Hotels Carry Market Segmentation to the Ultimate

In the not terribly distant past, most products and services in America were “mass marketed.” The most popular magazine was LIFE, with a massive circulation.  It appealed to everybody. You might find an ad for Cadillac cars alongside an ad for Jell-O. Other mass marketed media included LOOK, or SATURDAY EVENING POST. Cars were sold by the “Big Three” and if you wanted to watch TV there were three networks plus a chance of an independent or educational station.

Somewhere in the 1980s or so, marketers started getting very smart. They realized that everybody didn’t have the same tastes or capacity to buy. It didn’t make sense to advertise in LIFE if 75% of the readers didn’t make enough to buy a Cadillac. If the advertiser wanted to sell Jell-O, why not advertise in FAMILY CIRCLE, which was a lot cheaper and totally focused on people who would be interested in Jell-O.

Enter the age of Market Segmentation – totally efficient and totally cost effective. But now market segmentation has so proliferated that we have now entered the age of “ultimate segmentation,” as illustrated by the major hotel chains.

It used to be that when we traveled and we were looking for a clean, reasonably priced hotel or motel we would stay at a Holiday Inn, a Sheraton or a Hilton. Then Marriott decided to start the segmentation trend in lodging. The Marriott Hotel was the full service Downtown or airport hotel. Next they created Courtyard, a smaller hotel that catered to the business traveler. From there they created Residence Inn, a kind of apartment hotel with a kitchen, for the extended stay traveler. Finally there was Fairfield Inn, the lower priced offering for vacationing families as well as business people.

This concept apparently was so successful that it exploded. Today the 10 largest hotels in the world offer a combined total of 113 brands at different price points. In the last decade alone, 31 new brands were born and according to the Associated Press (AP) “there is no sign of this proliferation slowing down.”

Just last year, Marriott launched Moxy, Hilton created Canopy, Best Western introduced Vib while InterContinental — Holiday Inn’s parent company — purchased Klimpton.

Why the Brand Proliferation?

Major reasons for the brand explosion are the financial dynamics of the industry. Occupancy levels are up and interest rates are at rock bottom. So aggressive have been the developers that there are almost 130,000 units currently under construction.

More financial dynamics from the AP: Occupancy rates are up to 65% compared with 55% five years ago and average room prices per night are $115 today compared with $97 five years ago.

A Gallop Survey results, published in Business Journal (September 5, 2014), analyzed six distinct segments in the hotel industry. The key to success, according to Gallop, is to get the customer “fully engaged.” This means emotionally attached to the brand. Here is a quick run-down of Gallop’s six segments, which is provided by the InterContinental Hotel Group:

Luxury — (33% fully engaged) Hotels with the highest level of amenities, often boutiques or small chains with top-class facilities and services and very high room rates. Five-star quality. A mix of business and leisure customers, dependent on location, often with a high Examples Four Seasons, Ritz-Carlton (Marriott), St. Regis/Luxury Collection (Starwood).

Upper Upscale —  (26% fully engaged) Well-appointed hotels with full, high-quality, amenities including spacious rooms and bathrooms. High room rates. Four or five-star quality. Usually located in prime city-centre locations in major cities or in resorts. Examples: Hyatt, Renaissance (Marriott) and Westin (Starwood).

Upscale — (28% fully engaged) High-quality, mostly full-service hotels with moderate to high room rates. Less luxurious than upper upscale and sometimes lacking some of the facilities such as a concierge. Examples: Embassy Suites (Hilton), Courtyard (Marriott) and Carlson (Radisson).

Midscale — (19% fully engaged) Full service but with fewer amenities than upscale and broadly equivalent to three-star quality. Comparatively lower room rates than upscale. Predominantly domestic guests, both business and leisure. Examples:  Divided into two sub-categories depending on availability of food and beverage (F&B) service. With, Doubletree Club (Hilton), Holiday Inn (InterContinental) and Ramada (Wyndham).

Economy/ Budget — (12% fully engaged) Cheapest most basic hotels with limited facilities, and one or two-star quality. Predominantly domestic guests. Days Inn (Wyndham), Motel 6 (Blackstone Group) and Sleep Inn (Choice Hotels)

In the article accompanying the Gallop findings, the authors wrote: “To achieve sustainable, long-term growth, hoteliers must develop a deep understanding of the type of customer that want to attract, and then offer an experience that is tailored to that specific group.”

Isn’t that what segmentation is all about?