CHAPTER 4
Understanding the Marketing Environment:
Segmentation, Targeting, and Positioning
PPT 4-1 here
KEY TERMS
target segment
positioning
positioning strategy
STP marketing
market segmentation
heavy users
nonusers
brand-loyal users
switchers, or variety
seekers
emergent consumers
point-of-entry marketing
demographic segmentation
geodemographic
segmentation
psychographics
lifestyle segmentation
benefit segmentation
consumer markets
business markets
competitive field
market niche
benefit positioning
user positioning
competitive positioning
repositioning
value proposition
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 2
SUMMARY
PPT 4-2 here
LO1 Explain the process of STP marketing.
STP marketing is the process of segmenting, targeting, and positioning. Marketers pursue
LO2 Describe bases for identifying target segments.
In market segmentation, the goal is to break down a heterogeneous market into more
LO3 Discuss criteria for choosing a target segment.
In STP marketing, after segment identification, an organization must settle on one or
more segments as a target for its marketing and advertising efforts. Several criteria are
LO4 Identify the essentials of a positioning strategy.
The
P
in
STP
marketing refers to the positioning strategy, which should guide all
marketing and advertising activities undertaken in pursuit of the target segment. Effective
LO5 Review the necessary ingredients for creating a brand’s value proposition.
Many complex considerations underlie marketing and advertising strategies, so it is
useful to summarize the essence of one’s strategy with a device such as a value
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 3
CHAPTER OUTLINE
INTRODUCTORY SCENARIO: How Well Do You “Tolerate Mornings”?
This is an excellent introduction to the strategy of using integrated marketing
communication (IMC) tools. Point out to students that up to now, the text has needed to
describe various aspects of the brand promotion process. Now we turn to application.
• Firms struggle to reach consumers with messages at the point when they are
just experimenting with a product category so that the firm’s brand can be at
the right place at the right time with respect to brand messages.
• Folgers Coffee does not take for granted new users; it launches campaigns
specifically targeted to the next generation of coffee drinkers.
• People may be introduced as teens to coffee at Starbucks, but choosing a
brand to brew at home is a different decision.
• The Folgers brand team, along with its agency Saatchi & Saatchi, came up
with a short film titled Happy Mornings: The Revenge of the Yellow People to
show that fresh brewed Folgers was the way to “tolerate your mornings.”
• The unique aspect of this campaign is that Folgers team submitted the film to
three websites (Adcritic, BestadsonTV.com and Boards), where 20-
somethings could shape the ad. (Recall for students the concept of consumer–
generated content from Chapter 3.)
• The film got posted on YouTube, earned four out of five stars, and quickly ran
to 300,000 viewings.
• The story of Folgers and Tolerate Mornings shows that careful consideration
of the target market, its orientation, and interests, can result in highly effective
placement and reception of a brand message.
I. STP Marketing
PPT 4-3, 4-4, 4-5 here
This is an important introduction to STP. Although students in a brand promotion
class should have had extensive exposure to these concepts, we all know it doesn’t
always stick. So the first step is to get the definitions out.
A target segment is the subgroup (of the larger market) chosen as the focal point for
the marketing program and advertising campaign. A key distinction to highlight for
students is that markets are segmented, but products are positioned.
Key Teaching Note: It might be worth pausing here for a moment and emphasizing a
point: There is nothing illegal, unethical, or sinister about targeting. The word has
acquired some heavy politically incorrect baggage in the last 10 years by critics of
marketing who don’t understand the process. Targeting is merely a way to focus a
firm’s resources in a way that increases the probability that the firm will serve
customers’ needs better. As an analogy, is it sinister for a doctor to become a surgeon
rather than a dermatologist?
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 4
To pursue a target segment, a firm organizes its marketing and advertising efforts
around a coherent positioning strategy. Positioning is the act of designing and
representing one’s product or service so that it will occupy a distinct and valued place
in the consumer’s mind. Positioning strategy involves the selection of key themes or
concepts that the organization will feature for communicating this distinctiveness to
the target segment.
Marketing strategy evolves as a result of segmenting, targeting, and positioning. This
sequence of activities, often referred to as STP marketing, represents a sound basis
for generating effective brand promotion. Although there are no formulas or models
that guarantee success, the STP approach is strongly recommended for markets
characterized by diversity in consumers’ needs and preferences. In markets with any
significant degree of diversity, it is impossible to design one product that would
appeal to everyone or one advertising campaign that would communicate with
everyone. The pair of advertisements for the Marines and Hard Candy lip gloss
demonstrate the concept perfectly.
A. Beyond STP Marketing
Even when STP marketing yields profitable outcomes, one must presume that
success will not last indefinitely. To maintain the vitality and profitability of a
brand, an organization has two options.
