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Unlock This CourseOnce a tourism business has segmented its market, the next step is to understand who its most important customers actually are. Not all customers are equal. Some spend more, come back more often and tell their friends. Others book once, complain and never return. Smart businesses identify which types of customers are worth targeting and then build strong, lasting relationships with them.
This is what the relationship between market segments and customer type and value is all about.
Key Definitions:
A family who books a holiday with TUI every year for 15 years is worth far more than a one-off bargain hunter who books the cheapest deal and never returns. Businesses that understand this invest in keeping their best customers not just finding new ones.
Tourism businesses deal with many different customer types. Understanding these types helps businesses decide how to market to them, what products to offer and how much resource to invest in each group.
These are customers who come back again and again. They already trust the brand, so they cost less to retain than it costs to attract new customers. A repeat customer at a hotel chain like Hilton may book 10+ stays per year. They are extremely high value.
New customers who are trying a business for the first time. They have potential to become loyal, but they need a great first experience. Tourism businesses often offer welcome deals or introductory packages to convert first-timers into regulars.
Travel for work purposes meetings, conferences, corporate events. They tend to travel frequently, book at short notice and spend more per trip. Airlines and hotels prize this segment highly because of their high spending and repeat bookings.
Travel for holidays, relaxation, or personal reasons. They plan further ahead, are more price-sensitive and travel less frequently than business travellers. However, they make up the largest volume of tourists globally.
Families, school trips, tour groups, or corporate away-days. Groups book in bulk, which guarantees revenue. However, they often negotiate discounts, so individual spend per person may be lower. Tour operators like Shearings specialise in group travel.
A fast-growing segment. Solo travellers often spend more per person (no sharing of rooms or costs), are willing to pay for experiences and value flexibility. Companies like Solos Holidays and Flash Pack specifically target this growing group.
Customer value is not just about how much someone spends on one trip. It's about the bigger picture how much they are worth to the business over time and how they help (or hinder) the business in other ways.
How much money the customer spends. A first-class airline passenger spends 5–10 times more than an economy passenger on the same flight. A luxury cruise guest spends far more per day than a budget hostel guest.
How often the customer returns and how long they stay loyal. A customer who books with the same tour operator every year for 20 years has enormous loyalty value, even if each individual booking isn't huge.
How much new business the customer brings in. A satisfied customer who recommends a hotel to friends and family or leaves glowing reviews on TripAdvisor generates new bookings without any extra marketing cost.
British Airways uses its Executive Club loyalty programme to identify and reward its highest-value customers. Members earn Avios points every time they fly and the most frequent flyers achieve Gold or Silver status, unlocking perks like lounge access, priority boarding and seat upgrades.
Why does BA do this? Because a Gold member might fly 50+ times per year, often in business class. Their lifetime value to BA is enormous. By rewarding them, BA ensures they keep choosing BA over competitors like Virgin Atlantic or Lufthansa. The cost of the perks is tiny compared to the revenue these customers generate.
Key lesson: Loyalty programmes are a direct tool for managing customer value they identify the best customers and give businesses a reason to keep them happy.
Customer type and market segment are closely connected. When a business segments its market, it is essentially grouping customers by type. The relationship works in both directions:
In the exam, if you're asked about the relationship between market segments and customer value, always try to explain why certain segments are more valuable than others don't just list them. Think about spending, frequency, loyalty and referral power.
One of the most powerful ways to understand customer value is through behavioural segmentation grouping customers by what they actually do, rather than who they are. This is directly linked to customer value because behaviour tells you how much someone is likely to spend and how loyal they are likely to be.
Key behavioural factors in tourism:
Many tourism businesses use a framework called RFM to rank their customers by value. It stands for:
How recently did the customer make a booking? A customer who booked last month is more engaged than one who last booked three years ago. Recent customers are easier to re-engage.
How often does the customer book? A customer who books four holidays a year with the same operator is far more valuable than one who books once every five years.
How much does the customer spend in total? A customer who always books premium packages and adds extras (transfers, excursions, travel insurance) has a much higher monetary value.
