Market Segmentation in Hospitality Research

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Last updated: June 23, 2019

Market segmentation in hospitality research: no longer a sequential process John T. Bowen William F. Harrah College of Hotel Administration, University of Nevada, Las Vegas, USA Explores development in market segmentation relating to hospitality and tourism research published between 1990 and 1998. The literature is divided into three sections: segmenting a market; market targeting and marketing positioning.

Identi? es new areas for research, deeper examination of segments, identi? cation of difference between markets, and more segments.Introduction “One of the most important strategic concepts contributed by the marketing discipline to business ? rms and other types of organizations is that of market segmentation” (Myers, 1996). Segmentation involves a three-step process (Kotler et al. , 1999). The ? rst step in this process is market segmentation, dividing a market into distinct groups of buyers who might require separate products and/or marketing mixes. The company identi? es different ways to segment the market and develops pro? les of the resulting market segments.One of the most frequently used methods for segmenting a market has been demographic segmentation.

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Demographic segmentation consists of dividing the market into groups based on demographic variables such as age, gender, family life cycle, income, occupation, education, religion, race, and nationality One reason for the popularity of . this method is that consumer needs, wants, and usage rates often vary closely with demographic variables. Another is that demographic variables are easier to measure than most other types of variables.Other variables can be used to segment markets. For example, geographic, psychographic and behaviouristic variables are other common segmentation variables. Geodemographic segmentation, such as the segments created by PRIZM, creates pro? les of different zip codes. Geodemographic segmentation is based on the premiss that birds of a feather ? ock together.

For example the world’s largest users of scheduled airlines belong to suburbs called the Urban Gold Coast. The suburbs are composed of upscale high-rise neighbourhoods in only a handful of big cities.Urban Gold Coast tops many demographic lists: most densely populated, most employed, most white-collar workers, most renters, most childless, and most New York based. Almost two-thirds live in residences worth more than $200,000; decorating their home according to Metropolitan Home; buying their clothes at Brooks Brothers; and frequenting the same hand starch Chinese laundries.

In Urban Gold Coast, residents have the lowest incidence of auto ownership in the nation; these cliff-dwellers get around by taxi and rental car. Urban Gold Coast residents usually eat out for dinner and lunch.They comprise 5 per cent of US households. Sample neighbourhoods include Manhattan, New York – Upper East and Upper West Sides, area codes 10021 and 10024, West End, Washington, DC 20037, Fort Dearborn, Illinois 60611, Rincon East (San Francisco), California 94111 (Weiss, 1988). The geodemographic system has evolved into household models. Rather than assume that all members of a zip code share the same characteristics, these new systems look for individual households that share the same characteristics. Jock Bickert, formerly of National Demographics and Lifestyles, Inc. NDL) and now with Looking Glass, Inc.

, has developed a household segmentation called Cohorts. Cohorts pro? les 11 married groups, eight single female groups and eight single male groups. He has given the groups names such as Jason, Kenny, Elmer, Stuart, Minnie, Victoria, Hazel, Elwood and Willamae, Alec and Elyse, and Abe and Millie.

The following are sample descriptions of the segments: • Alec and Elyse. Affluent, empty-nesters, dual-income, older couples who use their discretionary income to enjoy all aspects of the good life, median age 53, income >$100,000. Elwood and Willamae. Retired couples with modest incomes who dote on their grandchildren and, when not touring the USA, engage primarily in domestic pursuits. Their median age is 71 and their income $23,105.

• Stuart. Rich guys, affluent, health and ? tness minded men with investments and upscale interests. Their median age is 45, income >$100,000. • Kenny. Working class guys, younger men who spend their time in the garage or outdoors. Their median age is 38, income $23,464.

