Faced with declining transit market share and increasing population and jobs, transit agencies must go beyond the traditional approach of trying to find the balance between maximizing ridership and meeting the needs of those who depend most on transit. Innovative approaches that account for customer perceptions and attitudes toward transit must make transit a more attractive option for customers. The efforts of the San Mateo County (California) Transit District (SamTrans) to understand customer attitudes and perceptions and create market segments that reflect and account for traveler attitudes are reported. The study uses a structural equation modeling approach along with cluster analysis to identify market segments in the population that can be targeted for new services to be offered by SamTrans. In addition, the results of the market segmentation are applied spatially so that SamTrans can customize its response to address individual market areas. The results of the market segmentation were applied based on a mode choice model that determines the market share for competing automobile, bus, and enhanced transit modes. SamTrans is provided with the means of identifying the spatial and modal distribution of their service market on the basis of customer needs. This approach allows SamTrans to design transit services that compete more effectively in the target geographic markets addressing the needs of individual market segments.