This project presents a novel customer segmentation approach for the hotel industry by proposing a hybrid method combining clustering algorithms with the RFM model. Utilizing data from a four-star Portuguese hotel, we aim to provide practical insights for hotel managers and marketers on how to identify, target, and retain different types of customers based on their value and behavior. In addition, the analysis enhances the understanding of customer preferences, needs, and expectations in the hotel industry, which can help improve customer satisfaction and loyalty. Furthermore, the project demonstrates the use of various clustering algorithms, such as K-Means, DBSCAN, and BIRCH, and compares their performance and suitability for hotel customer segmentation. This work contributes both methodological and practical innovation in hotel customer segmentation for enhanced personalization.
The data came from a four-star hotel located in Lisbon, Portugal. The dataset contains 31 variables describing a total of 83,590 instances (customers). It comprehends three full years (2015 to 2018) of customer behavioral data. In addition to personal and behavioral information, the dataset also contains demographic and geographical information.
Source: https://doi.org/10.1016/j.dib.2020.106583
Tools: Python & Power BI
- The hotel administration should capitalize on the opportunities presented by their willingness to spend more than other customers by designing exclusive loyalty programs and new service introductions to incentivize repeat visits and higher spending. This could include tailored promotions, premium offers, and diverse luxury services.
- The hotel could leverage personalized communication channels, such as email marketing, to deliver targeted offers, highlight exclusive experiences, and acknowledge birthdays or special occasions, which would nurture relationships with Champions.
- Develop a marketing mix that caters to the diverse booking patterns within the Champions segment, offering both last-minute deals and early-bird promotions to attract Champions across the lead time spectrum, ensuring a consistent influx of bookings.
- Champions have a higher percentage of rooms booked per night on average, so guaranteeing room availability for this segment is of crucial importance to ensure that Champions receive the seamless and premium experience they expect.
- Marketing campaigns can be tailored to attract customers of the Potential segment with their tendency for longer booking lead times. For example, the administration can use early-bird discounts and special offers targeting bookings made several months in advance, which not only capitalizes on the booking patterns of the Potential segment but also serves as a proactive measure to secure their loyalty before they explore other options.
- The administration could cater to the high prevalence of children in the Potential segment by designing family-friendly packages and amenities, such as themed activities, children's menus, and dedicated play areas to enhance the overall experience for families and make the hotel a top choice for those traveling with children.
- Focusing on personalized service delivery may encourage them to transition into the Champions segment.
- The administration should cater to the price-conscious nature of these customers and offer more budget-friendly packages and promotional deals.
- Attractive early-bird discounts and flexible cancellation policies may encourage them to book further in advance, allowing the hotel to mitigate the last-minute booking tendency and improving revenue predictability.
- The administration can offer special reactivation rates, limited-time promotions, and personalized incentives to encourage another visit.
It is recommended to offer language assistance, and showcase culturally relevant experiences to enhance customer engagement.
The administration should also implement language localization strategies in marketing materials to cater to the observed linguistic diversity among customer segments, especially with the most prominent nationalities.
For instance, communications in French and special offers could re-engage At Risk customers from France. Meanwhile, promotions aimed at German and British guests may further stimulate Potential and Champions segments.