Segmentation Strategy

Customers are different. They vary in age, income, location, lifestyle, and buying behavior. Segmentation strategy helps a company divide a broad market into smaller, similar customer groups. This allows businesses to design better products, better pricing, and better promotions for each group.

• Divides a broad market into smaller groups.
• Groups customers based on similar characteristics.
• Helps identify profitable customer segments.
• Supports focused and personalized marketing.
• Improves relevance of product and message.
• Reduces waste in marketing expenditure.
• Forms base for targeting and positioning.

• Helps understand different customer needs clearly.
• Finds high-potential customer segments.
• Enables better product design.
• Improves communication and promotion effectiveness.
• Increases customer satisfaction.
• Creates stronger competitive advantage.

5.1 Demographic Segmentation

Based on age, gender, income, education, occupation, family size, religion, etc.

5.2 Geographic Segmentation

Based on region, state, city, climate, or population density.

5.3 Psychographic Segmentation

Based on lifestyle, personality, values, interests, and attitudes.

5.4 Behavioral Segmentation

Based on usage rate, loyalty status, benefits sought, or buying occasions.

• Measurable: Size, income level, and buying power can be measured.
• Accessible: The segment can be reached and served through suitable channels.
• Substantial: The segment is large and profitable enough to serve.
• Differentiable: It responds differently from other segments.
• Actionable: The firm can design effective programmes for this segment.

1. Study the market: Understand different types of customers.
2. Choose segmentation variables: Age, income, lifestyle, region, behavior, etc.
3. Form segments: Group customers who are similar within but different from other groups.
4. Evaluate segments: Check size, potential, and accessibility.
5. Select target segments: Choose the most suitable segments to serve.
6. Design marketing mix: Create product, price, promotion, and place strategies for each segment.

Example: Small Grocery Shop

A small grocery shop studies its customers and notices three main groups: early morning buyers, mid-day homemakers, and late evening office workers. It uses time of visit and purpose of purchase as variables, forms three segments, checks which group buys more, selects two main segments, and then plans different product displays and small offers for each time slot.

Goal: You are a small business or startup that wants to attract better customers with a limited budget.

Step 1 – Define your main goal

Decide what you want: more sales, more repeat customers, or better response to promotions. A clear goal helps you choose the right customer groups.

Step 2 – Collect basic customer information

Look at who is already buying: their age group, income level, location, how often they buy, and what they usually purchase. Use simple lists, receipts, or online order data.

Step 3 – List possible customer groups

Write down 3–5 possible groups. For example, students, working professionals, families, senior citizens, or online-only buyers.

Step 4 – Choose 1–2 main segmentation variables

Decide how you will divide the market, such as by age, income, location, lifestyle, or usage rate. Do not use too many variables at once in the beginning.

Step 5 – Create clear segments

Turn your ideas into clear segments. For example, “students living near the shop,” “office workers in nearby offices,” or “online buyers from other cities.”

Step 6 – Check each segment’s value

For every segment, check three things: size (how many people), ability to pay, and how easily you can reach them through promotions or delivery.

Step 7 – Select 1–2 best segments

Start with the segments that are easier to reach and have good profit potential. It is better to serve one or two segments well than to serve everyone weakly.

Step 8 – Design a simple marketing mix for each

For each chosen segment, adjust your product, price, place, and promotion. Change pack size, offer timing, communication style, or delivery options to match that segment.

Step 9 – Test, observe, and adjust

Run your plan for a short period. Watch which segment responds better, then improve or change your offers based on feedback and sales data.

Example: Using these 9 steps in a coaching centre

Step 1: A coaching centre decides its main goal is to increase admissions for evening batches.

Step 2: It checks current students and enquiries: age group, class/degree, working status, and preferred timings.

Step 3: It lists possible groups: school students, college students, working professionals, and repeat exam takers.

Step 4: It chooses two main variables: “study level” (school/college/working) and “available time” (morning/afternoon/evening).

Step 5: It creates clear segments like “college students free in the evening” and “working professionals free on weekends.”

Step 6: It checks which segments are larger, can pay the fees, and can be reached through colleges, offices, or online ads.

Step 7: It selects two focus segments: college students needing weekday evening classes and working professionals needing weekend batches.

Step 8: It designs separate course timings, fees, and promotions for each segment, using college notice boards for students and online ads for professionals.

Step 9: After one or two months, it reviews admissions and feedback, then adjusts batch timings, fees, or promotion messages based on which segment responded better.

