Do service providers adopting market segmentation need cooperation with third parties?

Abstract

Purpose This study aims to analyze the tradeoff between two potential marketing strategies for service providers, namely, market segmentation on the basis of reservation lead time and cooperation with third parties. Design/methodology/approach This paper proposes an optimization model to describe market segmentation strategy after cooperating with third parties by taking hotels for example. Findings The results show that the profitability of adopting two strategies simultaneously is lower than that with market segmentation alone under some cases, which is relevant with attributes of travel agencies, such as switch rate and market share. Research limitations/implications This study indicates that cooperation with third parties has a negative impact on profitability of hotels using market segmentation in some cases. However, randomness of demand, customer loyalty and existence of cancellation should be considered in further research. Practical implications In an e-commerce era, hotels with market segmentation based on reservation lead time, are not required to cooperate with third parties under a number of situations (e.g. high switch rates and small market sizes of travel agencies). In addition, hotels should revise the segmentation strategy based on the change rate of potential demand of individual customers. Furthermore, hotels should enhance customer loyalty, strengthen cooperation with travel agencies that possess large market shares or small switch rates. Originality/value The study preliminarily formulates the optimal market segmentation strategy on the basis of reservation lead time after cooperating with third parties, which contributes to the revenue management.