4.2.3 - Market segmentation and targeting

Segments and target customers

Segmentation divides a market into groups with shared characteristics that are relevant to buying behaviour.

A market segment is one of those groups. Targeting means selecting the segment or segments a business aims to serve. Research helps it discover whether the proposed group has shared needs and sufficient demand. Merely sorting people into categories does not prove that a useful segment exists.

An illustrative small café might target customers needing a quick breakfast on their commute. A large travel company might offer different packages for families and for travellers seeking adventure. Segmentation can guide product features, prices, where the offer is available and the messages used to reach customers. It can reduce wasted promotion by concentrating on people likely to value the offer.

Tailoring different offers can increase costs, and a narrow target limits potential buyers. The business should choose segments it can reach and serve effectively, rather than create a separate product for every difference between customers. Several segmentation characteristics can overlap in the same group.

Location and demographic groups

Where customers live and their population characteristics can help explain differences in demand.

Location segmentation groups customers geographically, such as by country, region, town or urban/rural area. An illustrative outdoor-clothing business could research whether customers in colder regions need warmer coats. A delivery business might target neighbourhoods within the area it can serve reliably. Location is useful when climate, access, local preferences or distribution affect the offer; it is not proof that everyone in an area wants the same thing.

Demographics are measurable characteristics of a population, such as age, income, occupation and household composition. Age and income are demographic variables but are also useful to consider separately because of their different effects on needs and buying power. An illustrative furniture seller might target households setting up their first home, using household life stage and occupation alongside other evidence.

The business should verify that the characteristic matters for its product. Two customers with the same occupation may have different tastes, while people in different demographic groups may share a need. Combining geographic and demographic evidence can define a more practical target, such as families in an area with access to a planned store.

Age and income

Age can influence needs and life stage, while income affects what customers can afford.

An illustrative leisure centre could research demand for activities among different age groups and adapt class content or times. An age group is a starting point for investigation, not a fixed rule: not every older person prefers the same activity, and younger customers do not all share one taste.