Identifying Customers & Segmentation
Why Identifying Customers Comes First
Before a business designs a product, sets a price or books an advert, it has to answer one question: who is the customer and what do they want? Identifying customer needs is the starting point of all marketing. Get it wrong and everything else — price, packaging, shops, adverts — misses the target.
Gymshark is a useful UK example. Founder Ben Francis worked out that young gym-goers wanted sportswear that actually fitted muscular frames and looked good on Instagram. Identifying that specific need let Gymshark design the right products, charge premium prices and grow from a Birmingham garage to a billion-pound business in under a decade.
Businesses identify and satisfy customer needs to: (1) provide a product customers will actually buy, (2) increase sales, (3) select the correct marketing mix, (4) avoid costly mistakes, and (5) stay competitive against rivals.
The Cost of Getting It Wrong
Failing to understand customers is expensive. Research and development, manufacturing, packaging and launch adverts all cost money — and a product that nobody wants wastes every pound of it. Worse, the business may be stuck with unsold stock it has to sell at a loss. This is why identifying needs first reduces risk: the business commits cash only to products the market actually wants.
Meeting customer needs also feeds back into the marketing mix. Once you know who the customer is, you can decide what the product should look like, what price they will pay, where they shop, and which adverts they will actually see.
What Is Market Segmentation?
Market segmentation means splitting a whole market into smaller groups of customers who share similar characteristics. No business can please everyone, so it picks a segment, designs for that segment, and talks to that segment. The specification requires you to know four ways of segmenting: gender, age, location and income.
Gender — splitting the market by male, female or non-binary customers. Fragrance brands like Lynx design products almost entirely around young male shoppers, while Dove’s ‘Real Beauty’ campaigns target women. Gendered products, packaging and adverts can create a stronger emotional connection with one group.
Age — splitting the market into age bands. LEGO targets children aged 4–11, Netflix’s teen comedies target 13–19, and Saga holidays target the over-50s. Each age group has different spending power, different interests and different media habits.
Location — splitting the market by where customers live. A surf shop in Newquay stocks very different products to a ski shop in Aviemore, even though both are selling sports gear. Location affects weather, culture, language and what rivals are nearby.
Income — splitting the market by how much customers earn. Aldi and Lidl target shoppers who want the lowest price. Waitrose and Fortnum & Mason target higher-income households who will pay more for quality and service. Income segmentation shapes price, product quality and where the shops open.
Targeting a Segment in Practice
Zara, the Spanish fashion retailer, is built around segmenting by age, income and location. It targets fashion-conscious shoppers aged 18–35 on middle incomes who live in cities. Its shops are in high-footfall city centres like Oxford Street, its prices sit between Primark and designer brands, and its ‘fast fashion’ model refreshes stock every two weeks to chase the latest trends. Every element of the marketing mix flows from the segment decision — if Zara tried to target everyone from toddlers to pensioners it would please nobody.
Segmentation also opens up niche marketing. Instead of trying to be everything to everybody, a business picks one small group — like vegan-only cosmetics or plus-size sportswear — and dominates it. The segment may be small, but customers inside it are loyal because nobody else meets their specific needs. Lush, the UK cosmetics chain, built its reputation on one tight niche: hand-made, cruelty-free products sold in minimal packaging. That niche now sells in over 900 shops worldwide.
Most larger UK businesses use more than one segmentation base at the same time. Boots divides the health and beauty market by gender (men’s Boots range vs No7 for women), by age (Boots Baby vs Boots 50+ vitamins), by income (premium brands vs own-label) and by location (city-centre flagship stores, retail park ‘beauty’ stores, local pharmacies). Combining bases gives a much sharper picture of the customer than using one base alone — a 55-year-old woman on a high income shopping in central London has different needs to a 20-year-old man on a low income in a market town, even though both are Boots customers.
The four segmentation bases in the specification are gender, age, location and income. Each one lets a business design a marketing mix aimed at a specific group — rather than wasting money trying to please everyone.
Benefits: marketing spend is focused on people who are likely to buy, so the return on every pound is higher. Products are designed around real customer needs, which increases sales and customer loyalty. It also lets smaller firms compete with giants by owning a niche.
Drawbacks: segmentation can be expensive — the business needs market research to identify segments, and different segments may need different products, packaging and adverts. There is also a risk of stereotyping customers and missing buyers who do not fit the expected profile. A brand also needs to watch for segment drift over time — when Topshop stopped appealing to its core 16–25 segment, its owner Arcadia collapsed into administration in 2020 and the shops closed.