Jock Bickert found that a loyal segment for the San Diego Padres baseball team was Elwood and Willamae.Further, he observed that they came to day games and the quality of the opponent did not seem to matter. Most fans preferred to see a pennant contender, but International Journal of Contemporary Hospitality Management 10/7 [1998] 289–296 MCB University Press [ISSN 0959-6119] [ 289 ] John T. Bowen Market segmentation in hospitality research: no longer a sequential process International Journal of Contemporary Hospitality Management 10/7 [1998] 289–296 Elwood and Willamae were just as content watching a contender as they were a team with a losing record.Bickert came up with a value package for this segment that was composed of day games consisting of low quality opponents.

He was able to provide value for the segment through the low pricing of the ticket package, while moving this group into games where attendance was most needed. Household groups such as Cohorts create efficiencies because every household reached will be a member of an identi? ed prospect group. This is not the case with geodemographic segments (Bickert, 1998). Segmentation is now becoming more sophisticated with the advancements in computer hardware and software.

Modelling software, such as Model 1, uses linear regression, logistic regression, neural networks, and CHAID (Chi-Squared Automatic Interaction Detection) to identify market segments. This software also compares the effectiveness of these different techniques in identifying market segments. The second step in the segmentation process is market targeting, evaluating each segment’s attractiveness and selecting one or more of the market segments.

Before marketers began using computerized segmentation programs, the steps of segmenting and targeting were two distinct processes.Marketers ? rst identi? ed the segments, then looked for the segments that would be the most pro? table in the long term for the organization. With the computerized methods, these steps are often combined.

These models often identify the segments and the values of the different segments, giving the marketer information used for targeting. These programs add to marketing’s preciseness, as they often give information on whom to target for speci? c products. Thus, another change is that ? rms are targeting groups for different products.The third step is market positioning, developing a competitive positioning for the product and an appropriate marketing mix. Once a company has chosen its target market segments, it must decide what positions to occupy in those segments.

A product’s position is the way the product is de? ned by consumers on important attributes – the place the product occupies in consumers’ minds relative to competing products. Consumers are overloaded with information about products and services. They cannot reevaluate products every time they make a buying decision.To simplify buying decision making, consumers organize products into categories. They “position” products and companies in their minds. The positioning task consists of three steps: identifying a set of possible competitive advantages on which to build a position; selecting the right competitive advantages; and effectively communicating and delivering the chosen position to a carefully selected target market. An overview of the hospitality research This article will look at hospitality research published between 1990 and 1998, focusing on the segmentation process.

This will be followed by a review of some of the recent research on segmentation in the marketing literature. Finally, suggestions for future research will be made based on trends identi? ed in these reviews. The review of the hospitality literature is divided into three sections; research dealing with segmenting a market, research focusing on market targeting and research on market positioning. Some of the research may have overlapped one or more of these areas. The author tried to organize the research into the category that provided the best ? t.

In each section articles were further divided into quantitative research, qualitative research and literature reviews. The common characteristic of articles included in the ? rst section (segmentation section), is that they look at ways to identify market segments, while the articles included in section two (market targeting) look at the characteristics of known markets. Hospitality market segmentation research The articles included in this section tended to be more rigorous in their research methodology as a group, than the articles in the market targeting section.For example, MacKay and Fesenmaier (1998) used the stages of change model to evaluate the relationships between stages of travel behaviour and past getaway travel behaviour, age, income, reasons for information search, and advance planning (Table I).

They divided the getaway market into ? ve segments based on the stages of change model. These ? ve stages are: precontemplators, not in the market for a getaway trip; contemplators, would consider a getaway trip; ready for action, decided to take a getaway trip; active, takes a getaway trip; and maintainers, always in the market for a getaway trip.The authors give the age, income, number of trips per year, amount of advance planning and motive for seeking information for the different segments. Their research suggests ways of promoting to these different markets. They also mention the value of moving the ready for action group into action, [ 290 ] John T. Bowen Market segmentation in hospitality research: no longer a sequential process International Journal of Contemporary Hospitality Management 10/7 [1998] 289–296 once the ready for action group has been identi? ed.Legoherel (1998) investigated expenditurebased segmentation and the instability of consumer behaviour in terms of the consumers’ estimation of travel expenditures. This study presented strategies for attracting different market segments and also explained some of the trade-offs of targeting the market segments.