• Reassess segmentation strategy: This may come through a more detailed
examination of the current target segment to develop new and better ways of
meeting its needs, or it may be necessary to change the target and reposition
the offering to a new segment, as Estée Lauder often does.
• Pursue product differentiation strategy: Product differentiation focuses on
emphasizing or even creating differences for the company’s brands to
distinguish them from the offerings of competitors. Brand promotion plays a
critical role as part of the product differentiation strategy, because often the
consumer will have to be convinced that the intended difference is in fact
meaningful.
II. Identifying Target Segments
PPT 4-6, 4-7, 4-8 here
The first step in STP marketing involves market segmentation, breaking down large,
diverse markets into more manageable submarkets or segments. Marketers need to
identify a segment with common characteristics that will lead the segment to respond
distinctively to a marketing program. This section reviews several ways that
consumer markets are commonly segmented.
A. Segmenting by Usage and Commitment
It is important to recognize that for most products and services, some users will
purchase much more frequently than others will. It is common to find that heavy
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 5
Perhaps most importantly, heavy users may be significantly different in their
motivations to consume, their approach to the product, or their image of the
product.
Another segmentation option combines consumers’ prior usage with commitment
levels to identify four fundamental segments:
• Nonusers offer the lowest level of opportunity relative to the other three
groups.
• Brand-loyal users are a tremendous asset if they are the advertiser’s
customers but they are difficult to convert if they are loyal to a competitor.
• Switchers or variety seekers often buy what is on sale or choose brands that
offer discount coupons or other price incentives. Whether they are pursued
through price incentives, high-profile advertising campaigns, or both,
switchers turn out to be an expensive segment to try to win. Much can be
spent in getting their business merely to have it disappear just as quickly as it
was won.
• Emergent consumers offer the organization an important business
opportunity. In most product categories, there is a gradual but constant influx
of first-time buyers.
• Point-of-entry marketing is a phrase used to describe advertising
campaigns used to win over first-time users, as Folgers did.
B. Segmenting by Demographics
Demographic segmentation is used in selecting target segments based on
descriptors like age, gender, race, marital status, income, education, and
occupation. Demographic information has special value in market segmentation
• Demographics are commonly used to describe or profile segments that have
been identified with some other variable. If an organization had first
segmented its market by product usage rates, the next step would be to
describe or profile its heavy users’ demographic characteristics like age or
income.
• Demographic categories are frequently used as the starting point in market
segmentation.
• Demographic segments are often given descriptive names like “woopies,”
which stands for well-off older people (who in the United States control $28
trillion in wealth).
C. Segmenting by Geography
Geographic segmentation may be conducted within a country by region (for
example, Pacific Northwest versus New England), by state or province, by city, or
even by neighborhood. Climate and topographical features yield dramatic
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 6
differences in consumption by region for products like snow tires and surfboards,
but geography can also correlate with other differences that are not so obvious.
Eating and food preparation habits, entertainment preferences, recreational
activities, and other aspects of lifestyle have been shown to vary along geographic
lines.
Marketers have merged information on where people live with the U.S. Census
Bureau’s demographic data to produce a form of market segmentation known as
geodemographic segmentation, which identifies neighborhoods (that is, zip
codes) around the country with common demographic characteristics. One such
system, known as PRIZM (potential rating index by zip marketing), identifies 62
market segments that encompass all the zip codes in the United States.
D. Segmenting by Psychographics and Lifestyle
Psychographics refers to a form of research that emphasizes the understanding of
consumers’ activities, interests, and opinions (AIOs). Psychographics were
promotion messages that ring true to the consumer.
The text cites how Pillsbury identified five basic eating-style segments based on
lifestyle: Chase & Grabbits, Functional Feeders, Down-Home Stokers, Careful
Cooks, and Happy Cookers.
The VALS system is highlighted here as well. Developed by SRI International,
the approach highlights lifestyles as displayed in Exhibit 4.3.
E. Segmenting by Benefits
In benefit segmentation, target segments are delineated by the benefit packages
that different consumers want from the same product category. With automobiles,
some consumers want economical and reliable transportation; others want speed
and excitement; and still others want luxury, comfort, and prestige. The
F. Segmenting Business Buyers
The discussion of segmentation has focused on ways to segment consumer
markets—the markets for products and services purchased by individuals or
households to satisfy their specific needs.
However, huge time, energy, and money are put into business markets, the
institutional buyers who purchase items to be used in manufacturing other
products and services or to resell to other businesses or households. Remember,
Microsoft, Apple, Boeing, and Xerox are all businesses that buy billions of goods
and services—most worthy of a segmentation analysis.
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 7
Business markets can be segmented using several of the options already
discussed.
pinpointing the precise locations of these organizations.
