The hotel industry is a highly competitive industry. It is impossible to operate a hotel aimed at satisfying the wants and desires of all potential customers. Attempting to do so would result in disaster with, at best, only a small portion of clients being satisfied. This is because the hotel industry has become segmented over the years, with different hotels targeting different market segments. Targeting a particular segment of society allows a hotel to cater its services to this particular population so that all customers can be satisfied. There are four market segmenting strategies to choose from, based on the market segments defined by "Consumer Reports": luxury, upscale, moderate and budget).
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Luxury Segment Strategy
Targeting the luxury segment of the hotel industry can be lucrative, but it is also very difficult. Luxury hotels such as the Ritz-Carlton focus on a guest's experience, offering virtually everything he could ever want. Luxury hotel guests expect to have top service, Michelin star quality food and posh surroundings. The strategy of targeting this segment is not only expensive, but difficult because you must maintain a very high level of satisfaction. This strategy can pay off, however, with premium prices.
Upscale Segment Strategy
The strategy of targeting the upscale segment of the hotel industry is expensive and requires a great deal of effort, but it is more attainable than the luxury segment. Upscale hotel guests expect excellent service, including concierge services and fine dining, but do not have standards that are quite as high as the luxury market. Still, people in this segment are willing to pay a premium for their lodgings and so profits can be made by charging more than lesser-quality hotels.
Moderate Segment Strategy
Targeting the moderate segment of the hotel market involves competing both on price and quality. Guests are not looking for the cheapest accommodations, but they are looking for a hotel that is both affordable and maintains a certain level of quality.
Guests will expect a more limited food service and helpful staff as well as clean and comfortable surroundings. These customers are willing to pay reasonable prices but expect to get value. This strategy involves a delicate balancing of costs and quality.
Budget Segment Strategy
The budget segment strategy targets hotel guests who are motivated primarily by price. People expect a very basic level of quality at this level. The main driver of competition is room price, which means that to succeed with this strategy you must be able to keep prices low to make a profit. Margins will typically be lower, so budget hotels must work to increase guest volume if they are to make large profits.
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