Summary Revenue Management
Chapter 4
Market Segmentation and Selection
Explain the concept of market segmentation
Provide examples of market segments and subsegments
Introduce the concept of environmental scanning
Define total customer worth
Market segmentation is a fundamental element needed for the effective application of revenue
management techniques.
Market segments and subsegments
Market segmentation: The practice of dividing a market into smaller specific segments sharing
similar characteristics.
One common method in market segmentation is on customer demographics. Demography is
defined as the study of characteristics of a population. Common characteristics are: age, gender,
marital status, education, income, race, religion and nationality.
Frequent traveller programs are designed to reward loyal patronage and induce repeat business.
Hospitality organizations usually break down the leisure and business segments into individual
and group subsegments. An individual travelling, dining, or staying alone is a transient. Transient
may be defined as a temporary individual hospitality customers. This guest is alone and is
purchasing an airline seat, a meal, or a hotel room.
Group business involves more than 2 individuals coming together for a common reason.
It is also possible to further break down leisure travel:
1. Vacation
2. VFR (Visiting friends and relatives)
3. To attend special events
Business:
1. Aspect of job responsibilities
2. Attending trainings
3. Meeting or conferences
Different Segments
For the different segments look on page 44 and 45 of the book.
Wholesale Terminology
A wholesaler is a person who purchases individual travel components at a discount based upon
volume, and repackages the components and sells them to a consumer on retail basis, either
directly through the wholesale organization or via a travel agent or tour operator.
( Buys separate things, like a hotelroom, ski passes, flight, and sells them like a package more
expensive than the total of separate things)
A wash factor is a predetermined percentage of usage based upon historical data and
experience.
, Segmentation
Each segment possesses unique purchasing characteristics. The answers to the questions what,
where, when and why they buy are different for every segment. The purchasing behaviour of
groups is different from the purchasing behaviour of individuals.
An organization should continue to narrow and refine its analysis of customer behaviour as it drills
down further into each of its subsegments. It is good to understand the current customer
behaviour, it is also important to project potentional future behaviour as well. This is best
accomplished with environmental scanning and trend analysis.
Environmental scanning
External factors have a huge impact on a consumer's propensity to purchase. These external
factors may include economy, social and cultural trends, the political climate, natural environment
and technological advances.
Environmental scanning means: Constantly monitoring and assessing the environment to spot
changes and emerging trends.
Trend analysis
Trend analysis has become a widely accepted practice in nearly every field of endeavour. Every
business forecasts future sales, and future sales are dependent upon the behaviour of
customers. Many futurists and forecasters break trends down by generation.
Displacement analysis and total customer worth
Replacing one customer for another is also referred to as displacement. Many organizations now
conduct a displacement analysis when determining the optimal mix of businesses. They assess
the worth of one customer versus another. Worth is defined as the sum value of the customer to
the organization. Value in this sense relates to the sum of current monetary expenditures in both
the primary purchase and ancillary purchases made by a customer.
Primary purchase: The main purchase made during a single or series of transactions.
Ancillary purchase: Supplementary or additional purchase made in a series of transactions.
Total customer worth = Primary revenue + Ancillary revenue – Acquisition costs.
Or
Total customer worth = (Primary revenue + Ancillary revenue – Acquisitions costs) x Propensity Y
Total customer worth and total customer value
Customer value is in from the perception of the customer. Customer worth refers to value an
organization places upon a customer.
Selection of the optimal mix of business
Selection of the optimal mix of business takes a lot of research and planning, as well as continual
monitoring to remain effective. Market segments targeted must be large enough to generate
sufficient revenues to cover the costs of customer acquisitions. Market segmentation and
Chapter 4
Market Segmentation and Selection
Explain the concept of market segmentation
Provide examples of market segments and subsegments
Introduce the concept of environmental scanning
Define total customer worth
Market segmentation is a fundamental element needed for the effective application of revenue
management techniques.
Market segments and subsegments
Market segmentation: The practice of dividing a market into smaller specific segments sharing
similar characteristics.
One common method in market segmentation is on customer demographics. Demography is
defined as the study of characteristics of a population. Common characteristics are: age, gender,
marital status, education, income, race, religion and nationality.
Frequent traveller programs are designed to reward loyal patronage and induce repeat business.
Hospitality organizations usually break down the leisure and business segments into individual
and group subsegments. An individual travelling, dining, or staying alone is a transient. Transient
may be defined as a temporary individual hospitality customers. This guest is alone and is
purchasing an airline seat, a meal, or a hotel room.
Group business involves more than 2 individuals coming together for a common reason.
It is also possible to further break down leisure travel:
1. Vacation
2. VFR (Visiting friends and relatives)
3. To attend special events
Business:
1. Aspect of job responsibilities
2. Attending trainings
3. Meeting or conferences
Different Segments
For the different segments look on page 44 and 45 of the book.
Wholesale Terminology
A wholesaler is a person who purchases individual travel components at a discount based upon
volume, and repackages the components and sells them to a consumer on retail basis, either
directly through the wholesale organization or via a travel agent or tour operator.
( Buys separate things, like a hotelroom, ski passes, flight, and sells them like a package more
expensive than the total of separate things)
A wash factor is a predetermined percentage of usage based upon historical data and
experience.
, Segmentation
Each segment possesses unique purchasing characteristics. The answers to the questions what,
where, when and why they buy are different for every segment. The purchasing behaviour of
groups is different from the purchasing behaviour of individuals.
An organization should continue to narrow and refine its analysis of customer behaviour as it drills
down further into each of its subsegments. It is good to understand the current customer
behaviour, it is also important to project potentional future behaviour as well. This is best
accomplished with environmental scanning and trend analysis.
Environmental scanning
External factors have a huge impact on a consumer's propensity to purchase. These external
factors may include economy, social and cultural trends, the political climate, natural environment
and technological advances.
Environmental scanning means: Constantly monitoring and assessing the environment to spot
changes and emerging trends.
Trend analysis
Trend analysis has become a widely accepted practice in nearly every field of endeavour. Every
business forecasts future sales, and future sales are dependent upon the behaviour of
customers. Many futurists and forecasters break trends down by generation.
Displacement analysis and total customer worth
Replacing one customer for another is also referred to as displacement. Many organizations now
conduct a displacement analysis when determining the optimal mix of businesses. They assess
the worth of one customer versus another. Worth is defined as the sum value of the customer to
the organization. Value in this sense relates to the sum of current monetary expenditures in both
the primary purchase and ancillary purchases made by a customer.
Primary purchase: The main purchase made during a single or series of transactions.
Ancillary purchase: Supplementary or additional purchase made in a series of transactions.
Total customer worth = Primary revenue + Ancillary revenue – Acquisition costs.
Or
Total customer worth = (Primary revenue + Ancillary revenue – Acquisitions costs) x Propensity Y
Total customer worth and total customer value
Customer value is in from the perception of the customer. Customer worth refers to value an
organization places upon a customer.
Selection of the optimal mix of business
Selection of the optimal mix of business takes a lot of research and planning, as well as continual
monitoring to remain effective. Market segments targeted must be large enough to generate
sufficient revenues to cover the costs of customer acquisitions. Market segmentation and