For example, short-term vacations were characterized by higher per day expenditures, which requires the ability to handle peaks and valleys in demand. According to the author, “A town willing to attract the tourists with high budgets will be faced with a bigger turnover of customers” (Legoherel, 1998).The amount of turnover will impact the type of infrastructure demand of the market. The research also indicates that travellers underestimate their expenses. This indicates they may be making unplanned purchases.

Thus, there may be opportunities to promote entertainment, restaurants, and retail sales at the resort destination. Using the Health Promotion Model (Pender, 1987) as the conceptual base for their research, Grazin and Olsen (1997) identi? ed three groups of consumers relating to fast food restaurants: non-users, light users, and heavy users.They found customers involved with nutrition stayed away from fast food restaurants.

They also found non-patrons of fast food restaurants are more interested in wellness and more con? dent in their ability to maintain their health than patrons. It is interesting to note that age decreased from none to light to heavy user groups. Their research identi? ed lifestyle behaviours that would be useful in fast food restaurant communication. Oh and Jeong (1996) took a different approach to segmenting the fast food market.

They used cluster analysis and factor analysis to identify four restaurant segments.They reduced 19 restaurant variables such as portion size, food quality, employee attitude, and convenient location into ? ve constructs; product, service, amenity, appearance, and convenience. The researchers used the factor scores to cluster the respondents into four segments: neat service seeker, convenience seeker, classic diner, and indifferent diner. Marketers could use this information to target segments that would be more satis? ed with their attributes than the competitions. Mazanec (1992) illustrated the usefulness of neural networks by segmenting tourists.The use of the neural networks, a type of arti? cial intelligence, is becoming a popular segmentation technique. It is often used as a data mining tool to discover relationships between customers and to identify customer segments that might not be apparent to the marketer.

Mazanec (1992) illustrated the usefulness of neural networks by segmenting tourists. The research on segmentation used a variety of statistical techniques to identify and describe segments. It should be noted that half of these studies were published during 1998.

There were no qualitative or literature review articles reviewed in this section.Table I Market segmentation – quantitative research Authors and date Ahmed et al. (1998) MacKay and Fesenmaier (1998) McFarlane et al. (1998) Kerstetter et al. (1998) Legoherel (1998) Grazin and Olsen (1997) Oh and Jeong (1996) Wight (1996) Focus Segmentation of the Canadian winter sun travellers Stages of change model used to segment the getaway travel market Past experience as a variable for segmenting wilderness users Segmentation of the heritage tourist market based on type of attraction visited Expenditure levels as a means of segmentation of the tourist Segmentation of fast food restaurant ustomers based on health-orientation and nutrition-orientation Expectation-based segmentation of the fast-food restaurant market Segmented ecotourism into two market segments: general consumers interested in ecotourism and experienced ecotourism travellers Used the involvement pro? le scale to pro? le users of different tourist activities Use of neural networks to segment visitors to the EuroSports region in Austria Hospitality market targeting research The articles reviewed in this section investigate known segments. They look at desired bene? ts and/or the spending patterns of these segments.This is the largest category of hospitality segmentation research.

Clark et al. (1996) used qualitative research and one on one interviews to study how associations choose meeting sites. Callan (1994) used focus groups and in-depth interviews to determine attributes used for hotel selection. These qualitative studies on market targeting were the only qualitative studies included in this review. The business traveller segment and the senior market attracted the attention of hospitality researchers. Gunderson et al. (1996) used structural equation modelling to look at drivers of customer satisfaction for Norwegian business travellers.

Callan (1996) compared UK leisure travellers with business travellers on their importance ratings of hotel attributes. Griffin et al. (1996) investigated how business travellers discriminate Dimanche et al.

(1993) Manzanec (1992) [ 291 ] John T. Bowen Market segmentation in hospitality research: no longer a sequential process International Journal of Contemporary Hospitality Management 10/7 [1998] 289–296 between mid-priced and luxury hotels. Ostrowski et al. (1994) looked at differences between business and leisure customers in the airline industry .They found that business travellers are more critical judges of service quality than leisure travellers.

