Evolution in Segmentation1

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From the course by ESSEC Business School

The Fundamentals of Revenue Management: The Cornerstone of Revenue Strategy

358 ratings

ESSEC Business School

The Fundamentals of Revenue Management: The Cornerstone of Revenue Strategy

358 ratings

Course 2 of 4 in the Specialization Hotel Management: Distribution, Revenue and Demand Management

With a fixed capacity, a highly disposable product and high fixed costs, hotels are a natural candidate for the application of revenue management. Originally developed by the airlines in the 1970s, these analytics-based techniques help predict consumer behavior at the hotel’s market level so that the hotel can sell each room each night at the optimum price. With modern-day rising acquisition costs and distribution complexities, revenue management techniques have increasingly been adopted by both small and large hotel companies, making a comprehensive understanding of segmentation, forecasting and pricing an essential requirement for today’s hospitality professionals. The purpose of this course is to provide a core understanding of the fundamentals of revenue management, which ties into the larger picture of revenue strategy. The course is structured to provide an insightful look into Revenue Management. Created in conjunction with Duetto, this course is hosted by a group of revenue management leaders in both theory and with hands-on experience at properties around the world. Upon completion of the course students should be empowered with industry best practices, which can be applied across the vast diversification the hotel industry to empower those to optimize profits. Duetto delivers powerful revenue strategy solutions to the world’s leading hotels and casinos, combining unparalleled expertise with world-class cloud-based technology. Acknowledgement: Bela Nagy, Agnes Roquefort , Jonathon Liu, Frederic Toitot, Pierrick La Masne, Markus Keller - ACCOR Simone Truscello - ACE HOTELS. Richard Valtr - MEWS SYSTEM. Jean-Luc Chrétien - FAST BOOKING. Jeannette Ho - FAIRMONT RAFFLES HOTELS & RESORTS. Chinmai Sharma - TAJ HOTEL & RESORTS. Cindy Estis Green - KALIBRI LABS. Jason Thielbar - RED LION. Christopher Cooper - ROCCO FORTE. Rom Hendler - SANDS. Rafi Rejerano - AB Hotels. Riko Van Santen - KEMPINKI HOTELS & RESORTS. Vinod Sukhija - BANYAN TREE HOTELS & RESORTS. Olivier Flement - WALT DISNEY COMPANY. Cidalia Pinto Coehlo - LOUVRE HOTELS. Trevor Stuart-Hill - REVENUE MATTERS. Vincent Cusma, Marco Benvenuti, Eric Stoessel, Gayle Ehrean, Nevin Reed - DUETTO. Claire Bertrand, Vincent Chatain, Jessica Moses, Benjamin Six (ESSEC Business School), Emilie Dupré (IMAGE-IN), Gregory Halidy (TRIPLAY)

From the lesson

Introduction to Segmentation

In this second module we will discuss segmentation 101, four things to consider while determining segmentation, as well as our best practices in regards to working with properties who need to go through a re-segmentation exercise, and presenting you with some key takeaways.

Overview of Segmentation2:49

What is Segmentation?6:33

Evolution in Segmentation17:10

Evolution in Segmentation26:35

Meet the Instructors

Peter O'Connor
Professor of information systems, Director of the MBA in Hospitality Management
Information systems
Augustin Cacot
Director of Customer Success, EMEA
DUETTO
Nathaniel Green
Senior Global Solutions Engineer
DUETTO

[MUSIC]

Consumers were not always like Joe and Jim with so many options.

Back in the 1950s there was originally just group and leisure.

From the 50s through the 70s, with a rise in corporate America and

global industrialization, more channels became available and

became a much larger mean of dynamic business within hotels.

Through the late 1980s, companies like Hilton International

traditionally broke apart into four simple groups,

business, leisure, group, and meeting.

These initial reasons for segmentation were for marketing purposes.

As we have seen in MOOC one on hotel distribution,

over the course of the mid-90s to present, new distribution channels have been

emerging faster than the hotel industry has been able to keep up.

Back in the mid 90s, there was just a new need for

general OTA segmentation to cater to the Expedias and Booking.coms that

initially were coming on line enabling consumers to purchase via this new media.

