Hi, in the last session we learnt all about the basic functions of marketing.

In today’s session, we will learn

about market segmentation, targeting and positioning of a product.
Have you ever almost bought a product, say, those pair of shoes with a 30% discount? And then changed
your mind at the very last moment just because the brand wasn’t Nike or Puma? Here is where market
segmentation and targeting come into play. Sellers and brands across different industry verticals segment
their buyers on the basis of different buyer characteristics. Take the example of
Nike shoes, if it was the new air pump technology inbuilt into the product, you would not even hesitate to
buy the product for a premium even without store discounts. Nike & many other brands segment their
buyers on buying power which is a direct function of their income levels.
Many other factors like gender, age, lifestyle etc impact buyer segments. A product is created keeping in
mind the segment that it has to target. From cars to phones, clothes to cosmetics, lifestyle to home decor.
Every marketing manager must keep potential buyers in mind.
Let us now learn more about how brands analyse their target market.

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Apple, as most of us know, makes the iPhone: an expensive, high-end product.

Its customers are typically from higher income groups, 18 to 40 years old, and are often early adopters of
high-tech products.
Motorola with its Moto G series targets the young teenager who wants a stylish phone at a decent and
affordable price.
Micromax has revolutionised the smartphone market in India by offering phones with the same high end
features as phones by Apple and Samsung but at a price that suits the masses. The segment they cater to is
the 18-30 year age group who are price conscious and have budget constraints.

From these examples it’s clear that companies focus on who to serve in the market and how to leave an
impact on those they serve. The lesson to take away is that while the market as a whole may be huge, it
pays to focus on a segment that is lucrative and growing and is compatible with your company's strengths.
For example, Apple has the capability to develop high quality products and has a brand reputation for
design. And so it targets high income customers who are willing to pay a premium for quality
Segmentation, targeting and positioning, also known as the STP, forms the basis of the marketing
management process.

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STP helps marketers prioritise propositions and then develop and deliver customised and relevant products
and messages for different market segments. Let us see what market segmentation is all about.

Segmentation involves dividing a diverse market into a number of smaller, similar, sub-markets. Assume
you are the person running a grocery store. You could segment your market into two segments:
1. Family feeders who come to store on behalf of their whole family and who make regular purchases.
2. And On the go customers: those who have a busy lifestyles due to jobs or studies etc. and tend to
buy ready to eat foods, snacks and other convenience foods.

Knowing that these segments exist will help you organise your store more effectively. For instance, you will
keep ready-to-eat products in the front of the store to increase their visibility to on-to-go customers. And
you can update your inventory on the basis of the number of family feeders and the frequency of their
visits.

Thus market segmentation facilitates consumer-oriented marketing. It helps in optimising your marketing
program and making best use of the resources at your disposal. And this, in turn, leads to higher sales and
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profits for the firm.
How can a market be segmented? Market Segmentation involves two stages: deciding the basis of
segmentation and determining important characteristics of each market segment. At the start of this
session, we compared three famous brands of smartphones: Apple, Motorola and Micromax. All of these
brands used similar bases to segment the market: age, income, geography and occupation.

Broadly, there are four main bases of segmentation. First is Geographic Segmentation. Here the basis for
dividing the market is different geographical units such as Nations, states, Regions, cities or
neighbourhoods. For instance, newspapers are published and distributed to different cities and even in
different languages to cater to different sets of consumers. Or take the example of fast food giant
McDonalds. In response to different preferences in the different countries, it serves McAloo Tikki in India,
McArabia in the Middle East and banana pie in Brazil. And it serves beer in its German outlets but not in its
U.S. outlets.

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Second is Demographic Segmentation. Here markets are divided into segments based on variables such as
age, gender, family size, income, occupation, education, religion, and ethnicity. Consider the online
furniture selling company Pepperfry. It uses age and life stages as a basis for forming segments with
possible segments including unmarried adults, married adults with no kids, married with young kids,
married adults with grown up kids and so on. Demographic segmentation is very powerful because the
consumer’s needs, wants, and usage rates often vary closely with demographic variables.

Third is Psychographic Segmentation. Here the basis of segmentation are the lifestyle and personality traits
of consumers. Lifestyle and personality traits are strong drivers of consumer preferences and needs. Two
people may have the same demographics: they may both be male, of the same income and age group,
from the same city, share the school and university and yet they may differ in their personality. One of
them could be an extrovert and willing to try new things, while the other may be shy and unwilling to try
new things.
Take the case of “Harley Davidson bikers”. These people are typically men who wish to experience the
freedom and lifestyle that go with owning and riding large, heavy motorcycles in the countryside, often
with other bikers like them. Harley Davidson segments the market for motorcycles based on such
personality traits of customers in the marketplace.

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Fourth is Behavioural Segmentation. Here, buyers are divided into groups based on usage occasions, usage
rate, loyalty status, buyer-readiness and attitude. For instance, you can form segments of non-users, ex-
users, potential users, first-time users and regular users of a product. Take Hallmark, the company that
sells greeting cards for all occasions. The primary target segment for Hallmark is people buying cards for
different occasions. Usage occasions are also often correlated with consumer needs and buying behaviour.

