Why Strategic Hotel Segmentation Matters Now More Than Ever

The days of a one-size-fits-all marketing approach in hospitality are long gone. Today’s travellers are more informed, more connected, and more demanding than ever before.

Research from McKinsey & Company shows that 71% of consumers now expect personalised experiences, and 76% feel disappointed when they don’t receive them. But hotel personalisation is only part of the picture.

To truly stand out, hotels need to understand who their ideal guests are, what motivates them, and how to reach them. This is where hotel market segmentation comes into play.

In this article, we’ll explore what guest segmentation really means for hoteliers and the tangible benefits it brings. If you’re already applying segmentation, this guide will help sharpen your strategy. If you’re not, now is the time to start—because you are lagging behind!

What is strategic hotel segmentation?

As Patrick Torres, Vice President MEAPAC at HBX Group, explains: ‘Segmentation really is dividing broader markets into smaller sub-groups, characterised by elements such as demographics, geographics, behaviours and preferences.’

When applied effectively, segmentation empowers hoteliers to adopt marketing and pricing strategies for each market segment. Patrick adds: ‘It’s fantastic when you see a hotel catering to 100% corporate guests during the week, and then transforming to serve leisure travellers at the weekend. These are the things hotels are constantly looking to do.’

Segmentation, however, goes far beyond simple categories such as ‘male vs female’ or ‘domestic vs international.’ It is an ongoing process due to the following key factors that make segmentation more critical than ever:

Rising consumer expectations: Travellers now demand personalised services shaped by technology, AI, and social media.
Globalisation: With audiences more connected, they are inspired to follow trends, and are no longer price-driven. As Torres notes: ‘We [as travellers] are looking for experiences, not discounts because time is precious, and if we need to pay for it, we will.’
External Situations: Fluctuations in the global economy (like the pandemic) directly influence travel and spending behaviour.
Sustainability and ethics: Gen Z and millennials, in particular, are making choices based on social responsibility.
Intensifying competition: With platforms like Airbnb, hotels find it hard to differentiate.

Segmentation factors hotels focus on

To truly understand and serve your guests, hotels typically look at four categories:

Demographics: Age, gender, income, and education levels all influence travel choices. A budget-friendly millennial traveller has different expectations from a retired luxury couple.
Geographics: Where your guests come from, their travel distance, and their habitual destinations all shape their preferences.
Psychographics: Lifestyle and personal values dictate our choices. Eco-conscious travellers value sustainability add-ons, while luxury seekers prioritise exclusivity.
Behavioural: Analysing booking patterns, length of stay, loyalty preferences, and purpose of travel helps us understand travel motivation.

This is how hyper-specific segmentation can get. By identifying and adapting to these needs, you can define your own niche.

Benefits of effective segmentation

According to McKinsey, companies that grow faster generate 40% more of their revenue from personalisation, compared to slower-growing counterparts. For hotels, this illustrates just how powerful segmentation can be when applied strategically. Some key benefits include:

Personalised experiences: By breaking your guest base into distinct groups, you can offer tailored services that make guests feel understood and valued.
Revenue growth: Identifying untapped segments and guests with longer average stays allows you to increase occupancy, reduce turnover costs, and boost hotel profitability.
Smarter pricing strategies: You uncover the value different guest groups bring, so you make more informed and competitive pricing decisions.
Segment-based optimised marketing: When you focus your budget on the channels and campaigns that truly resonate with your highest-value segments, you get high ROI.
Operational efficiency: Segmentation can guide resource allocation across staffing, housekeeping, and amenities, lowering costs.
Competitive advantage: When you know your niche audience, you can meet their evolving expectations better than competitors.

How to implement segmentation strategies?

Patrick Torres highlights the importance of a strong tech foundation: ‘Make sure you have the right CRM and PMS system and that they integrate with each other.’ Steps to put segmentation into practice include:

Collect and analyse guest data: Draw insights from every touchpoint: reviews across platforms, guest exit surveys, and Google Analytics. Track how guests book, what they order, and how they behave during their stay.
Leverage distribution channel data: Regularly monitor performance across key channels: walk-ins, OTA, website, GDS or travel agents.
Develop guest profiles: Consolidate your insights into clear profiles that capture who your guests are, what they value, and how they book.
Measure profitability by segment: Go beyond ADR and evaluate the exact value of each segment based on cost of acquisition, ancillary revenue and other experiences. Look at length of stay and operational impact.
Create actionable segments: As Torres notes: ‘The second key thing is how you create these segments. It’s about balancing granularity with simplicity – maintaining actionable segments that resonate with your product.’ For example, instead of simply targeting female travellers, consider focusing on mum travellers.
Design tailored packages and promotions: Adapt your promotions accordingly. Adventure seekers may respond to hike+yoga packages, while sustainable travellers may look for farm + dining experiences.
Apply targeted hotel marketing and hotel distribution: Use the right OTAs, channel managers, and marketing platforms to reach each segment where they are most active.

How to overcome hotel segmentation challenges

Segmentation is not easy, it comes with its fair share of challenges. Patrick Torres advises: ‘Start small and scale slowly. Begin with a few key segments and then expand gradually. Focus on the markets with the highest return. Explain the ROI internally and foster a data-driven organisation.’

Data protection and compliance: Be transparent about how you collect and use guest data. Invest in robust data security technology and ensure full compliance with local and international regulations.
Technology investment: Smart and advanced hotel management systems, from integrated CRMs and PMSs to advanced channel managers are critical to unlocking the full potential of segmentation.
Evolving travel trends: Guest expectations are constantly shifting, from the rise of Gen Z travellers to the growing demand for sustainable experiences. Regularly review and adapt your segmentation strategy.
Cross-department alignment: Segmentation impacts decisions across operations, sales, revenue and your marketing departments. Provide training for your teams, ensure proper system integration, and embed segmentation into your hotel’s culture.

The future of hotel segmentation

These are the factors that will define the future of segmentation:

AI and machine learning: Automating routine tasks, so teams focus on magical human-guest interactions.
Predictive analytics: Anticipating demand and traveller behaviour for smarter dynamic pricing and targeted offers.
Sustainability: Important for Gen Z and millennials; eco-friendly practices are now a key decision factor.
Ethical Data Usage: Guest privacy and transparency will be non-negotiable.
Smart Hospitality: Hyper-personalised in-room and on-property experiences powered by AI.

Now is the time to review your current approach. Are you aligning your operations with the segments that truly drive value?

And if you want to better understand your audience and boost performance? HBX Group is here to help you make smarter, data-driven decisions. Get in touch with us today to start segmenting more strategically.