Market segmentation is the process where marketers group together consumers with similar wants, needs and features in an attempt to obtain a greater precision in service delivery. The underlying benefit of this marketing tool is that it enables good decision making and promotes workable trading operations. (Goeldner, Charles and Ritchie Brent, 1994)
In recent times market segmentation has become an essential component in the hospitality and tourism industry. This is so because many of these hospitality chains operate across several states and countries alike, thus the need to differentiate between versatile consumer groupings that make up their target market. (Fyall and Garrod, 2005) For example, a multinational restaurant considers the divergence between consumer lifestyle, behavior and disposable incomes in different countries. This is the fundamental challenge to the product-service mix for hospitality and tourism organizations today.
Criteria for Effective Segmentation
Even fast-food restaurants have many methods from which to choose an effective segmentation procedure in attempts to target specific markets, however the underlying rule is that of profitability and feasibility. There is always a point to where a market can be too much segmented thus producing small non-profitable sub segments. (Goeldner, Charles and Ritchie Brent, 1994) Or it may be inefficient to develop several marketing programs for each market segment while one may be used across the entire market. When segmentation efforts are attempted in the hospitality and tourism industry, four criteria should be applied to assess the potency of this market segmentation scheme: Substantiality, Measurability, Accessibility, versatility. (Edgell and David, 1997)
Substantiality refers to the relative size of the market. This size needs to be large enough for a hospitality marketer to effectively employ segmentation techniques. (Edgell and David, 1997)By influencing the elements of the marketing mix to deal with the requirements of these specific segments, he/she is able to accomplish the marketing targets of the organization. For example, a while ago very few food chains served healthier foods for the sole factor that there were no enough customers to warrant it. However, nowadays the situation is different since even fast-food restaurants adorn their menus with “organic foods”.
Measurability is another criterion that each segment should pass. A market segment is measurable from its overall size together with the envisioned full demand or the entire purchasing power. (Weaver and Lawton, 2006) The marketers of any hospitality and tourism organization should set a threshold point relative to the size and the envisioned full demand of the developed market segments. In the event of the number of consumers or the entire purchasing power falling below this threshold, target market segments are better off combined for easier operability. (Edgell and David, 1997) For example in tourism the minute size of the children packages or attractions segment such as Disneyland, is inadequate for operations and profitability, thus other adult attractions such as free spas are included in the package making the target segment a family affair.
The third criterion is the target segment’s accessibility. Marketers must be able to effectively access their target market segments through any of the established communication channels. (Lumsdon, 1997) Marketing communication involves many approaches such as advertising, direct marketing, personal selling, telemarketing and promotion. With the absence of effective communication, market segmentation becomes completely unnecessary since its sole purpose is to isolate the potential industry entities and target them for direct marketing communication exploits on specific aspects of the tourism product or hospitality service.
Lastly, hospitality and tourism organizations must be able to create marketing strategies that in effect attract customers from the particular market segment. (Goeldner, Charles and Ritchie Brent, 1994) In other words, buyers of a certain market segment should possess similar characteristics while those in other segments should have varying characteristics. For example, if a particular tourist organization offers a “Kenyan safari” it should be charming to a particular target segment and not all. In a restaurants setting, families and senior citizens should be inclined towards eating earlier to economize on space and avoid bad publicity due to overcrowding. If all customers responded the same to the organization’s marketing strategy then market segmentation would be unnecessary.
Marketing managers may opt to employ five basic types of variables when segmenting consumer markets: geographic, demographic, psychographic, behavioral, and benefits variables. These segmentation variables may be used alone or in combination with one another, depending on the level of segmentation that is desired.
Advantages of market segmentation to Hospitality and Tourism Organisations
Many managers in this industry believe that by segmenting the market they tend to undermine their competitive advantage since their marketing and promotional feats are geared towards a few segments hence lesser sales. (Weaver and Lawton, 2006) They would rather target all potential customers. However, this approach gives a less considerations to the underlying benefits of segmentations in the allocation of limited resources to maximize the return on investments.
When executed properly, market segmentation greatly improves sales and eventually profits. This marketing tool enables the hospitality organizations to target specific market segments which specifically sponsor the organization’s products and services. The organizations are able to efficaciously release their scarce resources to those market segments with a high probability of procuring purchases towards their products and services. Tourism companies are also able to monitor the market segments that possess many customers demanding their services on a seasonal basis and also the market segments that are not viable or have little sales potential.
Another gain attributed to market segmentation is that the organizations can promote their different product and service mixes to meet the respective demands of the different market segments. (Goeldner, Charles and Ritchie Brent, 1994) For example, a restaurant management can attract a specific market segment by simply varying the kind of entertainment they offer. This tool can be used to push up sales by providing different themed nights on different days of the week. E.g. “jazz night,” “oldies night,” “country night,” and “blues night.” Etc.