room, from high-quality photos and detailed descriptions of your property to your amenities and other features. To encourage direct bookings, your website should also be optimized for search engines and mobile devices, with an integrated booking engine and a best-rate guarantee.
Managing your online reputation is crucial for boosting visibility and conversions. Positive reviews are a fantastic tool for converting travelers into guests, but bad reviews hold a lot of power, too. Sending post-stay surveys can help you identify and resolve issues before they become bad reviews and can also recognize guests willing to leave positive reviews.
You also need to decide what rates to offer on your distribution channels. Instead of offering rooms at different rates on each channel, it is advisable to maintain rate parity so that the rates remain the same on all distribution channels. Your pricing should be set at a level that covers commissions and fees, while still generating a reasonable profit. A dynamic pricing strategy will help you maximize your revenue by adjusting rates and stay restrictions according to occupancy, market conditions, and competitors.
Managing multiple distribution channels can be daunting and time-consuming for hotel owners. Fortunately, several property and revenue management systems are available that can help you save time and increase your property’s performance by automating a wide range of tasks. Tools such as website booking engines, rate shoppers, channel managers, and pricing intelligence engines are incredibly useful and can help you maintain a profitable distribution strategy.
Finally, it’s important to keep a close eye on the performance of each channel. To determine which bookings are the most profitable, you should calculate the acquisition costs associated with each channel. This includes commissions, cost-per-click fees, transaction fees, and any other related expenses. In the case of direct channels, you should estimate the costs of marketing, technology, loyalty programs, and booking engine fees (if applicable).
Having a diverse channel mix that aligns with your property’s specific needs is the key to attracting a wide variety of guests. By understanding your guests’ booking behavior and opening up to new channels that you haven’t explored yet, you can significantly increase your online visibility and booking potential.
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