Segmentation is a foundational concept in revenue management, particularly in the hospitality industry. It involves dividing a diverse customer base into distinct groups with similar characteristics, behaviors, or booking patterns. By understanding the nuances of each segment, hotels and other service providers can fine-tune pricing, marketing, and inventory strategies to maximize revenue and enhance guest satisfaction.
Why Segmentation Matters
Effective segmentation enables businesses to tailor their strategies for each customer group rather than applying a one-size-fits-all model. It enhances decision-making by aligning pricing, promotion, and distribution efforts with the unique preferences and behaviors of each segment.
Segmentation strengthens business precision across departments. For example, when hotels can price according to what specific segments are willing to pay, they can forecast occupancy with greater accuracy. This feeds into better control over inventory and more personalized communication strategies, ultimately reducing marketing inefficiencies. Refer to Table 1.
| Targeted Pricing | Adjust rates based on willingness to pay of each segment. |
| Improved Forecasting | Predict demand more accurately for each group. |
| Better Inventory Control | Allocate rooms and services where they yield the most revenue. |
| Personalized Marketing | Craft offers that resonate with specific customer needs. |
| Reduced Acquisition Costs | Focus marketing spend on the highest-yield segments. |
Key Segmentation Criteria
Choosing the right segmentation criteria is crucial. Each type provides unique insights and helps hotels anticipate demand, set rates strategically, and deliver more personalized experiences to guests.
Each segmentation type unveils a unique view of customer tendencies. Behavioral data reflects how and when guests book, while demographic or psychographic criteria highlight who they are and what they value. When layered together, these criteria support multidimensional analysis. For instance, combining psychographic traits with booking channels might reveal that value-driven guests prefer packages via OTAs. Refer to Table 2.
| Type of Segmentation | Examples |
| Behavioral | Booking lead time, frequency, cancellation patterns |
| Demographic | Age, profession, income, nationality |
| Geographic | Country, city, region |
| Psychographic | Lifestyle, travel motivations, values |
| Channel-based | OTA, direct website, corporate agreement, travel agency |
| Rate-based | BAR, advance purchase, group rate, package rate |
Typical Segments in Hospitality
Understanding which types of guests are staying at your property—and why—can help you craft more effective pricing, marketing, and service strategies. Below is an overview of common hotel customer segments and how to approach them.
These segments differ in booking behavior, price sensitivity, and channel use. Corporate and loyalty guests exhibit loyalty and inelastic demand, often booking directly or through prearranged channels, allowing hotels to implement negotiated or tiered pricing. Conversely, group and wholesale guests are price-driven and usually work through intermediaries, necessitating volume-based pricing. Refer to Table 3.
| Segment | Description | Booking Channel | Sensitivity | Pricing Strategy |
| Transient | Individual travelers booking standard rooms | OTAs, Direct | Medium | Flexible BAR pricing |
| Corporate | Business travelers with negotiated rates | GDS, Direct | Low (Inelastic) | Contract-based pricing |
| Group | Multiple rooms booked for a single event or organization | Direct, Travel Agent | High | Package/group pricing |
| Wholesale | Rooms sold in bulk to third parties (e.g., tour operators) | Indirect | High | Net rates, fixed margins |
| Loyalty | Repeat guests, often members of a loyalty program | Direct | Low | Tiered loyalty pricing |
Behavioral and Purpose-Based Segmentation
In addition to broader strategic categories, hotels benefit from breaking down guests by their booking behavior and travel purpose. These operationally focused distinctions help properties optimize promotional timing, distribution strategy, and service personalization.
| Early Bookers | Plan holidays in advance, price-sensitive, look for flexibility |
| Last-Minute Bookers | Business or urgent travel, time-sensitive, less price-sensitive |
| Marketing Tactics | Email offers and early-bird promotions vs. mobile-only flash deals |
Booking lead time is a key behavioral differentiator. Early bookers often plan vacations in advance and are drawn to promotions and flexibility, while last-minute bookers (often business travelers or urgent planners) are more likely to pay higher rates for availability and speed. Refer to Table 4.
| Leisure Travelers | Weekend or holiday stays, family or solo, experience-driven |
| Business Travelers | Weekday stays, solo (often repeat), value speed and efficiency |
| Marketing Focus | Packages, upgrades, and experiences vs. loyalty perks, streamlined check-in |
The purpose of travel influences stay patterns and service expectations. Leisure guests are experience-driven, more price-sensitive, and receptive to add-ons or packages. Business travelers, on the other hand, value efficiency and loyalty perks, typically exhibiting consistent mid-week patterns. Refer to Table 5.
