Why is segmentation so important for revenue management?
Guest post by Pace Revenue.
Segmentation sits at the heart of all your strategies. It differentiates between your markets and helps you to assign rates to suit each segment category based on demand and customer requirements. It is therefore a critical part of your business that can broaden your market and maximise your income potential.
Having segmentation that is not properly thought out and has not been changed in years means that revenue managers could be leaving a lot of money on the table.
A simple segmentation framework that breaks down your market might look something like this:
The idea is to adjust your rates based on occupancy levels and segmentation analysis. For example, business travellers are unlikely to react to changes in rates, whereas leisure travellers will generally seek out the best possible price. Therefore, charging higher rates to business travellers during low occupancy and offering rate reductions to vacationers in high season is a strategy that harnesses the twin forces of supply and demand to your profitable advantage.
In today’s market, revenue managers need to be able to adapt to both the macro and micro environments with speed. This can only be achieved through proper segmentation. We recommend updating your segmentation every two years to keep data relevant and, most importantly, to make sure it's still helping to drive your revenue management strategies.
Changing segmentation is not as painful as it used to be as many systems eliminate the associated pains. Systems are much more intuitive with user-friendly interfaces to make the process as easy and seamless as possible. RMS makes setting up market segments easy and hassle-free; check out RMS’ visual guide to learn how.
The world is rapidly changing so there's no excuse for revenue managers to still be using segmentation from the stone age. Updating to a modern system will revolutionise the way you view and analyse data across different segments. Seeing how each segment is performing will give you all the insights you need to take action.
About Pace Revenue
We share a conviction that revenue management should be data-driven, not opinion-based. To achieve our mission, we have assembled an amazing team of data scientists, product experts, hard-core engineers and revenue managers.
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