The S in STP stands for Segmentation. The T stands for Targeting. While segmentation involves dividing the
total market into various segments, targeting evaluating the various segments and deciding how many and
which ones to target. Thus, targeting follows segmentation.
Take the case of a car company. It may identify many potential segments in the marketplace. There might
be a segment of high income families who are looking for a family-sized luxury car. Another segment may
consist of young professionals who are single and looking for a flashy, sports car. And finally there may be a
third segment of lower-income families looking for an affordable family car.
Targeting involves evaluating each of these segments in terms of their attractiveness to the company and
then choosing one or more of these segments to target with the firm’s offerings.

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There are three generic target marketing strategies. The first is an undifferentiated or mass-marketing
strategy. Consider Ford Motors. When its founder Henry Ford introduced the iconic model T car, he offered
it in just one colour: black. The car was mass-produced in black for several years and offered to everyone in
the marketplace regardless of their demographics, psychographics, geography or usage patterns.
In an undifferentiated or mass marketing strategy, the whole population is treated as a single market and
the same marketing mix is used to reach everyone in the market. Companies offering mass-market
commodities such as petrol, potatoes, milk, gas, etc. usually practise this strategy.

The second target marketing strategy is a differentiated strategy. Here the population is divided into
several segments and a different marketing mix is used to reach two or more of the segments. Most car
companies like General Motors, Hyundai, Toyota now offers cars specifically designed to cater to many
different segments of customers varying from high-income family to low-income individual segments.

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The third target marketing strategy is a concentrated or niche strategy. Here the population is divided into
several segments but the company develops one specific marketing mix specially for one market segment
only. Take the example of Mercedes. Its offers premium cars for the upper-income segment of the market
only. It does not offer cars for the middle and lower income segments.

Once you have identified the various segments in the market and have decided upon your target marketing
strategy, you have to evaluate which specific segments to cater to. A common framework that is used to
guide the evaluation of segments is the 3Cs framework:
1. Customers,
2. Competition and your
3. Company.

Consider the example of a sports shoe company. Let’s say the company segments the market and identifies
three segments: customers who wear shoes for daily comfort, those who are interested in high-end
fashion, and those who are fitness freaks.

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When we evaluate these segments in terms of Customers: the most important aspect is the size of the
segments. Suppose that the daily comfort segment is the largest in size, the fashion segment is the
smallest, and the fitness freak segment is in between the two.

Now you might say: “Well, the daily comfort segment is the most attractive, because that’s where most
customers are, that’s the largest segment.” However, you should also consider that other Competitors may
be thinking the same way, and so they too may choose to target the daily comfort segment.

If that is the case, then you may end up competing with several companies for that larger segment, and you
may end up only getting a small part of that segment. On the other hand, the competition for the fashion
segment might be lower. And so, even if that segment is smaller, you might end up getting a larger part of
it.
However, before you decide to target the fashion segment you also need to take into account a third
consideration: your Company. It could happen that even though fewer competitors target the fashion
segment, the competitors who do target it have better capabilities to reach that segment compared to your
company.

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For instance, to compete effectively for the fashion segment you would need a strong brand image and
technical capability. But your company may not have the ability or the reputation to credibly take on the
competitors targeting customers in that segment. And so, taking everything into account, you may
therefore decide to target the fitness freaks segment rather than the daily comfort or fashion segments.
In sum, you need to take into account all these three factors: the customers, the competition and your
company to make an informed decision about which is the best segment for you to target.

It’s great to understand how good brands segment the market. In the session ahead, you will go through
the concept of STP using the examples of some very successful brands like Ola, General Motors.

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So far we have talked about the S and T of the STP process. Once you have segmented the market (S) and
have decided which segment to target (T), the next step is to correctly position (P) your product/service for
that target segment. Specifically, positioning is the process of occupying a meaningful and distinctive space
in the mind of your target consumers relative to competition. Take the case of Ola Cabs. They target busy
urban professionals who prefer the convenience and relative luxury of cabs over public transport. For
these consumers time is precious so they want a reliable and fast way to travel.

Now, the value proposition of Ola Cabs might include benefits such as accessibility, availability, reliability
and speed of booking etc. However, in order to differentiate themselves from competition, as competitors
might also be offering similar benefits, Ola Cabs need to focus on those benefits that are distinctive in
nature, and occupy a key space in consumers’ minds relative to the competitors. And so, Ola may decide to
position itself as the fastest and most reliable way to book cabs.
A perceptual map is a powerful tool to help marketing managers design and implement the three stages of
STP, i.e., the entire marketing plan. Specifically, perceptual maps visually represent consumers’ mental
image of how competing products are positioned in the marketplace.

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As such, they help managers identify and represent segments, help them evaluate and choose segments to
target, and help them decide how to position their products using the Four Ps.