McCleary et al. (1993) suggest that importance of hotel attributes to business travellers does not vary across travel situations. Weaver and Oh (1993) looked at differences between frequent and infrequent business travellers. They found that good quality towels, free newspapers, in-room safes, and fax machines were amenities that were signi? cantly more important to frequent business travellers.

McCleary and Weaver (1992) looked at business travellers who belonged to frequent guest programmes.Williams et al. (1997) investigated the physiological and psychological challenges that older restaurant customers face. For example, according to these researchers, older patrons with lower smell and ? avour functions have less of a desire for fruits and vegetables, but a higher desire for cream and liver. Wuest et al. (1996) looked at mature travellers’ preferences in hotels.

Becker-Suttle et al. (1994) explored the differences between non-seniors and seniors. Companionship was found to be a strong motivator for persons over 55 to dine out, in research conducted by Knutson and Patton (1993).

Ananth et al. (1992) found a number of attributes that were more important to mature travellers than younger travellers. These attributes include early dining hours, extra blankets, non-smoking rooms, night light in bathroom, and grab bars in the bathroom. The ? ndings of these studies are a rich source of information for those targeting the senior market.

Some of these studies provided interesting methodologies. Shaw et al. (1991) investigated product attributes of hotel convention services that create satisfaction among meeting planners.The authors went beyond just looking at the mean ratings of the attributes. They developed a multivariate approach to analysing the data, which could be applied to similar survey data to provide useful information. Conjoint analysis gives insight to the importance that customers place on different product attributes. Several studies provided examples of how conjoint analysis can be used in segmentation studies.

Hu and Hiemstra (1996) used hybrid conjoint analysis to measure meeting planners’ preferences in hotel selection. Becker-Suttle et al. (1994) used conjoint analysis to explore restaurant bene? s sought by seniors and non-seniors (Tables II-IV). Hospitality market positioning research A product’s position is the way the product is de? ned by consumers on important attributes – the place the product occupies in consumers’ minds relative to competing products. Consumers are overloaded with information about products and services. They cannot re-evaluate products every time they make a buying decision. To simplify buying decision making, consumers organize products into categories – they “position” products and companies in their minds (Kotler et al.

, 1999).Research in positioning investigates how the consumer views different competitors vis-a-vis their own brand or product. This understanding can help marketers manage their position.

If they have an undesirable position, the research validating their unfavourable position will often provide insight into what needs to be done to gain a more favourable position. In this section articles on positioning are reviewed. Alford (1998), through a review of literature takes a macro-approach and looks at the positioning of resort destinations. Walmsley and Young (1998) looked at how travellers position international and local destinations.Manzanec (1995) used neural networks to study the positioning of luxury hotels by European travel agents.

Dev et al. (1995) illustrated how researchers can use multidimensional scaling to build perceptual maps. Kim (1996) used perceptual maps to show how customers perceive food and beverage at competing hotels. Kim also developed ideal points to show how a hotel can change its attributes to gain a better position vis-a-vis its competitors. Shaw (1992) showed how one of the marketing mix elements, price, could be used as a positioning tool (Tables V and VI).Marketing segmentation research from general marketing journals Two distinctions between mainstream marketing research and hospitality research are that the mainstream marketing research is more focused, and thus more useful. Another distinction is that mainline marketing research is starting to look at the ethics of targeting.

Examples of more focused segmentation research are provided by a number of authors. Cooper and Inoue (1996) go beyond just breaking the market into loyal and nonloyal segments. These researchers break the non-loyal segments into ? ve segments.

