One Saturday on the High Street: At 7.15 a nurse coming off a night shift buys a roll and a coffee and is gone in a minute. At 10.30 a family spends $38 on a birthday cake and a bag of pastries. At noon Mr Reyes buys the same sourdough loaf he buys every day, and asks Aisha how her weekend was.
Same shop, same morning, same bakery. Three customers who want completely different things.
In 4.1.1 Lena's Bakery became market orientated: it starts from what customers want. But 'customers' is not one crowd. The nurse wants speed at seven. The family wants a treat and some choice. Mr Reyes wants the same loaf, fresh, and a friendly face. A shop built for one of them would disappoint the other two.
Two words: So Lena sorts her customers into groups. A market segment is a group of customers within a market who share something that changes how they buy: when, what, how often, or how much they will pay.
Dividing a whole market into segments like these is market segmentation.
| Segment at Lena's | What they share | What they want from the bakery |
|---|---|---|
| Early workers | Buy on the way to work, before 8 am | Speed, a hot drink, something to eat on the move |
| Weekend families | Parents with children, shopping on Saturday | Cakes and pastries, choice, a treat |
| Daily regulars | Buy almost every day, often the same loaf | The same bread every time, fresh, a friendly face |
| Health-minded buyers | Care about what goes into their food | Wholegrain and sourdough, local flour, a clear label |
A group is not always a segment: People with brown eyes are a group. They are not a segment, because eye colour does not change what anyone buys at a bakery.
A segment has to share something that affects buying. Ask: would these people want a different product, price, time or message from the rest? If not, it is just a group.
Once the groups are clear, Lena can see who she already serves well and who she barely serves at all. Her lunches, for example, sell almost only to early workers who come back at noon. That is the first thing segmentation gives a business: a clearer picture of who its customers really are.
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Aisha keeps a tally for a week: who comes in, when, and what they buy. Lena can sort the same customers in four different ways, depending on the question she asks about them. Each way of dividing a market is a segmentation base.
The four bases. Each one asks a different question about the same customers: where they live, who they are, how they think, how they buy.
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| Base | The question it asks | A segment at Lena's | What changes for that segment |
|---|---|---|---|
| Geographic | Where do they live or work? | People who live or work near Station Road | Which shop they use, and where a new shop should open |
| Demographic | Who are they? Age, gender, income, job, family, education | Families with young children; students on low incomes | Cake sizes, prices, what the window shows |
| Psychographic | How do they think? Lifestyle, values, personality | Health-minded buyers who read every label | Wholegrain loaves made with Valley Grain's local flour |
| Behavioural | How do they buy? How often, when, why, how loyal | Daily regulars; people who buy a cake only for a birthday | A loyalty card for regulars; cakes ordered ahead for occasions |
Which base is it?: Demographic is a fact you could write on a form: aged 65, a student, earns $30,000. Psychographic is what someone believes or how they live: cares about health, wants to buy local.
Behavioural is what they do with the product: buys every day, buys only at Christmas, always chooses Lena's. 'Health-minded' is psychographic; 'buys a wholegrain loaf every day' is behavioural.
A real segment usually mixes bases. Lena's 'early workers' are geographic (they pass the shop on the way to work), demographic (working adults) and behavioural (they buy before 8 am and want it fast). Combining bases draws the group more sharply than any one base can.
Four questions about the same people: Where do they live? Who are they? How do they think? How do they buy?
Asked about the same customers, the four questions give four different ways to divide the market.
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The fourth shop: Lena and Marco have signed the lease on a small shop on Station Road, next to the railway station.
One shop cannot be everything to everyone. It needs to know who it is for, because that decides what it bakes, when it opens, how it prices and where it advertises.
