Services market segmentation

Services Market segmentation is the process of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers known as segments based on some type of shared characteristics. In dividing or segmenting markets, researchers typically look for shared characteristics such as common needs, common interests, similar lifestyles or even similar demographic profiles.

Some of the major bases for Service market segmentation are as follows:

  • Geographic Segmentation
  • Demographic Segmentation
  • Psychographic Segmentation
  • Behavioristic Segmentation
  • Volume Segmentation
  • Product-space Segmentation
  • Benefit Segmentation.

1. Geographic Segmentation

Geographic location is one of the simplest methods of segmenting the market. People living in one region of the country have purchasing and consuming habit which differs from those living in other regions. For example, life style products sell very well in metro cities, e.g., Mumbai, Delhi, Kolkata and Chennai but do not sell in small towns. Banking needs of people in rural areas differ from those of urban areas. Even within a city, a bank branch located in the northern part of the city may attract more clients than a branch located in eastern part of the city.

2. Demographic Segmentation

Demographic variables such as age, occupation, education, sex and income are commonly used for segmenting markets.

Age: Teenagers, adults, retired.

Sex: Male and female.

Occupation: Agriculture, industry, trade, students, service sector, house-holds, institutions.

Industrial sector: Large, small, tiny.

Trade: Wholesale, retail, exporters.

Services: Professionals and non-professionals.

Institutions: Educational, religions, clubs.

Income Level: Above Rs. 1 lakh per annum, Rs. 50,000 to Rs. 1 lakh, Rs. 25,000 to Rs. 50,000 per annum, i.e., higher, middle and lower.

Family Life-cycle:Young single, young married no children, young married youngest child under six, young married youngest child over six, older married with children, older married no children under eighteen, older single, etc.

Psychographic Segmentation: Under this method consumers are classified into market segments on the basis of their psychological make-up, i.e., personality, attitude and lifestyle. According to attitude towards life, people may be classified as traditionalists, achievers, etc.

Rogers has identified five groups of consumer personalities according to the way they adopt new products:


These are cosmopolitan people who are eager to try new ideas. They are highly venturesome and willing to assume the risk of an occasional bad experience with a new product.

Early Adopters:

These are influential people with whom the average person checks out an innovation.

Early Majority:

This group tends to deliberate before adopting a new product. Its members are important in legitimising an innovation but they are seldom leaders.

Late Majority:

This group is cautious and adopts new ideas after an innovation has received public confidence.


These are past-oriented people. They are suspicious of change and innovations. By the time they adopt a product, it may already have been replaced by a new one. Understanding of psychographic of consumers enables marketers to better select potential markets and match the product image with the type of consumer using it. For example, women making heavy use of bank credit cards are said to lead an active lifestyle and are concerned with their appearance. They tend to be liberated and are willing to try new things.

Psychographic classification may, however, be an oversimplification of consumer personalities and purchase behaviour. So many factors influence consumers that an early adopter of one product might well be a laggard for some other product and vice versa.

4. Behavioristic Segmentation

In this method consumers are classified into market segments not the basis of their knowledge, attitude and use of actual products or product attributes.

Any of the following variables might be used for this purpose:

(а) Purchase Occasion:

Buyers may be differentiated on the basis of when they use a product or service. For example, air travellers might fly for business or vacation. Therefore, one airline might promote itself as a business flyer while another might target the tourists.

(b) Benefits Sought:

The major benefit sought in a product is used as the basis of classify consumers. High quality, low price, good taste, speed, sex appeal are examples of benefits. For example, some air travellers prefer economy class, while others seek executive class.

(c) User Status:

Potential buyers may be classified as regular users, occasional users and non-users. Marketers can develop new products or new uses of old products by targeting one or another of these groups.

5. Product-space Segmentation

Here the buyers are asked to compare the existing brands according to their perceived similarity and in relation to their ideal brands. First, the analyst infers the latent attributes that consumers are using to perceive the brand. Then buyers are classified into groups each having a distinct ideal brand in mind. The distinctive characteristics of each group are ascertained.

6. Benefit Segmentation

Consumer behaviour depends more on the benefit sought in product/service than on demographic factors. Each market segment is identified by the major benefits it is seeking. Most buyers seek as many benefits as possible. However, the relative importance attached to individual benefits differs from one group to another. For example, some consumers of toothpaste give greater importance to freshness while other prefer taste or brightness of teeth.