They then subscribe speci? c suggestions for targeting each of the segments. They also advocate [ 292 ] John T. Bowen Market segmentation in hospitality research: no longer a sequential process International Journal of Contemporary Hospitality Management 10/7 [1998] 289–296 the development of marketing goals with respect to each of the segments, allowing the marketers to develop synergistic marketing plans based on the segments they choose to pursue. Souza and Weun (1997) developed a ? ve-step programme for determining if segments are statistically signi? cant from a marketing sense.They answer the question, “Do companies really need to develop different marketing approaches to different segments? ” Their methodology provides insight into which market segments can have similar approaches and which segments need different approaches.

Using this methodology, marketers will have a better idea of which segments to target. Bucklin et al. (1998) developed a methodology to test the price sensitivity or lack of price sensitivity across the behaviours: choice, incidence and quantity For example, . ideal brand-loyal customers would purchase their favourite brand, at regular intervals and constant quantities.

They would not be in? uenced by price. Some brand-loyal customers would purchase their favourite brand, but would stockpile if price was cut and thus cut down on their purchase frequency Apply. ing the research to the hospitality industry, if Table III Market targeting – quantitative articles Authors and date Focus Clark et al. (1996) Used in-depth interviews to study how associations choose meeting sites Callan (1996) Used focus groups and in-depth interviews to determine attributes used for hotel selection Table IV Market targeting – literature review-based articles Authors and date FocusWilliams et al. (1997) Mature restaurant customers Elliot and Johns (1993) Looked at designs of a resort that would be compatible with different market segments Francese (1993) Makens (1992) Post Baby-Boom generation Families with children at resorts Table II Market targeting – quantitative articles Authors and date Gundersen et al. (1996) Callan (1996) Hu and Hiemstra (1996) Oh and Jeong (1996) Griffin et al. (1996) Wuest et al. (1996) Tsaur and Tzeng (1995) Weatherford (1995) Becker-Suttle et al.

(1994) Sheldon (1994) Ostrowski et al. (1994) Strick et al. (1993) McCleary et al. 1993) Weaver and Oh (1993) Ahmed and Krohn (1992) Knutson and Patton (1993) Ananth et al. (1992) McCleary and Weaver (1992) Quain et al.

(1991) Shaw et al. (1991) Focus Norwegian business travellers Leisure and business travellers Conjoint analysis as a segmentation tool – bene? ts sought by meetings planners Expectation-based segmentation How business travellers discriminate between midpriced and luxury hotels Assessed the importance of services provided by hotels/motels as perceived by mature travellers Customer preference of tourist hotels Looked at differences in hotel customer based on their length of stay Bene? s sought by seniors and non-seniors in full service restaurants Investigates the incentive travel market Business and leisure airline travellers Looked at meeting planners’ preferences Situational analysis of business travellers Service requirements of frequent and infrequent business travellers Japanese business travellers Mature (over 55) restaurant customers Lodging needs of mature customers Business travellers who are members of frequent guest programmes Convention segment Meeting planners’ satisfaction with convention services e were a fast food restaurant, this research could identify which customers will take advantage of a price promotion and how they will take advantage of the promotion. Some customers will switch from another restaurant (choice), some customers will increase their incidence of visitation during the period, and some customers may increase the quantity of their order during the promotion. There can also be various combinations of these behaviours. Understanding the behaviour and size of the different segments provides a better understanding of the likely results of a price promotion across a variety of segments.Kalra and Goodstein (1998) investigated how non-price advertising positioning strategies can impact brand equity and price sensitivity for both the category and brand.

One of their ? ndings was that some forms of nonprice advertising can actually decrease brand equity and increase price sensitivity . For example, comparison advertising that implies to the consumer that there is little differentiation in the marketplace can have this effect. Some of the ? dings of their research are contrary to the established notion that promotional price advertising increases price sensitivity and nonprice advertising decreases price sensitivity . Finally, several articles were found that deal with the ethics of market segmentation. These articles (Rittenberg and Parthasarathy, 1997; Smith and Copper-Martin, 1997) looked at the ethics, public relations, and other mar- [ 293 ] John T. Bowen Market segmentation in hospitality research: no longer a sequential process International Journal of Contemporary Hospitality Management 10/7 [1998] 289–296 eting implications of targeting speci? c segments, especially disadvantaged segments. These articles would call for marketers to be sensitive to how potentially harmful hospitality products such as: non-nutritious meals, gambling, and alcohol were targeted. Not only can the targeting of these products have ethical considerations, it can also harm the company or category .

