Understanding Needs-Based Segmentation in Retail

1. What is this in one sentence?

Needs-based segmentation is the process of grouping customers by what they actually want or need from a product or service—not by who they are.

2. What it means to businesses

Instead of relying on age, gender, or income to define customer groups, needs-based segmentation helps retailers design better offers, messaging, and experiences based on the job the customer wants done.

3. Customer opportunity

Customers feel understood and are more likely to buy when products match their needs—whether it’s convenience, quality, low price, or status.

4. Business threat

Relying only on demographic or behavioural segmentation risks missing the why behind customer choices, leading to wasted marketing spend and irrelevant product development.

5. Business examples of this effect

• Boots (UK): Used needs-based segmentation to reposition skincare ranges—targeting needs like “anti-aging” or “sensitive skin” rather than broad customer types. Sales in key categories grew as shoppers found what they were looking for more easily.
• IKEA: Segmented customers by needs such as “moving home,” “first-time parents,” and “downsizing,” allowing them to tailor store layouts and online recommendations. This drove basket size increases in targeted segments.
• Sephora: Created need-states around looks and occasions (“everyday natural,” “night out glam,” “hydration rescue”) and aligned both product bundles and content—boosting cross-sell rates.

6. How can we use data to maximise this effect?

• Surveys & interviews: Ask directly about customer pain points, desired outcomes, and purchase motivations.
• Purchase patterns: Group products frequently bought together and reverse-engineer the underlying need.
• Search & site behaviour: Map keyword trends and navigation paths to infer intent (e.g., “fast,” “eco-friendly,” “budget”).
• AI clustering: Use unsupervised machine learning to detect needs-based groupings across qualitative and behavioural data.
  
  

Retailers who shift focus from who their customers are to what they need win faster, waste less, and deliver experiences that feel personal—even at scale.