Using RFM, a tour operator like TUI can identify its top 10% of customers those who book frequently, recently and spend the most and target them with exclusive offers, early booking discounts and personalised communications. This is far more efficient than sending the same marketing to everyone.
Marriott International operates over 8,000 hotels worldwide under brands ranging from budget Courtyard by Marriott to ultra-luxury Ritz-Carlton. Its loyalty programme, Marriott Bonvoy, has over 180 million members.
Bonvoy uses a tiered system to reflect customer value:
Ambassador Elite members receive a dedicated personal ambassador a real person who manages all their bookings. This is Marriott's way of saying: "We know you're our most valuable customer and we'll treat you like it."
Key lesson: Tiered loyalty programmes are a direct reflection of customer value. The more you spend and stay, the more the business invests in keeping you.
Customer Relationship Management (CRM) is the system businesses use to manage their interactions with customers past, present and future. In tourism, CRM is essential for understanding customer value and building long-term relationships with key segments.
Key Definition:
CRM systems allow tourism businesses to:
Airlines like Emirates use CRM to track every flight a frequent flyer takes. When a Skywards Gold member checks in, staff are alerted to their status and preferences. Their favourite meal is pre-loaded. Their upgrade eligibility is flagged. This personalised service makes high-value customers feel recognised and valued and keeps them loyal.
Four Seasons Hotels are famous for their CRM. Staff record guest preferences in detail preferred pillow type, whether they like extra towels, even the name of their pet. When a guest returns, these preferences are already in place. This level of personalisation is only possible through sophisticated CRM and it creates extraordinary loyalty among high-value guests.
Here is something that surprises many students: not every customer is worth keeping. Some customers cost more to serve than they generate in revenue. Tourism businesses have to make strategic decisions about which segments to focus on.
The Pareto Principle (the 80/20 rule) suggests that roughly 80% of a business's revenue comes from just 20% of its customers. In tourism, this is often true. A small group of loyal, high-spending customers generates the majority of profit.
This is why businesses like cruise lines, luxury hotels and premium airlines invest heavily in identifying and retaining that top 20% while spending less on attracting one-off, low-value customers.
Ryanair is interesting because it deliberately targets the most price-sensitive, low-loyalty segment of the market. Its customers are often one-off or infrequent flyers who choose purely on price. Ryanair knows this and its entire business model is built around it.
Rather than trying to build loyalty, Ryanair focuses on volume. It carries over 180 million passengers per year. Even if each passenger spends very little, the sheer number of transactions generates enormous revenue. Ryanair also makes significant money from ancillary revenue baggage fees, seat selection, food and drink which squeezes extra value from even the most budget-conscious traveller.
Key lesson: A low-value-per-customer strategy can still be profitable if the volume is high enough. But it requires a very different approach to CRM and relationship building compared to premium brands.
Let's look at how different market segments map onto different levels of customer value in the real world of tourism.
Value: Very High. Fly frequently, often in premium cabins, book at short notice (higher fares), stay in business hotels, claim expenses so price is less of a concern. Airlines and hotels fight hard to win and keep this segment.
Value: High. Travel for longer periods, often multiple times per year. Have significant disposable income and time. Favour cruises, escorted tours and quality accommodation. Very loyal once they find a brand they trust.
Value: Low-Medium now, potentially high later. Currently price-sensitive and low-spending. But if a brand captures their loyalty early (e.g. Interrail, Hostelworld), they may grow into higher-value customers as their income increases.
P&O Cruises has long recognised that its core customer base is affluent British retirees aged 55+. This segment has high disposable income, plenty of time to travel and strong brand loyalty. Many P&O customers have been sailing with the company for decades.
P&O invests heavily in this relationship: personalised communications, loyalty discounts for returning passengers, onboard recognition for frequent cruisers and a product designed specifically around their preferences (traditional British food, formal dining, gentle entertainment).
The result? A highly loyal, high-value customer base that generates predictable, repeat revenue year after year. P&O doesn't need to spend heavily on acquiring new customers because its existing ones keep coming back.
Key lesson: Identifying a high-value segment and building a deep relationship with it is more profitable than constantly chasing new customers.