[MUSIC] Welcome back. As we saw in the last video, once we have a clear value proposition, an understanding of fundamentally who our customers are, we can start to segment these into understandable buckets of demand. To understand segmentation, we first need to get back to hospitality marketing basics. In doing so, we're confronted by the obvious question, why do we segment our business in the first place? The answer is fairly evident in that different people have different needs, and they're willing to pay differently according to those needs. Consequently, by properly segmenting potential customers, we can take a different marketing, pricing, and demand generation approach to optimize each segment. As demonstrated in this slide, the classical approach to market segmentation is to categorize using four main profiles, geographic, sociodemographic, behavioral and psychographic. Allow you time to pause and review these however, as they can be challenging. And do ask yourself the question, how easy is it for a hotel to collect this information before, during, or after their stay? Hotels collect a treasure trove of data about their customers. However, due to integration and data storage in particular, considerable data is either lost or poorly stored. This means that hotels typical approach to segmentation focus on just one of these classic profiles, behavior, as most other information is only available once the guest has checked in. Likewise, factors such as loyalty, booking pace, and occasion are the easiest to interpret based on the information provided at the time of the booking. However, due to the fast paced change of customer booking behavior, and the growth of booking channels like booking.com and Expedia, these traditional segmentation approaches are revealed as lacking. The reason is due to these intermediaries being very selective with the information shared in advance of arrival. It's not now uncommon to find hotels with 60 to 70% of their business tracked under just one segment. This obviously causes significant risks when there is a downturn in the business, as they have no ability to identify where the decline has occurred. So to avoid this pitfall, we must develop segments that are viable based on the mass principle of measurability, actionabilty, accessibility and substantiation. Let's break this down for you. In simple terms, your segments have to be measurable. For example, if you're looking for business travelers, then you will need to know, how many visit your city or area. You can easily get this from your local tourism board, as well as by buying market intelligence about this segment. However keep in mind, measurable also means fundamentally being able to track and record their behavior throughout the purchase and consumption cycle. In terms of action, you should ask yourself if your product and price offering is compelling enough that the segments will generate demand and buy it. For example, some hotels that focus on business travel, in the business part of town, find it near impossible to attract romantic, leisure travellers. They often find that this segment, no matter how they try, will not stay due to reasons such as location, the style and types of room available. Would you book a business comfort room for a romantic weekend away? Accessibility is the test, if you can reach that segment. Is there a channel you can use to communicate with them and promote your room? To exaggerate this point, let's consider the segment of female travelers with pets. This could be too specific a segment, as you have not of any easy way to communicate to them using distribution and advertising channels. And finally, is your segment substantial enough to be viable? Considering the marketing cost to reach customers, and the price they're willing to pay, will it be profitable to target a particular segment? As we've discussed in the product offer session, customers by travel experiences on specific channels which can reflect significant information if the data is collected appropriately. You will therefore need to connect to channel segments. As we can see from this slide, these will include segments or categories that will reflect your hotel's business mix as we will learn about in video seven. Examples would include the GDS, where travel agents book, direct-to-property channels like e-mail and telephone, and segments such as OTA to reflect intermediary channels like Booking.com and Expedia. However, attention must be paid to ensure that you do not mix net and gross channels together. Many online travel agents work with a net rate model, which means the hotel receives it's revenue without the marked up commission. If this is then mixed with a similar channel that operates with gross rates where the commission is paid after the guests stay, then you end up with a dilution of gross and net within one channel segment. To avoid this, you are better off segmenting every channel separately and using categories to group the channels later. The value here cannot be underestimated, as the strategy that underpins this approach to channel segmentation is how you will distribute your rooms and rates, and thus market your hotel. So, in this session, we've learned that although channels are of the utmost importance, hoteliers typically tend to think through a more traditional market segment lens. This is where an opportunity arises for us as demand managers to have a significant rethink about our approach to segmentation. As you can see in this next slide, this hotel has merged its market and channel segments into specific microsegments of demand, or demand segments as we would call them. Some market segments, such as group, remain untouched, whereas, the hotel's transient market segment that previously was a catchall for 60% of its demand, has now been split into three demand segments to specifically reflect the channel as well. This is theoretically an intelligent proposal to better understand the behavior and the profile of the customer. However, a successful implementation of this is heavily reliant on the operational systems a hotel works with, and the quality of the interfaces and the data collected. In my personal opinion in 2015 as a hotelier, you should not allow your systems to dictate your strategy and your approach to segmentation. The onus is on us, as hotelier's, therefore to pick the right partners to deliver our strategy, and work with them both individually and via wider hospitality associations, like HSMAI, HTNG, and HFTP, to improve the ability, to improve the options for data exchanging and data management. As the visual shows in the right-hand side, this approach to the main segmentation fosters a collaborative culture of demand management. One where all commercial stakeholders plan and discuss which scenarios of demand will realize the best positioning and profit for the hotel. The granularity of channel data means that the cost of distribution can, in the right environment and approach to fixed versus variable costs, be calculated and the net revenue identified. This then enables the commercial team to determine which demand generation activities are most appropriate to achieve the desired result for segment, and in which stage the demand manager can set up the appropriate optimization tactics. This subject of optimization is something that Brendan will discuss in module four on revenue management. So in conclusion, by using the four definitions of segmentation, any hotel can start developing its market segments. One key to success here is do not do too much too fast. Having dozens of segments is not going to do any good or you'll look like this guy here when it comes to managing them. Remember that for each segment you establish, you will also have to work out marketing and actions. Managing too many will either be inefficient or nearly impossible. Rethinking your segmentation and building proper data storage that inherits all the relative information from every channel should be a priority for every hotel now. By doing this, we take the first step towards really understanding the real cost of distribution. Once you have proper data, this leads us to the promised land of profit optimization. And in the final video, we will discuss these opportunities and how they become reality. In the next session, we will turn our attention to now developing a compelling pricing strategy to effectively generate demand. Thank you for your attention and see you soon.
