2.1 Market segmentation strategies
7 min read•july 30, 2024
Market segmentation is a crucial strategy in hospitality and travel marketing. It involves dividing customers into groups with similar needs and preferences. This approach helps businesses tailor their offerings and marketing efforts more effectively, leading to better customer satisfaction and increased profits.
Different types of segmentation include demographic, geographic, psychographic, and behavioral. Each method has its strengths and weaknesses. Effective segmentation strategies often combine multiple approaches to create a comprehensive understanding of customer groups and their unique characteristics.
Market Segmentation Bases in Hospitality
Dividing Markets into Subsets
Top images from around the web for Dividing Markets into Subsets
Reading: The Purpose of Market Segmentation and Targeting | Principles of Marketing View original
Is this image relevant?
Conducting a Segmentation | Principles of Marketing View original
Is this image relevant?
Creating the Marketing Strategy | Principles of Marketing View original
Is this image relevant?
Reading: The Purpose of Market Segmentation and Targeting | Principles of Marketing View original
Is this image relevant?
Conducting a Segmentation | Principles of Marketing View original
Is this image relevant?
1 of 3
Top images from around the web for Dividing Markets into Subsets
Reading: The Purpose of Market Segmentation and Targeting | Principles of Marketing View original
Is this image relevant?
Conducting a Segmentation | Principles of Marketing View original
Is this image relevant?
Creating the Marketing Strategy | Principles of Marketing View original
Is this image relevant?
Reading: The Purpose of Market Segmentation and Targeting | Principles of Marketing View original
Is this image relevant?
Conducting a Segmentation | Principles of Marketing View original
Is this image relevant?
1 of 3
- Market segmentation divides a broad into subsets of consumers based on shared characteristics, needs, priorities, or behaviors
- Allows businesses to better tailor their marketing efforts to specific groups of customers
- Enables more effective resource allocation and targeted marketing strategies
- Facilitates the development of differentiated offerings that better meet the needs of each segment
Types of Segmentation Variables
- categorizes markets based on measurable statistics such as age, gender, income level, education, occupation, religion, race, and family size
- Easily identifiable and measurable variables
- Examples: targeting luxury travel services to high-income earners or family-friendly resorts to households with children
- divides markets based on location, including nations, states, regions, counties, cities, or neighborhoods
- Climate, population density, and regional cultural preferences are also considered
- Allows for tailoring offerings to local market conditions and preferences
- Examples: ski resorts targeting customers in cold-weather regions or beach destinations focusing on nearby coastal cities
- groups customers by traits such as personality, values, attitudes, interests, or lifestyles
- Provides deeper insights into customer motivations and preferences
- Luxury seekers, adventure-oriented, environmentally-conscious are psychographic examples
- Allows for more personalized and emotionally resonant marketing appeals
- classifies consumers based on their usage, loyalty, or buying behavior patterns
- Segmenting by benefits sought, purchase occasion, purchase frequency, or readiness to buy are behavioral approaches
- Focuses on actual customer actions and decision processes
- Examples: targeting frequent business travelers with loyalty programs or offering special packages for honeymoon couples
Effectiveness of Segmentation Approaches
Criteria for Effective Segmentation
- Segmentation effectiveness depends on how well the process identifies distinct groups of customers with homogeneous needs and preferences within each segment
- Segments must be measurable in size and purchasing power, sufficiently large and profitable, differentiable in needs or responses to marketing mix elements, and accessible through communication and distribution channels
- Measurability: ability to determine the size, purchasing power, and characteristics of a segment using available data
- Substantiality: segments must be large and profitable enough to justify targeted marketing efforts
- Differentiability: segments must have distinct needs, preferences, or responses to marketing mix elements
- Accessibility: ability to effectively reach and serve the segment through available communication and distribution channels
Strengths and Weaknesses of Different Approaches
- Demographic segmentation is the simplest to implement as the variables are easy to measure
- However, it does not account for diversity of needs and preferences within demographic groups
- May lead to overly broad segments that do not capture important differences in customer behavior
- Psychographic segmentation provides richer profiles of customers based on activities, interests, and opinions
- Offers deeper insights into customer motivations and lifestyle preferences
- But the data is more difficult and expensive to obtain, often requiring primary research
- Segments may lack precision and be harder to target effectively
- Behavioral segmentation focuses on actual customer actions and decision processes
- Provides more predictive power by linking marketing efforts directly to observable behaviors
- Requires research to track and analyze behaviors and usage patterns, which can be resource-intensive
- May overlook underlying motivations and attitudes that drive behavior
- Effective segmentation often combines multiple bases to develop a more comprehensive understanding of customers
- A hybrid approach leverages the strengths of different segmentation methods
- Allows for a multi-dimensional view of customers that captures both observable characteristics and underlying motivations
- Requires careful integration of data from multiple sources and may be more complex to implement
Market Segmentation Strategy Development
Defining the Market and Segmentation Criteria
- Define the total market and identify the key characteristics that impact customer needs, preferences and behaviors related to the hospitality or travel offering
- Consider the full range of potential customers and their diverse requirements
- Identify the most relevant variables that differentiate customers in terms of their needs and behavior
- Determine segmentation criteria aligned with the business strategy and value proposition
- Select variables that will produce distinct, substantial and accessible customer segments
