Customer Segmentation Criteria

Why This Matters

Customer segmentation isn't just about dividing your market into neat little boxes—it's the foundation of every strategic marketing decision you'll encounter on the exam. When you understand why certain criteria matter, you can predict consumer behavior, justify targeting decisions, and explain how brands allocate resources. You're being tested on your ability to connect segmentation variables to outcomes like positioning strategy, marketing mix decisions, and customer lifetime value optimization.

The key insight here is that segmentation criteria fall into distinct categories: some describe who customers are, others explain why they buy, and still others predict how they'll behave over time. Don't just memorize the list—know which type of criterion answers which strategic question. That's what separates a 3 from a 5 on the FRQ.

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Descriptive Criteria: Who Are Your Customers?

These criteria paint a picture of your target market's observable characteristics. They're the starting point for segmentation because they're measurable and accessible through secondary data.

Demographics (Age, Gender, Income, Education)

• Age and gender shape product preferences, media consumption habits, and response to messaging tone—essential for creative strategy decisions
• Income and education levels determine both purchasing power and the complexity of marketing communications that will resonate
• Demographic data is the most widely available segmentation variable, making it the default starting point for most marketing plans

Geographic Location

• Regional preferences and climate directly influence product needs—think seasonal goods, local tastes, and distribution logistics
• Urban vs. rural distinctions affect channel strategy, with urban markets favoring digital and convenience while rural markets may require different touchpoints
• Local culture and customs can make or break market entry decisions, particularly for brands expanding into new territories

Socioeconomic Status

• Purchasing power and brand accessibility vary dramatically across socioeconomic segments, affecting both pricing strategy and product line decisions
• Status-conscious consumption drives luxury markets, where exclusivity and prestige become key positioning elements
• Resource constraints in lower socioeconomic segments create opportunities for value-focused brands and alternative pricing models

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Psychographic Criteria: Why Do They Buy?

These criteria dig beneath the surface to understand motivations, beliefs, and identity. Psychographics explain the "why" behind purchase decisions that demographics alone can't capture.

Psychographics (Lifestyle, Values, Attitudes)

• Lifestyle choices reveal how consumers allocate time and money, enabling brands to position products as extensions of desired identities
• Values alignment increasingly drives purchase decisions, particularly among younger consumers who expect brands to take ethical stands
• Attitudes toward categories predict receptivity to new products and likelihood of brand switching

Cultural Background

• Cultural influences shape everything from color associations to humor in advertising—misreading these leads to costly campaign failures
• Communication norms vary across cultures, affecting everything from directness of messaging to appropriate imagery and symbolism
• Cultural sensitivity has become a competitive advantage as markets globalize and diverse consumers expect authentic representation

Life Stage (Single, Married, Parents, Retirees)

• Life stage transitions trigger major purchase decisions—new homes, baby products, retirement planning—creating predictable marketing moments
• Priorities shift dramatically across stages, with singles emphasizing experiences while parents prioritize safety and value
• Temporal targeting becomes possible when you understand life stage, allowing brands to reach consumers at precisely the right moment

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Behavioral Criteria: How Do They Act?

These criteria focus on observable actions and patterns. Behavioral segmentation is often the most predictive because past behavior is the best indicator of future behavior.

Behavioral Patterns (Purchasing Habits, Brand Loyalty)

• Purchase frequency and timing inform inventory planning, promotional calendars, and customer communication cadence
• Brand loyalty levels determine whether to invest in retention (loyal customers) or acquisition (brand switchers)
• Promotion sensitivity segments customers into full-price buyers versus deal-seekers, with major implications for pricing strategy

Technology Adoption Rate

• Early adopters serve as opinion leaders who can accelerate or derail new product launches through word-of-mouth
• Adoption curves predict market timing—launch too early and the mass market isn't ready; too late and competitors have captured early adopters
• Channel preferences correlate with adoption rates, with innovators favoring digital-first experiences while laggards may require traditional touchpoints

Needs and Benefits Sought

• Functional vs. emotional benefits distinguish between consumers buying performance and those buying identity or status
• Benefit prioritization reveals positioning opportunities—the same product can emphasize different benefits to different segments
• Unmet needs represent market gaps where new products or repositioning can capture underserved consumers

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Predictive Criteria: What Will They Be Worth?

These criteria help marketers look forward, not just backward. Predictive segmentation enables resource allocation decisions based on future value, not just current characteristics.

Customer Lifetime Value (CLV)

• CLV calculations estimate total revenue a customer will generate, justifying higher acquisition costs for high-value segments
• Retention investments should be proportional to CLV—spending equally on all customers ignores the 80/20 reality of most customer bases
• Strategic prioritization becomes data-driven when CLV informs which segments receive premium service, exclusive offers, and dedicated account management

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Quick Reference Table

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Self-Check Questions

1. Which two segmentation criteria would be most useful for a brand launching an eco-friendly product line, and why do they work together?

2. A company discovers that 20% of its customers generate 70% of revenue. Which segmentation criterion is most relevant, and how should it change their marketing strategy?

3. Compare and contrast psychographic segmentation with life stage segmentation—when would you prioritize one over the other in developing a targeting strategy?

4. An FRQ describes a tech startup choosing between targeting early adopters versus the mass market. Which segmentation criteria should inform this decision, and what trade-offs are involved?

5. How do behavioral patterns and benefits sought work together to create actionable segments? Provide an example of how the same behavioral data could reflect different underlying benefits.