Customer segmentation is the foundation for hotel revenue management, but it’s not talked about as much in the vacation rental industry. Although most vacation rental guests fall into the “leisure” category, hotels now segment far past the traditional transient/corporate/group categories we’ve seen before—and we should, too. Below are a few ways to segment your customer base to better target pricing and marketing:
• Booking window
• Booking channel
• Feeder markets
• Length of stay (LOS)
Using 2019 data for a variety of destinations, let’s take a look at each of these segments, how they interact, and what they mean for your revenue management decisions. You may not find clear distinctions for each category in your market or company. For example, some destinations only have one primary season, while others see visitors coming mostly from one large city. Regardless, this should give you some ideas for how to segment your company’s customer base.
How far before their stay is a guest booking their vacation? The answer to this question likely influences a number of other factors, such as rate and stay length.
In Breckenridge, a popular ski area in Colorado, 39 percent of 2019 stays were booked within 30 days of arrival. For those stays, the average daily rate was $217, and the average stay length was 3.5 days. Compare that to stays booked more than 60 days in advance, whose average daily rate was $370 and stay length was 5.1 days. Many of those more last-minute trips were weekend ski trips with smaller groups looking for smaller units, rather than long getaways with extended family or friends.
Understanding which potential customers are searching for rentals at which time allows you to target marketing campaigns more effectively.
Pro Question: Looking at your data, does it make sense to advertise a small rental for a weekend stay 30 days in advance and a large rental for a week-long stay at least two months before arrival?
Not only are different customer segments booking at different times, they are also booking on different platforms.
The Alabama Gulf Coast vacation rental market in 2019 demonstrated the importance of understanding differences in consumer behavior on different booking channels.
Guests who booked through Booking.com did so, on average, 16 days before their arrival date in 2019. In contrast, guests who booked directly through the property management company booked almost eight weeks earlier at 71 days before arrival.
The average stay length for reservations made through Booking.com was two days (mostly weekends), compared to almost a week for direct reservations.
As a result of rate and stay length differences, the average stay value more than doubled with direct bookings versus Booking.com.
Pro Question: Do your value proposition and your unit descriptions on different channels reflect the different consumer segments?
Where your guests are arriving from is also important. For example, out-of-state guests may stay longer and spend more than in-state guests.
This is the case for Telluride and Mountain Village, a ski destination in Colorado. In 2019, 32 percent of guests for this market came from within Colorado.
However, these in-state stays contributed only 16 percent of total rent because the guests stayed only for a long weekend and booked at a lower rate.
On the other hand, guests from Texas formed 12 percent of arrivals but contributed 18 percent of total rent because their stay length was almost two days longer, and their average daily rate was more than twice as high.
Pro Question: Are you marketing to close-drive-to feeder markets differently than to guests traveling longer distances?
In many markets, your guest profile may vary by season.
For example, beach markets in the Southeast may see large numbers of families arriving for a week-long stay for Spring Break but may rely on snowbirds staying for three or more weeks during the winter.
Marco Island, Florida, shows the seasonality of guests.
For vacation rentals in the area, 28 percent of guests arrived during the winter. They booked their trips an average of 158 days before the arrival date, and they stayed for an average of 20 days.
In contrast, during the summer, 26 percent of guests arrived after booking an average of 78 days before arrival, and they stayed for an average of eight days.
In 2019, summer guests traveling to Marco Island were more likely to stay in a house than in a condo: 62 percent of summer stays were in houses compared to only 41 percent of winter stays. Though winter and summer guests contributed to a similar number of reservations, winter guests stayed for 2.5x as long and booked 2.5 months earlier.
Pro Question: Are you paying attention to seasonal booking windows and adjusting your messaging to target the correct audience? In the case of Marco Island, marketing for the winter season should begin the previous July.
Length of stay (LOS)
As we’ve seen, LOS is one reason it’s helpful to segment by booking source, booking window, or season. However, as a metric for customer segmentation, it also stands on its own.
On the Hawaiian island of Oahu, 47 percent of 2019 stays were between five and eight days long—unsurprisingly, as it’s a long trip for many. That renter segment booked an average of 82 days in advance.
In contrast, stays between one and four days formed a substantial segment of reservations, 26 percent, but were booked much closer to arrival at 48 days away on average.
The biggest bombshell here is that 42 percent of stays between one and four days long were made for houses, compared to 18 percent of five-to-eight-day stays. At other destinations, you may see couples booking weekends relatively close to their trip dates, while extended families book a full week six months out. The rates, type of units, cancellation policies, and amenities they’re interested in are all influenced by these factors.
We’ve covered segmenting your guests by when they’re booking (booking window), how they’re booking (booking channel), where they’re arriving from (feeder markets), when they’re arriving (seasonality), and how long they’re staying (LOS).
There are market-specific relationships between these variables that will guide your marketing and pricing strategies. Dive into your historical data and compare it to what is currently going on in 2020 to determine which way works best for you. A good rule of thumb is that a group should form 8–15 percent of your guests before it is segmented on its own. Once you understand your customer segments, you will be able to more effectively market, price, and drive more bookings for your company and for your homeowners.