- Ensure the chosen criteria are relevant to the organization's capabilities and objectives
- Examples: a budget hotel chain may focus on price sensitivity and no-frills service preferences, while a luxury resort may prioritize lifestyle and experiential factors
Conducting Market Research and Analysis
- Conduct market research to gather data on relevant segmentation variables
- Use , , interviews, observational studies or secondary data sources
- Collect data on customer demographics, psychographics, behavior patterns, and preferences
- Ensure data is reliable, valid, and representative of the target market
- Analyze the data to identify and profile distinct customer segments
- Use statistical techniques like cluster analysis or conjoint analysis to group customers with similar needs and preferences
- Develop detailed profiles of each segment, including size, characteristics, and key differentiators
- Validate segments by testing their stability, meaningfulness, and actionability
Selecting Target Segments and Developing Marketing Strategies
- Evaluate each segment's attractiveness based on size, growth, profitability, competitive intensity, and alignment with organizational capabilities
- Assess the potential value and viability of serving each segment
- Consider the organization's strengths and weaknesses in relation to segment requirements
- Select the target segment(s) that offer the best opportunities for growth and profitability
- Develop a positioning strategy and differentiated marketing mix for each target segment based on its unique characteristics and requirements
- Craft a compelling value proposition and brand positioning that resonates with the target segment
- Tailor product offerings, pricing, distribution, and promotional strategies to the specific needs and preferences of each segment
- Ensure consistency and synergy across all elements of the marketing mix
- Implement the segmentation strategy, allocating resources and tailoring marketing efforts to effectively reach and serve the target segment(s)
- Align organizational structure, processes, and capabilities with the segmentation strategy
- Allocate budgets and resources to support segment-specific marketing initiatives
- Monitor and evaluate the effectiveness of the segmentation strategy over time, making adjustments as needed
Segmentation Impact on Marketing Mix
Product Decisions
- Product decisions are influenced by the preferences, usage patterns and benefits sought by the target segment(s)
- Segment-specific product features, branding, packaging and service levels may be required
- Example: a hotel targeting business travelers may offer high-speed internet, meeting rooms, and express check-in/out services
- Tailoring the product offering to the needs of each segment can lead to increased customer satisfaction and loyalty
- Customized products and services create a stronger value proposition for the target segment
- Segment-specific branding can create a more personal and relevant connection with customers
Pricing Strategies
- Pricing strategies are adapted to the price sensitivity and willingness to pay of different segments
- Premium pricing for quality-conscious segments or value pricing for price-sensitive segments are examples
- Example: a luxury cruise line may set high prices to match the expectations of affluent customers, while a budget airline may offer low fares to attract cost-conscious travelers
- Differential pricing across segments allows for optimizing revenue and profitability
- Higher prices can be charged to segments with lower price elasticity of demand
- Promotions and discounts can be targeted to price-sensitive segments to drive sales
Distribution and Channel Strategies
- Distribution and channel strategies are aligned with the shopping habits and channel preferences of the target segment(s)
- Upscale retail locations for luxury segments or online booking for tech-savvy segments illustrate this
- Example: a travel agency targeting seniors may focus on in-person service and print advertising, while one targeting millennials may prioritize mobile booking and social media presence
- Matching distribution channels to segment preferences can improve convenience and accessibility for customers
- Offering the right mix of online and offline channels based on segment characteristics
- Partnering with segment-relevant intermediaries and distributors to expand market reach
Promotional Strategies
- Promotional messages and media are tailored to the interests, lifestyles and communication preferences of the target audience
- Segment-specific advertising, public relations and sales promotions are used
- Example: a ski resort targeting adventure-seekers may use high-energy video ads featuring extreme skiing footage, while one targeting families may use images of children enjoying ski lessons and hot cocoa
- Customizing promotional efforts to each segment can increase the relevance and effectiveness of marketing communications
- Developing segment-specific messaging and creative content that resonates with the target audience
- Selecting media channels and platforms that align with the media consumption habits of each segment
Benefits of Segmentation-Based Marketing Mix
- By adapting the marketing mix to the needs of specific segments, hospitality and travel businesses can achieve greater customer satisfaction, loyalty and profitability compared to an undifferentiated approach
- Targeted offerings, pricing, distribution, and promotions create a stronger value proposition for each segment
- Improved customer experience and perceived value can lead to higher retention rates and
- Continual monitoring and evaluation of segment responses and competitive actions are needed to refine the marketing mix and adapt to changing market conditions over time
- Regularly assessing the effectiveness of segmentation strategies and making data-driven adjustments
- Staying attuned to shifts in customer needs, preferences, and behavior patterns within each segment
- Adapting the marketing mix to maintain relevance and competitiveness in a dynamic market environment
Key Terms to Review (16)
Behavioral Segmentation: Behavioral segmentation is the process of dividing a market into distinct groups based on their behaviors, preferences, and usage patterns. This approach helps marketers tailor their strategies to meet the specific needs and desires of different customer segments, making it an effective way to enhance customer engagement and optimize marketing efforts. By understanding how consumers interact with products or services, businesses can create more relevant and personalized marketing messages.