Tips for Effective Segmentation
To gain the full benefit of segmentation, hotels must actively manage and refine their approach. The tips below highlight key operational and strategic considerations.
- Don’t over-segment: Too many micro-groups can complicate operations.
- Use PMS or RMS tools to track patterns and validate assumptions.
- Review and update segmentation strategies quarterly.
- Align marketing content and pricing rules to each segment’s behavior.
The Relationship Between Segmentation in Revenue Management and Marketing
Segmentation is a shared concept across two essential disciplines in the hospitality industry: revenue management and marketing. Although both rely on similar data sources, the goals, applications, and analytical approaches of segmentation in these two areas are distinct. Understanding these differences—and where they intersect—is crucial for maximizing both profitability and customer engagement.
Are Segmentation in Marketing and Revenue Management the Same?
Not exactly. While they both divide the customer base into groups, their intentions and outcomes differ:
| Marketing | Revenue Management | |
| Primary Objective | Increase engagement, branding, lead generation | Maximize revenue via pricing and allocation |
| Focus Area | Customer motivation, lifestyle, loyalty | Booking behavior, rate sensitivity, timing |
| Key Tools | Campaigns, messaging, personalized offers | Dynamic pricing, inventory control, forecasting |
| Type of Analysis | Psychographic, demographic, emotional | Behavioral, transactional, rate-based |
| Data Used | Response to ads, loyalty data, content views | Booking patterns, lead time, channel mix |
As shown in Table 6, marketing segmentation centers on who the customers are and why they engage with a brand. It emphasizes emotional connection, lifestyle, and preferences. In contrast, revenue management segmentation is about how and when they book, and what they’re willing to pay—focusing on maximizing yield per segment.
Should Segmentation Be Aligned Between the Two?
Absolutely. The most effective hotel strategies are built when marketing and revenue management teams work in harmony. Marketing can uncover new customer groups through creative insights, while revenue management evaluates their profitability and operational impact.
For example:
- If marketing launches a campaign targeting “digital nomads”, revenue management should develop rate structures that align with that segment’s behaviors—such as mobile bookings, last-minute reservations, and price sensitivity.
- Conversely, if revenue management identifies “solo business travelers” as highly profitable, marketing can redirect campaigns and loyalty efforts to acquire and retain more of these guests.
Such alignment ensures that pricing, promotions, and guest experiences are not only consistent but also optimized for each segment’s expectations.
In conclusion, segmentation in marketing and revenue management offers complementary perspectives on the same customer base. When unified, these approaches deliver smarter pricing, sharper targeting, and better guest experiences. The most successful hotels are those that not only understand their guests but also communicate that understanding through the right channel, at the right price, and at the right time.
Final Thought
Segmentation is not just about labeling customers—it’s about understanding them deeply. In a competitive hospitality landscape, knowing who your guests are and why they book is the first step toward smarter pricing, better service delivery, and higher profitability.
Future blog entries will explore dynamic pricing, demand forecasting, and channel management—all of which depend on the foundation of effective segmentation.
References
- Cross, Robert G., et al. Revenue Management: Hard-Core Tactics for Market Domination. Broadway Books, 2003.
- Kimes, Sheryl E. “The Future of Hotel Revenue Management.” Cornell Hospitality Report, 2010.
- Tranter, K., Stuart-Hill, T., & Parker, J. An Introduction to Revenue Management for the Hospitality Industry. Pearson, 2009.
- STR SHARE Center Reports (https://str.com)
- Revfine.com: Hospitality & Travel Industry Insights (https://www.revfine.com/hotel-segmentation/)
- HSMAI Foundation: Revenue Optimization Resources (https://americas.hsmai.org)
- Xotels: Hotel Revenue Management Blog (https://www.xotels.com/en/revenue-management-blog)
Reza Karbaschian 
Leave a comment