Chapter 3
Understanding and segmenting customers
After going through this chapter, you should be able to:
understand a number of core concepts that explain hospitality
consumer and organizational customers’ behaviour
discuss the role of customer expectations
identify the factors that influence the hospitality consumer,
buyer and organizational customer decision-making process
explain the principles of segmenting demand in hospitality
describe hospitality segmentation variables
evaluate the characteristics of hospitality target markets
Marketers study consumer behaviour to understand and
predict what customers will buy, how and why
Marketers need to understand the processes consumers go
through in buying and consuming hospitality products
If we can understand who buys which hospitality products
where, when and why, then we can influence demand
By understanding and meeting customer expectations,
companies can better deliver customer satisfaction
Key economic factor is consumer disposable income
When there is:
 strong economic growth
 low employment opportunities
 higher consumer confidence
- then there is an increase in consumption
When there is:
 economic downturn/recession
 low employment opportunities
 lower consumer confidence
- then there is a decrease in consumption
Individual consumer buyer behaviour can be
categorized into:
socio-cultural influences
individual differences
contextual circumstances
Figure 3.1 Influences on individual hospitality consumers
Consumers’ perception of the risk associated with buying a
hospitality product influences the purchase decision
Financial risk
When a large amount of money is at stake – major
hospitality purchases
Social risk
When hospitality products have a social significance
for consumers
Psychological risk
When consumers perceive a threat to their selfimage and self-esteem
Consumers vary regarding the level of involvement they have in
purchasing decisions
A high-involvement purchase decision is one that is
personally significant/relevant
A low-involvement purchase decision is a routine decision
with limited significant/relevance
Involvement tends to vary between:
 individuals (some people are highly involved in many
 products (some products are more involving than others)
 context (the level of involvement can vary across
purchasing contexts)
1. Consumer identifies a need
2. Need may be caused by internal conditions or external stimuli
3. Low-involvement product = routinized buying decision
4. High-involvement product = search for information to make
5. Search process can be internal or external:
an internal search uses memory to recall previous
experiences (or information) to provide solution
if the internal search does not provide a solution, then the
consumer engages in external search
consumers evaluate alternatives and make decision
Customers have expectations of hospitality encounters,
which marketers must meet if customers are to be satisfied
Zones of tolerance:
 ideal level – ‘what can be’
 desired level – ‘what should be’
 predicted level – ‘what will be’
 minimum tolerable – ‘what must be’
Factors influencing customer’s zone of tolerance:
 customer’s personality and current circumstances
 importance of the purchase occasion
 characteristics of the product
 price
Organizations have a different approach to the buying process
compared with individual consumers – differences include:
number of participants involved in the organization’s purchase
 users are not always the buyers
 complexity of the arrangements (numbers, travel,
accommodation, catering and entertainment)
 technical requirements
The ‘decision making unit’ (DMU):
Users are the customers who consume hospitality products
Influencers are people who influence any part of the decision
Deciders are the people who actually make the purchase decisions
Buyers are the people who make and pay for the booking
Gatekeepers are people who control the flow of information to
other members of the DMU
Segmentation is the starting point for developing
effective marketing strategies because:
trying to target all consumers is not costeffective
 identifying the characteristics of target markets
means the hospitality offer can be designed to
satisfy customers more effectively
 providing a more focused and cost-effective
marketing strategy improves profitability by
maximizing customer satisfaction, generating
repeat and recommended sales
Specify the market
Establish segmentation criteria
Generate segmentation variables
Evaluate market segment profiles
Evaluate company’s competences to
serve selected segments
Figure 3.2 Hospitality market segments
The primary segmentation variable is purpose of travel
Three main categories are:
 business
 leisure
 visiting friends and relatives (VFR)
Each of these main categories can be subdivided into several
distinct market segments
Key point is that the same person can have different customer
needs and wants depending on whether the purpose of travel is
business, non-business or VFR
Accommodation business customers tend to:
be less price sensitive, employer pays for
hospitality and travel expenses
have shorter stays (one night or only a few)
be more frequent, or regular, users of hotel
stay at establishments that are within a reasonable
(5– 3 0 min) travel time of their place of work
less seasonal
Accommodation leisure customers tend to:
be more price sensitive than business travellers, since
they are paying for the accommodation out of their
own after-tax income
be more likely to stay longer on each trip
be less-frequent users of hotel accommodation (unless
also business travellers)
stay at establishments that are close to leisure
amenities and tourist attractions
be much more seasonal
Family size/structure
Ethnic origin, religion and nationality
Brand loyalty
Size of party
Socio-economic class
Buyer needs and benefits
Current user status
Purchase occasion
Lifestyle (or psychographics)
Figure 3.3 Guest usage status
Companies need to evaluate the potential of market segments
using the following criteria:
Market data – size, growth, accessibility, consumer needs
and wants and benefits sought, customer power
Competitor analysis – number of competitors, their market
share, capabilities, resources, strengths and weaknesses,
differentiators and profitability and the potential for new
Internal company audit – capability of servicing the market
segment, compatibility with existing and future segments, and
compatibility with the company’s resources and values
Consumer target markets:
international outbound market – e.g. China
seniors market
Organizational target markets
corporate travel
MICE – meetings; incentive; conferences; exhibitions
tour groups
SMERFE – social, military, educational, religious,
fraternal and ethnic
Figure 3.4 Best Western advert targeting classical music lovers
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