• In business markets, advertisers fall back on simpler strategies that are easier
to work with from the perspective of the sales force. Segmentation by a
potential customer’s stage in the purchase process is one such strategy. First-
time prospects, novices, and sophisticates want very different packages of
benefits from their vendors, and they should be targeted separately in
advertising and sales programs.
III. Prioritizing Target Segments
PPT 4-9 here
Segmenting markets typically yields a mix of segments that vary in their
attractiveness to the marketer. In pursuing STP marketing, the marketer must get
Prioritizing segments can be based on:
• The distinct competency of the organization (for example, manufacturing,
• The competitive field—companies that compete for a segment’s business must
decide whether they have a particular area of expertise, or perhaps just a bigger
budget, that would allow them to serve the segment more effectively than
competitors.
Recently, many firms have learned that small segments can be more profitable than
large segments. The smaller-is-better principle is now referred to as niche marketing.
A market niche is a relatively small group of consumers with a unique set of needs
who are often willing to pay a premium price to satisfy those needs.
IV. Formulating the Positioning Strategy
PPT 4-10 here
A. Positioning Strategies
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 8
Effective positioning strategies are based on meaningful commitments of
organizational resources to produce substantive value for the target segment. They
also are consistent internally and over time, and they feature simple and
distinctive themes.
1. Deliver on the Promise. For a positioning strategy to be effective and remain
2. There’s Magic in Consistency. A positioning strategy also must be consistent
3. Make it Different Simply. No matter how much substance has been built into
a product, it will fail in the marketplace if the consumer doesn’t perceive what
the product can do. The basic premise of a positioning strategy must be simple
and distinctive to be communicated effectively to the target segment.
B. Positioning Themes
In selecting a positioning theme, marketers always should consider three
fundamental options.
• Benefit positioning: Consumers purchase products to derive functional or
emotional benefits, so an emphasis on the primary benefit they can expect to
receive is fundamental. Although it might seem that more compelling
positioning themes would result from promising consumers a wide array of
benefits, keep in mind that multiple-benefit strategies are hard to implement.
• User positioning: This option takes a specific profile of the target user as the
focal point of the positioning strategy. User-oriented positioning themes are
common when demographic and psychographic variables have been combined
to reveal a target segment’s distinctive lifestyle.
• Competitive positioning: This option is sometimes useful in well-established
product categories with a crowded competitive field. Here, the goal is to use
an explicit reference to an existing competitor to help define precisely what
the brand can do. Many times this approach is used by smaller brands to carve
out a position relative to the market share leader in their category.
C. Repositioning
One of the best ways to revive an ailing brand or to fix the lackluster performance
of a new market entry is to redeploy the STP process to revise the positioning
strategy. This effort is commonly referred to as repositioning.
• This problem is common for brands that become popular with one generation
but fade from the scene as that generation ages and emergent consumers come
to view the brand as passé. When brands are not revitalized regularly and
strong competitors emerge to fill the void, the repositioning challenge can be
formidable.
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 9
• It is also common for trendy themes to age and be seen as irrelevant by target
segments.
• Advertising is essential in repositioning. New features, new styling, new
image, and new theme are fundamental to repositioning and need to be
communicated through advertising to target audiences.
V. Capturing Your Strategy in a Value Proposition
PPT 4-11, 4-12, 4-13, 4-14, 4-15 here
In the end, consumers seek value. A firm’s basic strategies in segmentation and
positioning will be futile unless consumers perceive superior value in the brand.
Alert students to the fact that this value proposition focuses on three types of benefits
and must be balanced against the price consumers are willing to pay.
The text offers value propositions for two global brands, McDonald’s and Nike,
summarized in Exhibit 4.4.
You can bring up other brands in class and have students come up with the value
propositions for these brands.
C. Putting It All Together
This section will help students bring together all the concepts in the chapter.
Exhibit 4.5 shows the relationship between:
• Identifying the target segment
• Selecting a mix of persuasion tools
• Consolidating the value proposition for the brand
This section also alerts students to the coverage of IMC tools in Chapters 9
through 14.
SOLUTIONS TO REVIEW QUESTIONS
1. While
STP
marketing often produces successful outcomes, there is no guarantee that
these successes will last. What factors can erode the successes produced by
STP
marketing, forcing a firm to reformulate its marketing strategy?
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 10
2. Why does the persuasion required with a product differentiation strategy present
more of a challenge than the persuasion required with a market segmentation strategy?
3. Explain the appeal of emergent consumers as a target segment. Identify a current ad
campaign (not Folgers!) targeting an emergent-consumer segment.
Emergent-consumer segments are appealing because of their long-term potential.
4. It is often said that psychographics were invented to overcome the weaknesses of
demographic information for describing target segments. What unique information can
psychographics provide that would be of special value to marketers?