This review of marketing literature provides suggestions for future research in the hospitality industry For example, segmenta. tion studies need to go to the next level. They need to be more speci? and more directive. Rather than look at attribute ratings between loyal and non-loyal segments, hospitality researchers need to further segment these main markets. The researchers also need to provide more guidance into how to develop marketing offers and which segments should be combined in a multi-segmented approach. Summary and implications for future research Hospitality researchers are using a variety of techniques in their segmentation research: structural equation modelling, neural networks, conjoint analysis, multi-dimensional scaling were some of the techniques used.Also, the researchers were creative in applying established models to market segmentation research. For example, the Health Promotion Model used by Grazin and Olsen (1997) and the Stages of Change Model used by MacKay and Fesenmaier (1998).

There appears to be an opportunity for hospitality managers to look deeper into segments. This trend has been appearing in the marketing literature. Studies like Cooper and Inoue’s (1996) research are called for in the hospitality industry Hospitality .

Table V Market positioning – quantitative articles Authors and date Focus esearchers need to go beyond just breaking markets into business travellers and pleasure travellers. They need to go into these markets and look for differences. Research to test if segments are statistically different, such as the one performed by Souza and Weun (1997), is called for in the hospitality industry . Hospitality products usually attract a large number of segments.

Identifying segments that on the surface may appear to be different, but are really not signi? cantly different in the attributes and the attribute levels they desire is a valuable marketing technique: a technique that will increase the pro? ability of the ? rms that adapt its use. The growing importance of database marketing is creating an increased interest in using data modelling techniques to segment the market. Hospitality researchers should follow this trend. Originally the three steps of the market segmentation were separate. First, researchers segmented a market, identi? ed those markets of value and then positioned themselves in their chosen markets. Now some of the data analysis techniques, identify more valuable segments as they segment the market.

Thus, there is a blurring of these functions (see Figure 1).Marketers need to use new techniques, allowing segments to be developed by computers without the the bias of human judgements. These techniques are not bound by the ways managers think of segmenting a market. Data mining and other computer-based segmentation methods are also not limited by the bounds of our imagination. These tools can show the value of the segments they identify, based on segmentation criteria. Thus, they overlap the segmentation and targeting function.

Positioning techniques are often useful in choosing target markets.For example, through positioning studies a company can identify several pro? table segments that have a good perception of their business vis-a-vis the competition. In the future, computer-based segmentation techniques will allow Walmsley and Young (1997) Positioning of local and international tourist destinations Kim (1996) Perceptual mapping of attributes and preferences of Korean hotel food and beverage products Dev et al. (1995) Manzanec (1995) Morgan (1993) Positioning analysis of hotel brands Uses neural networks to position Vienna-based luxury hotels Bene? t dimensions of midscale restaurant chainsFigure 1 The traditional market segmentation versus the integrative approach Segment Target Position Traditional approach to segmentation Table VI Market positioning – literature review based articles Segment Target Position Authors and date Alford (1998) [ 294 ] Focus Positioning of destination resorts The integrative approach to segmentation John T. Bowen Market segmentation in hospitality research: no longer a sequential process International Journal of Contemporary Hospitality Management 10/7 [1998] 289–296 companies to more pro? tably and more accurately segment markets.The segmentation process is no longer a sequential process, it is an integrative process.

Marketers will still have to make sense out of the computer outputs and make the ? nal judgements. These judgements will just be more accurate. In sectors dealing with products that can cause problems by excessive use, such as alcohol and gaming, the ethics of targeted promotions need to be considered. Thus, hospitality researchers can be led by current research in the marketing journals. Finally, there were only two qualitative studies reviewed. More qualitative research and research investigating qualitative techniques is needed.

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