Customer Lifetime Value: Customer lifetime value (CLV) is a prediction of the total revenue a business can expect from a single customer throughout their entire relationship. Understanding CLV helps businesses strategize in areas such as market segmentation, brand development, and personalized marketing. By analyzing the long-term value of customers, businesses can tailor their efforts to enhance customer retention, improve brand loyalty, and create targeted marketing strategies that resonate with distinct customer segments.
Customer Profiling: Customer profiling is the process of creating a detailed description of a business's target customers based on various characteristics such as demographics, behaviors, preferences, and purchasing patterns. This practice allows businesses to tailor their marketing strategies to specific segments of the market, ultimately enhancing customer engagement and satisfaction. By understanding their customers better, businesses can create personalized experiences that resonate with different groups and comply with regulations regarding privacy and data protection.
Demographic segmentation: Demographic segmentation is the practice of dividing a market into distinct groups based on demographic factors such as age, gender, income, education, and family size. This approach helps businesses tailor their marketing strategies to meet the specific needs and preferences of different consumer segments, ultimately improving the effectiveness of marketing campaigns.
Focus Groups: Focus groups are a qualitative research method used to gather feedback and insights from a small, diverse group of participants regarding their opinions, perceptions, and attitudes toward a product, service, or marketing concept. This approach allows researchers to explore deeper emotional responses and motivations behind consumer behavior, making it valuable for understanding market dynamics and refining strategies.
Geographic Segmentation: Geographic segmentation is the process of dividing a market into distinct groups based on geographic criteria such as location, region, city size, or climate. This strategy helps businesses tailor their marketing efforts to meet the specific needs and preferences of customers in different areas, leading to more effective and localized marketing campaigns.
Luxury market targeting: Luxury market targeting refers to the strategic approach of identifying and reaching affluent consumers who seek premium products and services, often characterized by exclusivity, superior quality, and exceptional customer experiences. This targeting is essential for businesses aiming to establish a strong brand presence in the luxury segment, as it allows them to tailor marketing efforts specifically to meet the desires and expectations of high-net-worth individuals.
Market Analysis: Market analysis is the process of assessing a specific market to understand its characteristics, trends, and dynamics. This evaluation helps businesses identify opportunities, gauge competition, and understand consumer needs. By breaking down the data into segments, businesses can better tailor their strategies to meet the demands of different customer groups, ultimately informing effective marketing plans.
Market Niche: A market niche refers to a specific segment of the market that is focused on a particular product or service, catering to the unique needs and preferences of a distinct group of consumers. This concept helps businesses identify target customers and tailor their marketing strategies to meet the specific demands of that subgroup. By honing in on a market niche, companies can differentiate themselves from competitors and foster brand loyalty among their audience.
Market Share: Market share is the percentage of an industry's sales that a particular company controls, reflecting its competitiveness and presence within the market. Understanding market share helps businesses analyze their performance against competitors, guiding marketing strategies, resource allocation, and growth initiatives. A higher market share often signifies stronger brand loyalty, effective marketing, and successful customer engagement, making it a critical metric in assessing a company's overall market position.
Millennial travel preferences: Millennial travel preferences refer to the unique habits and choices of the millennial generation (people born between 1981 and 1996) when it comes to travel. This generation values experiences over material possessions, often prioritizing adventure, authenticity, and sustainability in their travel plans. Understanding these preferences is crucial for businesses aiming to market effectively to this demographic through tailored services and products.
Philip Kotler: Philip Kotler is a prominent marketing expert often referred to as the 'father of modern marketing.' His work has laid the groundwork for understanding marketing principles, including concepts of segmentation, targeting, and positioning, which are crucial in the fields of hospitality and travel marketing. His insights help businesses effectively connect with their customers, drive service innovation, establish value-based pricing strategies, and develop robust brand portfolios.
Psychographic Segmentation: Psychographic segmentation is the process of dividing a market based on consumer personality traits, values, interests, and lifestyles. This approach goes beyond traditional demographics, allowing marketers to tailor their strategies to resonate with specific emotional and psychological factors that drive consumer behavior.
STP Model: The STP model stands for Segmentation, Targeting, and Positioning, a framework used in marketing to identify and reach the most relevant audience. This model helps businesses break down their broader market into smaller segments, choose which segments to focus on, and then craft a marketing strategy that positions their offerings in a way that resonates with the selected audience. It’s essential for creating effective marketing strategies that cater to specific consumer needs and preferences.
Surveys: Surveys are systematic methods used to collect data and insights from a group of respondents, typically through questionnaires or interviews. They help organizations understand consumer behaviors, preferences, and attitudes, allowing for more informed marketing strategies and decision-making.
Target market: A target market is a specific group of consumers identified as the intended audience for a product or service. Understanding the target market allows businesses in the hospitality and travel sectors to tailor their marketing strategies, promotional efforts, and product offerings to meet the unique needs and preferences of that specific group, ultimately enhancing customer satisfaction and business success.