Market segmentation

In one paragraph

Rather than selling the same thing the same way to everyone, split the market into groups with similar needs and choose which groups to serve.

The usual bases are demographic (age, income, family, occupation), geographic (where they are), psychographic (attitudes, values, lifestyle) and behavioural (how often they buy, what they use it for, how loyal they are).

Behavioural is generally the most useful and the least used, because it segments by what people actually do rather than who they are.

Why bother

Serving everyone means competing on price, because the only thing every customer agrees on is wanting to pay less. Serving a defined group lets you build the product, the message and the price around what that group specifically values — and lets you be worth more to them than a generalist can be.

A segment is only worth targeting if it is big enough to be worth it, different enough to need something different, and reachable — you must be able to get a message to it affordably.

How to actually use it

• Look at your existing customers and find the ones who bought fastest, complained least and paid best. That is your real segment, and it is usually narrower than the one on your website.
• Say who you are not for. It is the fastest way to become obviously right for someone.

Where it breaks down

• Demographic segments are easy to describe and often poor predictors — two people the same age and income may want completely different things.
• Segment too finely and you end up with groups too small to be worth serving separately.

If you are being examined on it

Name the base, name the segment, and say what the business would do differently for them. Listing the four bases with no application scores little.

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