The 3 Levels of Customer Segmentation (And Why They Matter)

Customer Segmentation


It is often said that segmentation is at the heart of marketing, and we couldn’t agree more. Identifying the different needs of your customers is vital if you want to develop effective marketing strategies and gain competitive advantage. However, the biggest challenge is determining the different groups and segments that make up your customer base, and what their different needs are. So, how do you arrive at an effective customer segmentation?

There are 3 levels of customer segmentation, ranging from the most basic such as demographics, to the most powerful, such as identifying needs. The most effective segmentations will incorporate all 3.


Demographic Segmentation

The most basic level of customer segmentation is demographics, also known as firmographics in b2b markets. This will segment customers based on factors such as age, gender, income or geographical location. Demographic segmentation looks at the most simple to recognise physical aspects of the customer.


Behavioural Segmentation

The next level of customer segmentation is behavioural. This will segment customers based on behaviours such as: when do customers tend to buy a particular product? Do they buy anything else at the same time? Are they loyal to certain brands or tend to switch a lot? Behavioural segmentation gets us closer to customers than demographic segmentation, meaning businesses are better placed to serve the needs of their customers. It is, however, more difficult to recognise such behaviours as they are not as immediately obvious as demographic factors such as age, gender and income.


Needs and Unmet Needs

The final, and most powerful, level of customer segmentation is identifying the needs and unmet needs of customers. For example, a customer segmentation on car buyers might differentiate between those wanting fuel economy, space, cheap running costs or performance. Identifying needs represents the most effective way of positioning a brand’s products to maximise sales, and means customers can be targeted with specific marketing messages that reflect their differing needs. In b2b markets, it is difficult to identify the needs and unmet needs of often complex decision-making units, and therefore b2b segmentations are more likely to combine firmographics and behaviour.


To learn more about b2b market segmentation, and how we can use research to help segment your market, take a look at our segmentation research page.

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