The segment a business chooses to aim at is its target market: a specific group of potential customers, who share characteristics such as age, income, interests or where they live, that the business aims to sell its products to. Segmentation finds the groups; targeting chooses between them.
| Segment near Station Road | How many | Rivals nearby | Fit with Lena's |
|---|---|---|---|
| Morning commuters | 1,850 pass the station between 6.30 and 9.00 each weekday; more from 2027, when a 900-worker office block opens nearby | Crumbline plc sells sandwiches on the platform | Strong: the ovens are full of fresh bread and pastries by 6.30 |
| People who live nearby | 8,400 live within a ten-minute walk, but they buy a loaf a few times a week, spread across the day | No bakery within ten minutes' walk; Goldcrust's $2.20 loaf by Market Square | Good for loaves, but most shop after work and at weekends |
| Office workers at lunch | 900 in the new block, from 2027 only | Crumbline's sandwiches | Weaker: lunches are only 10% of Lena's sales |
Four questions before choosing a target market
Is it big enough?
Enough customers, at the times the shop is open, to pay the rent and the staff. 1,850 people pass the door in two and a half hours every weekday morning.
Is it growing?
A segment that grows brings more sales every year without winning a single customer from a rival. The office block adds 900 people to the area in 2027, many of them arriving by train.
Who else is serving it?
Crumbline already sells sandwiches on the platform. It is a sandwich chain, not a bakery, and nobody sells fresh bread within ten minutes' walk.
Can we serve it well?
Lena's bakes through the night, so its bread and pastries are at their best at 6.30, exactly when the commuters pass. Lunches are a small part of what it does well.
Lena and Marco choose commuters on the morning trains who want breakfast to take away as the Station Road shop's target market. They pass the door when the bakery is at its best, their numbers should grow in 2027, and no other bakery is near. The 8,400 people who live nearby are more in number, but they buy less often and at scattered times.
Targeting is a choice, not a ban: Someone who lives on Station Road can still buy a loaf there. Choosing a target market decides who the shop is designed for: the 6.30 opening, a counter built for speed, the poster inside the station.
The choice rests on the four questions: size, growth, rivals and fit. Another business, with other strengths, could look at the same table and choose differently.
Is all this sorting and choosing worth it? Finding the groups took Lena and Marco weeks of counting, asking and reading, and the shop will now be built around one group. Here is what segmenting and targeting give a business, and what they cost it.
What segmenting and targeting give
- Products that fit what each group wants, so more of them buy and come back
- Marketing money spent on people likely to buy: a poster in the station, not leaflets across the town
- Prices set for each group: a birthday cake for a family, a cheap loaf for a student
- Gaps spotted that nobody serves, such as fresh bread near the station with no bakery in walking distance
What they cost and risk
- Finding the segments takes research, which costs money and time: counting, asking, reading
- A segment can be too small to cover its costs, especially when a market is cut into many pieces
- Real customers do not fit neatly: a commuter is also a parent on Saturday
- Relying on one segment is risky if it shrinks: fewer commuters if more people work from home
Too many segments: Aisha suggests six ranges for six segments at Station Road. Each would sell to a smaller group, need its own products and leaflets, and push up costs. Six messages at once also blur what the shop is for.
Cutting a market too finely can leave every piece too small to pay for itself. More segments are not always better targeting.
So segmentation is a tool, not a guarantee. It works when the groups are real (they buy differently), big enough to be worth serving, and reachable at a cost the business can afford. The Station Road groups pass that test: three clear groups, and one that fits Lena's strengths.
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How this comes up: Most often as a two-mark definition: define the term target market.
Segments and target markets also sit inside longer case questions. A case may tell you that a firm's target market is 'travellers who like difficult-to-reach destinations'; later answers are stronger when they use that group.
The two-mark definition
- Say who. A specific group of potential customers, a section of the market.
- Say what they share. Characteristics such as age, income, interests or where they live.
- Say what the business does. It aims to sell its products or services to that group.
Three traps: The question's own words. 'The market a business targets' only repeats the term. Say who the customers are and what they share.
One term for another. 'A market segment' on its own defines one term with another. An example instead of a meaning. 'People who want gluten-free cakes' shows a target market; it does not define one.
Define the term target market.
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