• Improves focus and efficiency.
• Reduces marketing waste.
• Enhances customer satisfaction.
• Identifies high-potential segments.
• Improves pricing and promotion decisions.
• Can increase sales and profits.

• Research cost increases.
• Requires separate marketing plans.
• Can make operations complex.
• Depends on stable customer behavior.
• Requires frequent updates.

Example 1: Local Bakery Serving Three Different Customer Groups

A bakery notices that customers visit at different times for different needs. It studies daily footfall and finds three clear segments. School children visit in the morning for light snacks, office workers stop by for quick breakfast items, and families come in the evening to buy larger packs for home. The bakery forms these segments, checks demand, and selects two segments first. It prepares ready-made breakfast items for office workers during morning hours and creates small pocket-friendly snack packets for school children before school timings. In the evening, it arranges fresh family-sized packs to serve home buyers. This segmentation increases sales during all three time slots without needing extra advertising.

Example 2: Online Clothing Store Targeting Different Buyer Groups

An online clothing seller studies order history and identifies three main customer groups. College students prefer budget-friendly casual wear, working professionals prefer formal and semi-formal clothing, and parents frequently buy kids’ wear. The store uses lifestyle, price sensitivity, and buying purpose as segmentation variables. After grouping, it studies order volumes and selects two main focus segments: students and professionals. It creates separate home page sections, adjusts product bundles, and designs promotions for these segments. Students get discounts during weekends, while professionals receive new-arrival updates during evenings. This segmentation helps each group find relevant products faster, increasing conversion rates.

Example 3: Coaching Centre with Multiple Learning Segments

A coaching centre receives various enquiries such as regular students, working professionals, and repeat exam takers. It studies these enquiries and uses “study level” and “timing flexibility” as segmentation variables. It forms segments like morning-school students, evening-college students, and weekend professionals. After evaluating size and ability to pay, it selects two key segments—college students and professionals. It offers flexible weekday batches for students and weekend batches for professionals. Each segment gets tailored teaching methods, class materials, and communication channels. This improves attendance, exam performance, and overall satisfaction.

Example 4: Grocery Shop with Time-Based Segmentation

A neighbourhood grocery store checks daily buying patterns and identifies three groups—morning fresh buyers, afternoon discount seekers, and evening office returnees. It uses time of purchase and purpose of buying as variables. In the morning, it keeps fresh vegetables and bakery items at the front. During afternoon hours, it offers small discounts to attract homemakers. In the evening, it focuses on fast billing and quick checkout for office workers. This segmentation helps the shop serve different needs more efficiently and maintain stable sales throughout the day.

Example 5: Fitness Centre with Different Motivation Groups

A fitness centre observes that not all customers join for the same reason. Some want weight loss, some want muscle gain, some need general fitness, and some just want stress relief. It uses motivation and lifestyle as segmentation variables. After grouping, it forms targeted plans—morning fat-loss groups, mid-day flexi-fitness batches, and evening strength-building sessions. It adjusts trainer specialisation, routine intensity, and communication messages for each segment. This segmentation increases retention and helps each member see faster progress aligned with their goals.

Segmentation is the first step of the STP model, which stands for Segmentation → Targeting → Positioning.

• Segmentation: Divide the total market into smaller customer groups.
• Targeting: Select the most suitable segment(s) to serve.
• Positioning: Create a clear image or message in the minds of the chosen segment.

STP helps companies understand customer diversity, choose attractive segments, and design effective marketing strategies that match customer expectations.

1. Segmentation strategy mainly helps to:
   a) Increase production
   b) Divide customers into groups
   c) Fix price
   d) Choose warehouse location
   Answer: b
2. Which one is NOT a basis of segmentation?
   a) Age
   b) Income
   c) Lifestyle
   d) Number of employees in company office
   Answer: d
3. Segmentation is part of:
   a) STP process
   b) Product life cycle
   c) Porter’s Five Forces
   d) BCG Matrix
   Answer: a

• Segmentation divides the market into smaller groups of similar customers.
• Helps firms focus on attractive segments.
• Common bases: demographic, geographic, psychographic, and behavioral.
• Improves product and promotion decisions.
• First step in STP (Segmentation, Targeting, Positioning).

1. Define segmentation strategy. Explain its meaning with an example.
2. What are the different bases of market segmentation? Describe each with suitable points.
3. Explain the criteria of an effective market segment. (Measurable, accessible, substantial, differentiable, actionable)
4. Write short notes on: (a) Demographic segmentation (b) Psychographic segmentation.
5. Explain the STP model. How does segmentation support targeting and positioning?

Students can use the content above to answer all these questions easily.