Psychographic variables gauge consumers’ activities, interests, and opinions. When
5. What criteria did Mobil Oil Corporation weigh most heavily in its selection of Road
Warriors as a target segment? What do you think will be the biggest source of frustration
for Mobil in trying to make this strategy work?
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 11
6. Explain why smaller can be better when selecting segments to target in marketing
strategies.
Smaller can be better because, in contrast to large segments, small segments are likely
to be less familiar to most of the key players in the competitive field. Rivalry for a
7. What essential elements of a positioning strategy can help overcome the consumer’s
natural tendency to ignore, distort, or forget most of the brand messages he or she is
exposed to?
8. Which of the market segmentation strategies discussed in this chapter are likely to be
most effective for business-to-business marketing? Why would some techniques that are
highly successful in targeting consumer markets, such as lifestyle segmentation, be less
effective?
SOLUTIONS TO EXPERIENTIAL EXERCISES
1. Move over, Barbie—here come the Bratz. The race to win the hearts of little girls
everywhere has heated up as
MGA
Entertainment’s ultra-fashionable Bratz dolls aim to
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 12
reduce Mattel’s Barbie to little more than “the doll mom used to play with.” Complete
with bare midriffs, bee-stung lips, trendy duds, and funky names, the Bratz are the
epitome of the 21st-century girl—sassy and self-aware. Using concepts from the
STP
marketing approach, analyze the Bratz phenomenon in light of the threat it poses to
Barbie’s position in the toy-doll market. To find research for your analysis, visit the
dolls’ respective websites, look up news articles on the Internet, and contact a toy-store
manager to find out which doll brand is most popular.
2. Discount pioneer Kmart is repositioning to stay competitive in a challenging retail
sector where stores like Walmart and Target are ahead of the pack. Kmart suffered in the
past from poor customer service and a lack of consumer enthusiasm toward its brands,
but the company is currently making a turnaround. Analysts claim that Kmart, having
been outmatched by everyday-low-price giant Wal-Mart, has abandoned the superstore
concept and is instead concentrating on its core competency of merchandising, including
promoting exclusive brands. Visit Kmart’s e-tail site (http://www.kmart.com), and
describe how the company seeks to reconnect with customers through its exclusive
brands and services. How does the site compare to Target’s (http://www.target.com) and
Walmart’s (http://www.walmart.com)? Finally, interview someone who is older, and ask
that person to describe his or her perception of Kmart over the past few decades. How do
those perceptions compare with the ones you are gathering through your analysis?
The three retailers’ websites are similar in that they feature low prices, a wide
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 14
a. Formulate the value proposition for the new company.
b. Identify relevant target segments for the focus of the marketing program. Explain
which criteria you used to select the target market and why.
c. Select a positioning theme for the marketing campaign, choosing among the benefit,
user, and competitive positioning options, and explain your decision.
Students have the opportunity here to test their understanding of the chapter material
be able to identify a target market and make a clear argument for why that segment
should be prioritized, recognizing such factors as the extensive competition in the
POWERPOINT PRESENTATIONS
Use the Instructor PowerPoint files to pace your instruction and provide class notes on
key ideas and themes. Each presentation provides a slide-by-slide coordination with the
chapter’s learning outcomes, definitions, and visuals. Encourage students to use the
accompanying Student PowerPoint presentation to align and reinforce classroom
instruction with studying outside of the classroom.
VIDEOS
To view the two videos for this chapter, go to the PROMO book companion website,
www.cengage.com/login.
(*) Indicates the correct answer in the multiple-choice video questions.
Dagens Industri: Zoo
1. The book points out that many brands offer marketers the challenge of a complex value
proposition. The Dagens Industri “Zoo” video exemplifies those challenges mainly by
comparing one persuasion tool with many others available. How do they present the
comparison to their recommendation?
The best answer would point out that the spot satirizes the over-the-top technology
2. Who is the likely target audience for the ad?
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 15
3. The book discusses STP, with the “P” standing for positioning. The Dagens Industri
“Zoo” video exemplifies which of the following?
4. What’s the main point of the “Zoo” video?
5. The “product” featured in the “Zoo” video is a:
John Smiths UK: Diner
1. Who is the likely target audience for “Diner?”
2. STP marketing is the process of segmenting, targeting and positioning. In the John
Smiths UK: “Diner” video, identify the likely segment, target, and positioning of the
product.
3. The John Smiths video uses a humorous approach in its attempt to sell the product.
What is the humorous approach used? Based on your readings to date, do you think it is
likely to be appealing to the target audience?
Chapter 4: Market Segmentation, Positioning, and the Value Proposition ❖ 16
4. How would you describe the humor in the John Smiths “Diner” ad?