Incorporating conflicting requirements of different user groups and ensuring operational viability of bus services are the major challenges faced by transportation policymakers in developing countries like India. The paper reports an investigation on the design of urban bus services with segmentation giving due consideration to the requirements of user groups and service provider. A three-stage approach is demonstrated with reference to premium and ordinary bus services in Kolkata metro city. The design of premium service was carried out based on the choice riders’ (car owners) perception, while that of ordinary service was carried out based on the perception of captive riders’ (non-car owners) perception. A total of 10 routes with premium and ordinary services were selected for the study. Design was carried out for two cases namely, design with unconstrained supply of buses and design with constrained (present) supply of buses and guidelines and recommendations were given for the design of bus service with segmentation for Kolkata city. Application of the approach clearly showed that with marginal fare increment and additional supply of buses, highest level of service can be achieved without burdening the operator in terms of additional subsidy. The study offers a comprehensive methodological framework for the segmentation of urban bus services, which can be easily replicated in other cities. In addition, the valuable experience and insights shared in the study can provide practitioners with guidance and direction to develop sustainable urban bus services that align with transportation sustainability goals.