Since 2000 the increased presence of Hotel Tonight, Kayak, and

other modern channels have made segmentation even more complex.

Truly understanding your segmentation and your customers' behaviors

will enable you to optimize pricing for the right customers at the right time.

Previously, travelers booked directly with the hotels for

stay brands as Nat explained in module one.

Hotels compete with each other for the consumer and

own the relationship directly with the consumer.

Since then, there has been a bifurcation of travel brands and

now there's a new class of travel brands called the booking brands.

Prior to the mid-90s, consumers had no choice but to deal with fragmentation,

meaning they needed to reach out independently to each of the stay brands,

wholesalers, or human travel agent to be able to get a specific rate.

These rates were very structured and siloed, so

it was much more difficult to have transparency.

In today's terms, hailing an Uber on their application

is similar to how you used to go to Marriott directly and book a room.

With car service today there is no marketplace like with the hotels.

This marketplace effect, cause individual properties to begin to undercut

each other's prices, and rate, in the marketplace as a whole then dropped.

To continue the analogy, these would be like if Uber,

that the drivers control their pricing independently,

with drivers willing to barely profit if it means getting more customers.

These new booking brands from Kayak to Hotel Tonight have opened up a marketplace

of opportunity for the general consumer along with huge amounts of new

responsibility for the hotels to manage from fragmentation of types of consumers,

in addition to new commission and cost structures.

As discussed in module one,

the fragmentation of the hotel industry has caused hotel owners and

operators to struggle managing these modern day distribution complexities.

A new class has made it's way into the hospitality industry as booking brands.

As we saw in MOOC one on hotel distribution,

they have become the dominant point of entry for consumers.

They are giant marketing engines presenting the stay brand hotels and

organized in clear fashion for the consumers to make a selection.

Many consumers pass through these brands before they decide where to stay.

These booking brands are companies with massive power and

high market caps such as Google, Expedia and Priceline.

From a stay brand perspective,

it's hard to compete with them, in terms of online marketing.

Stay brands or hotels are very, very good at producing experiences,

whereas the booking brands are very good at marketing and

being the central point for information for all.

You can see that in this chart, produced by & LA Customary Innovation Forum and

University of Maryland's Smith School of Business,

intermediaries have dominated market share in recent years and

their dominance has only gone up over the years of the study.

Based on that same study, you can see that over the past few years,

consumers have been visiting hotelsbrand.com website less.

As a matter of fact, 12% of consumers between 2012 and

2014 shifted from either visiting the hotel's website exclusively,

or both the OTA and the hotel website over to strictly visiting an OTA.

Throughout the rest of this presentation and

the upcoming modules, you will be presented with some best practices

to help a hotel shift the current consumer trends in a more positive direction.

Collectively, lowering cost and

shifting back market share to the hotel or hotel company.

Unfortunately, this lack of management has caused the cost to acquire a customer

to skyrocket.

As we saw in MOOC one on hotel distribution,

cost of acquisition is one of the most important aspects of distribution,

revenue management, and segmentation.

Because understanding your cost enables you to

optimize the rate that you can charge and optimize your distribution strategy.

Cost of acquisition are the costs associated to acquire a customer.

If you were to use an OTA, you might pay out 20% commission to that OTA channel

based on a prenegotiated agreement that you have with them.

Managing acquisition costs, whether it's a sales and marketing team's expense

associated with driving new customers to the property or a hotel's advertising

expenses to direct customers online to its website having customers book for an OTA.

Or the pay per click associated with using a management site.

All of these are toll booth and

have associated in highly varying cost to acquire customers.

As you see in this graph, commissions within the hotel sector are rising

at two times the rate of revenue growth.

This came out of a hotel asset managers association study in 2013,

detailing the fact that since 2009, commissions have been increasing

at nearly 39% related to about 20% of total revenue increases during that time.

Since more channels have continued to emerge, and costs haven't slowed down,

it is more vital now, but ever to ensure your property segment's customers in

the most appropriate fashion to target the most profitable customers.

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