Identifying customers and market segmentation

A business that tries to sell to everyone often sells to no-one. Segmentation divides a market into groups of customers with similar needs, so a business can target each group with the right product, message and channel.

Why understand customers?

• Tailored products — match what they actually want.
• Sharper marketing — message resonates; less waste.
• Better pricing — what each group will pay.
• Right channels — where they spend time.
• Stronger loyalty — feel understood.
• Spot opportunities — under-served niches.
• Avoid mistakes — don't enter unprofitable segments.

Modern technology (websites, loyalty cards, social media analytics) makes it cheaper than ever to identify customer needs.

Five common bases of segmentation

1. Demographic

• Age — different needs at 8, 18, 38, 78.
• Gender — though increasingly blurred (Lush avoids gendered marketing).
• Income — premium vs value brands.
• Family status — single, couple, parent, retired.
• Education / occupation.

2. Geographic

• Country / region — Greggs UK-only; Costa global.
• Urban vs rural — different transport, retail needs.
• Climate — Hawaiian shirts in Cornwall vs Cumbria.
• Population density — corner shop in dense city; supermarket in suburb.

3. Lifestyle / psychographic

• Values — environmentally conscious; ethically driven.
• Hobbies and interests — gym, gaming, gardening.
• Personality — adventurous vs traditional.
• Life stage — student, parent, empty-nester.

4. Behavioural

• Usage rate — heavy, light, occasional.
• Brand loyalty — high vs switchers.
• Purchase occasion — gift, treat, replacement.
• Benefits sought — convenience, status, value.

5. Income / socio-economic

UK A/B/C1/C2/D/E classes (managers/professional through to unemployed).

Useful for budgeting, big-ticket purchases (cars, holidays), banking products.

How to identify customer needs

Primary research

First-hand, original research — direct from customers.

• Surveys — online, in-store, postal.
• Focus groups — small groups discussing products.
• Interviews — one-to-one, in-depth.
• Observations — watching how customers shop.
• Trials and pilots — limited release with feedback.

Secondary research

Existing data, gathered by others.

• Market reports (Mintel, Statista).
• Government statistics (ONS, gov.uk).
• Competitor data (annual reports, websites).
• Trade publications.
• Internal data — sales, loyalty cards, website analytics.

Why segmentation matters for marketing

Most marketing budgets are wasted because they reach the wrong people. By segmenting:

• Targeting — choose which segments to focus on.
• Positioning — design product and message for each.
• Channels — pick where each segment lives (TikTok for Gen Z; LinkedIn for B2B; local press for over-65s).
• Pricing — premium for affluent; entry-level for value seekers.

Limitations of segmentation

• Cost — research, multiple campaigns, multiple products.
• Over-segmentation — too many micro-segments dilutes resources.
• Stereotyping — assumes all members of a segment behave the same way.
• Changing needs — segments shift as society and technology evolve.
• Data privacy — UK GDPR limits how customer data can be used.

Real-world examples

• Greggs — segments by location (commuter routes), price (value), occasion (lunch on the go).
• Premier League shirts — Junior, Adult, Authentic, Replica, Long sleeve, Goalkeeper, Women's, Player edition. Each at different price points.
• Easyjet — segments by purpose (business vs leisure); time (peak vs off-peak); flexibility (basic vs Plus).

Examiner tips

For 6+ mark questions, name a real business and explain which segments and how it markets to each. Trade off cost of multiple products with revenue potential.