Hotel market segmentation: cut the safe segment first

Hotel market segmentation decides who sleeps in your rooms and at what price, and it quietly shapes the value of the whole asset. So what do you do when the hotel looks full, the margin looks fine and your index against the competition keeps slipping? One answer: cut the biggest low-rated segment, renovate the rooms and only then change the brand, in that order.

Sophie Richard of M&L Hospitality led exactly that sequence at a 142-room hotel at Brussels Midi station. By her account, RGI moved from 81 to 110.

Why a full hotel can still underperform

High occupancy can hide a weak mix. If one segment fills a large share of rooms at a low rate, the hotel looks busy while its position against competitors erodes. Her hotel opened in 2010 and M&L Hospitality has owned it since 2015. It traded as a Park Inn by Radisson, managed by Radisson under a hotel management agreement. By her account it was the group's smallest asset in Europe and had always performed well. Occupancy sat in the high eighties and the GOP margin was good.

In 2018 she noticed that RGI had been trending down for six months and asked the team to dig into the data. Her review of the hotel market segmentation showed one segment that was very heavy in the mix and very low rated: wholesalers.

The wholesaler problem in plain terms

Wholesalers buy inventory in bulk at a high discount and do not sell it to guests themselves. They pass it on to another party, such as an OTA, a travel agency or a tour operator. In her words, you then lose control over your inventory. It exists because it is sometimes needed, and in the past it had given the hotel a stable base of business on the books.

That base is also why such contracts feel safe. A revenue management system yields on top of base business, so a large block of committed room nights makes forecasting comfortable. Strong revenue management in hotel industry teams question that comfort. The question her team asked was a different one: what does this segment displace? A displacement analysis looks at what the same rooms could earn from corporate guests, from more wanted segments and even from other discounted segments that add better value.

“It was an entire process that we dissected, and it's all about the data.”

Sophie Richard, 11:16

Cutting the segment and holding your nerve

Cancelling a large segment hurts before it helps. In 2019 the hotel cancelled the wholesaler contracts and lost 13 percent of its occupancy overnight. She says the first two months were unsettling. Nothing moved, and the hotel was losing ground to the competition.

Owners and the operator have to be on board too. Hotel teams tend to be incentivized on RGI, whether it comes from occupancy or rate, she explains, while an asset manager focused on long term value cares where it comes from. Because the owner does not run the hotel, the local team had to agree with the strategy.

The cut was not blunt. Some small leisure groups within the segment stayed, because they came at the right time, with the right pattern and the right spending outside the bedroom. There was also a fallback: if the move had failed, the contracts could have been restarted the following year. What she reports happened instead:

• From the second quarter, numbers started to change and the business on the books for the third and fourth quarter looked brighter.
• Toward the end of the year the hotel performed strongly, and nobody wanted to renew the contracts.
• Average rate rose by 8 percent, and she cites a 43 percent rate increase for that entire segment.

Reposition before rebrand

With the hotel market segmentation fixed, the next question was whether the physical product still matched it. The hotel was nine years into its life cycle and a main competitor at the station was renovating its rooms. Then COVID hit and the plan went on hold.

The team built a mock-up room and started renovating the rooms as a Park Inn by Radisson. The brand question stayed open, because the location has a natural rate ceiling that is hard to break. To test it, she asked the hotel to split renovated and non-renovated rooms in the system, so the new product could be compared with the old one. The renovated rooms showed a significant ADR uplift.

Only then did the brand come on the table. In France, the UK and Benelux she saw the Park Inn brand fading and many hotels moving to Radisson. Because the hotel already had a management agreement with Radisson and an efficient building, the changes were limited to signage, wayfinding and a slightly different colour scheme in the public areas. The more common order is to rebrand first and use the higher category to change the segmentation. Here it ran the other way around. Operators weigh the same choice when growing a hotel franchise on brand margin.

What the renovation did for guests and contracts

An aging product caps the rate a hotel can charge, whatever its mix. Here the rooms came back over roughly nine months and the hotel rebranded on September 1, presenting a new brand, a new website and a new product at once. A relaunch like that is a natural moment for hotel storytelling.

“To some extent, when your hotel start aging too much, guests don't feel that they should pay the higher price for the product.”

Sophie Richard, 23:12

She also observes that guests can confuse an aging hotel with a dirty one, even when it is clean. After the renovation the cleanliness score went up, and so did the sense of value for money, which makes higher rates easier to charge. Within weeks of the rebrand the city approved a four-star classification. That classification let the hotel sign leisure contracts for 2026 that required four stars.

Her headline number compares like with like: RGI was 81 in the first quarter of 2024 and 110 in 2026.

Review your hotel market segmentation every year

Her main lesson for owners and asset managers is about frequency. Before COVID a hotel could stay on the same trend for five or six years. Now she feels the market shifts every two or three years, so the question of optimal segmentation has to come back far more often.

“The exercise maybe before every five years to do, you probably have to really look at it on a yearly basis and say, am I still optimal in what I'm trying to achieve right now?”

Sophie Richard, 25:13

Looking back, she would do three things differently:

• Review the whole building during a full renovation, including technical items such as TV, wifi and cabling, and bring CapEx forward where it makes sense.
• Negotiate the brand change with the operator ahead of time, rather than when the timing finally allows it.
• Build a detailed business case down to segmentation and channel distribution, so sales and revenue teams can target the right segments six months before the relaunch.

For the full story, watch the full conversation or explore more cases in the Inside Hotel Asset Management series.

Frequently asked questions

What is hotel market segmentation?

It is the deliberate choice of which guest segments fill your rooms and at what rate, for example corporate, leisure groups or wholesalers. Removing a heavy, low-rated wholesaler segment lifted average rate and RGI, which shows how much the mix shapes the value of the asset.

Should a hotel cancel its wholesaler contracts?

Not automatically. Sophie Richard says the segment exists because it is sometimes needed, for example to stabilise revenue. Her team ran a displacement analysis first and kept small leisure groups with the right pattern and spend. In this hotel the occupancy loss of 13 percent was replaced by higher rated business within the year.

Should you reposition or rebrand a hotel first?

In this case the hotel repositioned first. It fixed its segmentation, then renovated and tested renovated rooms against old ones, and only then moved from Park Inn to Radisson. The brand then added value instead of carrying the turnaround alone.

How often should a hotel review its segmentation?

Sophie Richard suggests looking at it every year. Before COVID a hotel could follow the same trend for five or six years. She now feels the market shifts every two or three years, so owners should regularly ask whether their current mix is still the best one.