Take the car market. Several decades of market research have shown that when customers think about
cars, they do so along two dimensions. Theoretically a perceptual map can have any number of axes.
However, the best maps typically have two: an x and a y axis. The x axis goes left to right and the y axis
goes bottom to top. Consumers for cars typically think about cars along a utilitarian dimension (which is
about price and quality) and an aesthetic or emotional dimension (which is about design and driving
experience).
On the utilitarian dimension you have high end, luxury cars at one end and low end utility cars at the other.
On the emotional dimension, you have family cars at one end and sporty cars at the other. Now you can
represent different segments on this space. For instance, people who like high end but sporty cars would be
on the top right quadrant, those who like high end family cars would be on the top left, those people who
like low end but sporty cars would be on the bottom right, and so on.
You can now identify where the competitors’ products are perceived by customers to be positioned and
then use all this information on the map to decide which of these segments to target, and then accordingly
how to position your products using the 4Ps (the marketing mix).

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Pontiac, a division of General Motors, used to target people who were in the mid-range market and
wanted more family oriented cars. But then Pontiac noticed that this target segment had started to shrink,
and another segment of low end utility cars had begun to grow. But to target this new segment, they
needed to make cars that were more affordable and sporty. So, Pontiac decided to reposition for that
target segment.

Now let's look at how we are going to launch a new beer in the market. If you are a marketer trying to
understand how the beer market is positioned, you will want to first understand how the existing brands
are positioned in the market on a perceptual map.

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In order to do this, you actually can look at two very simple and fundamental attributes. As an individual
beer drinker, you might already know that there are two important aspects to it. One is the strength and
second is the price. Let's look at the first aspect, the strength of a beer.

The strength of a beer can be understood by taking a simple survey from individuals to find out what is the
strength on a scale of 0 to 10 for a beer. Is it extremely light or is it extremely strong or is it somewhere in
between?
Once you do this survey, you can understand what is the bitterness of the beer and at what scale it stands.
This gives you a parameter to compare vis-à-vis the price of that beer for that brand on a perceptual map
and figure out where that brand is positioned. Because that's how they are positioned in the market in
terms of taste. Of course, there are other attributes as well, but this is one way to go about doing it.

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So now let's look at the second aspect of, second attribute of the beer, the price. Basis the price, an
individual-consumer will either treat it as a premium brand or a budget brand. In fact, that's oftentimes the
basis of the distribution strategy and marketing strategy as well. Therefore, in order to understand how the
beer brands and the beer markets are positioned, let’s look at some examples.
On this map, you can see that beers are perceived as strong and premium and they are represented on
different quadrants. Similarly, beers that are perceived by consumers as strong and easy on the pocket are
being represented in the second quadrant. You can do so for other quadrants as well.

So now let's look at how these brands are plotted on different quadrants and how they are positioned in
the market. If you look at Heineken, Heineken is a premium brand. It is priced quite high. It’s available with
some of the most, you know, happening pubs or clubs in the city and its retail price is also quite high. If you
look at the strength of that beer, it’s between medium to high. That’s how it falls in the first quadrant on
the perceptual map.
Budweiser is high in terms of the strength. However, if you look at the price it's actually a budget product.
Therefore, it falls under the second quadrant.
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Foster's is a brand which is light. It falls under premium when you look at the pricing, and therefore it falls
under the fourth quadrant. Kingfisher is a high-strength beer which is extremely bitter. However, it's a very
budget, pocket-friendly there and therefore it falls in the budget category of pricing, and if you look at the
position on the perceptual map, it's on the second quadrant and it dominates the market.
So now you have understood how the brands are positioned on a perceptual map. How does a marketer
really utilize this perceptual map to go to market with a new product? Let's go and take an example. Let's
say you're going to launch a beer in the market.

If you are to look at this quadrant and identify what are the gaps that you can fill in, what you can clearly
see is that the third quadrant is completely empty. Is there an opportunity there? Maybe yes. Therefore, a
lot of brands like Kingfisher and Budweiser have come up with the light versions of their beer to go to
market in order to cater to this segment. This might be an interesting way to actually understand using this
perceptual map, how you can develop a strategy in order to go to market with a new product.

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In this session, we talked about one of the important tools at the disposal of the Marketer, STP, which has
enabled them to prioritise their target base and deliver relevant products. In STP, we started off with
Segmentation to divide a diverse market into smaller markets based on demographics, geography,
customer preferences and behaviour. This allowed us to analyse our customer base from different
perspectives and respond to these differences in a customer-oriented manner, thus helping the firm grow
its sales.
We followed this up by understanding Targeting, which is a means to evaluate the attractiveness of a
particular segment. In this section, we saw how automobile companies over the years have come up with
different targeting strategies to woo their customers and in turn, utilize their resources in an effective
manner.

And finally, we ended our discussion by implementing our targeting strategy or commonly known as
Positioning. Through the case of Ola, we learned how firms look for differentiating aspects of their service
with respect to their competitors and thus, gain a sustainable hold over the market.
In our next session, we will learn about the 4Ps model, which is a handy tool used by many marketing
managers for their brands. See you in the next session!

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