How to do Customer Segmentation for your hospitality business

The term Hospitality refers to the friendly and generous reception and entertainment of guests, visitors or strangers. The Hospitality industry is a broad category consisting of the service industry and the tourism industry. It includes Hotels, Restaurants, Event Planning, Transportation etc.  It is a multibillion-dollar industry that depends on the availability of leisure time and disposable income. While this industry is very broad, there are some defining aspects that are important to understand.

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​The Two Defining Aspects of Hospitality Industry

One of the most defining aspects of this industry is that it focuses on customer satisfaction. While this is true of nearly every business, this industry relies entirely on customers’ being happy. This is because these businesses are based on providing luxury services. Very few hospitality businesses provide a basic service that people need, like food or clothing.

Another defining aspect of this industry is its reliance on disposable income and leisure time. For this reason, the majority of these businesses are for tourists or rich patrons. If disposable income decreases due to a slump or recession, then these are often the first businesses to suffer because customers won’t have the extra money to enjoy their services.

These defining aspects of the Hospitality Industry shows that a proper marketing strategy is a pre-requisite and customer segmentation will be the crucial part while framing the marketing strategy

How to segment your customers

Not all customers are the same. So stop taking a one-size-fits-all approach to your marketing and start segmenting your customers into smaller groups. Market segmentation is a technique that groups consumers with similar needs and common buying behaviors into segments.  These segments become the basis for targeted marketing, which is a more efficient and effective method of marketing than advertising to the masses. 

Customer segmentation relies on identifying key differentiators that divide customers into groups that can be targeted. Information such as a customers' demographics (age, race, religion, gender, family size, ethnicity, income, education level), geography (where they live and work), psychographic (social class, lifestyle and personality characteristics) and behavioral (spending, consumption, usage and desired benefits) tendencies are taken into account when determining customer segmentation practices.

How customer segmentation will help my company

​By enabling companies to target specific groups of customers, a customer segmentation model allows for the effective allocation of marketing resources and the maximization of cross- and up-selling opportunities. When a group of customers is sent personalized messages as part of a marketing mix that is designed around their needs, it's easier for companies to send those customers special offers meant to encourage them to buy more products.

Customer segmentation can also improve customer service and assist in customer loyalty and retention. As a by-product of its personalized nature, marketing materials sent out using customer segmentation tend to be more valued and appreciated by the customer who receives them as opposed to impersonal brand messaging that doesn't acknowledge purchase history or any kind of customer relationship. Other benefits of customer segmentation include staying a step ahead of competitors in specific sections of the market and identifying new products that existing or potential customers could be interested in or improving products to meet customer expectations.

In a nutshell, in a customer sensitive industry like Hospitality, customer segmentation plays a crucial role in moulding the marketing strategy. Once the customers are segmented they should be screened for selecting the most value generating segment that will be your target customers. Then your products and services should be developed matching to those target customers. In this way you will be able to boost the customer satisfaction by reducing the gap between the customer desires and preferences and your products and services.