Topic 4 – Introduction to Marketing and STP

Topic 4 – Introduction to Marketing and STP

Introduction

Many people think marketing is just advertising or selling, but it is much broader than that. Marketing encompasses analysing the external environment, conducting market research, understanding consumer behaviour, developing products, setting prices, and launching products through advertising and distribution strategies. In recent decades, marketing has also expanded to include digital platforms and greater focus on ethical and sustainable practices.

This topic introduces the core concepts of marketing, focusing particularly on the STP framework — Segmentation, Targeting, and Positioning.

What is Marketing?

Official Definition: Marketing is "the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have a value for customers, clients, partners, and society at large."

In plain terms, marketing goes beyond simply selling goods and services. It focuses on delivering value and benefits to consumers through carefully planned communication, distribution, and pricing strategies. The aim is to provide customers with products, services, ideas, or experiences they desire — when and where they want them.

Marketing also involves building and maintaining mutually beneficial long-term relationships. Importantly, marketing recognises that value creation extends beyond just customers — it includes a wide range of stakeholders such as employees, suppliers, stockholders, and distributors. All of these parties benefit from effective marketing.

Functions of Marketing

Marketing plays a crucial role in the success of any business. Since most businesses aim to achieve profit and growth, marketing directly supports these objectives. The key functions of a marketing department include:

• Identifying current and future needs of customers — through market research and analysis

• Designing and managing product offerings — ensuring products meet consumer needs

• Setting prices and pricing policies — determining what consumers are willing to pay and what generates profit

• Developing distribution strategies — deciding how and where products are made available (online, retail stores, direct sales, etc.)

• Communicating with customers — reaching both existing and potential customers through advertising, social media, public relations, and promotions

Beyond business, marketing influences everyday life. A good understanding of marketing helps individuals make more informed purchasing decisions — recognising value, comparing offers, and thinking critically about how they are being targeted by brands.

Segmentation, Targeting, and Positioning (STP Framework)

STP is a three-step marketing framework that enables organisations to better understand how to market their products or services. It is a customer-centred approach that aims to create customer value and foster profitable relationships. The three steps are done in sequence:

Step 1 → Segmentation (divide the market into groups) Step 2 → Targeting (select which group/s to focus on) Step 3 → Positioning (decide how to be perceived in the minds of that group)

Step 1: Market Segmentation

Definition: Market segmentation is the process of analysing the total market and dividing it into smaller, distinct groups of consumers (called segments) who share similar needs, preferences, or characteristics. By identifying these segments, marketers can tailor their campaigns more effectively to promote products, services, or brands.

There are four broad categories of market segmentation:

1. Geographic Segmentation

Divides the market based on where consumers are located. Factors include country, state, region, population density, climate, and urbanicity (urban vs. rural vs. suburban).

The underlying logic is that people in different locations have different needs, lifestyles, and purchasing behaviours shaped by their environment.

Examples:

• Winter sports gear is not typically marketed in Perth due to its warm climate

• Garden sheds are unlikely to appeal to people living in inner-city apartments

• Kathmandu tailors its product range by region — heavy-duty winter jackets and camping gear are more heavily promoted in colder states like Tasmania, while those products may receive less emphasis in warmer areas like Queensland and Western Australia

2. Demographic Segmentation

Divides the market based on measurable statistical characteristics of the population. This is the most commonly used type of segmentation because demographic data is relatively easy to collect and strongly correlates with consumer needs and purchasing habits.

Demographic factors include: age, gender, marital status, family size (single, couple, family), income level, education level, occupation, social class, and religion.

Examples:

• Cotton On primarily targets young adults aged 18–30, offering casual, affordable, and fashion-forward clothing

• Cue focuses on an older demographic of working professionals, with higher price points and more formal styles

• From the slides: Ferrari targets predominantly males aged 35–55, income $250k+, occupations such as entrepreneurs, executives, and celebrities, with university-level education

• Toyota targets a much broader demographic: males and females aged 25–65, income $40k–$120k, occupations such as teachers, nurses, office workers, and tradespeople

3. Psychographic Segmentation

Divides the market based on psychological characteristics — how people think, feel, and live. This goes beyond what people look like (demographics) to understand why they make the choices they do. Factors include values, attitudes, lifestyles, personality traits, and interests.

Examples:

• Jeep is marketed to adventurous, outdoorsy individuals who enjoy exploring rough terrain and off-road experiences — their lifestyle and personality drive their car preference

• Volvo consistently markets itself as a safe car, appealing to people who value security, functionality, and careful research before purchasing — they are risk-averse, rational decision-makers

• From the slides: Ferrari's psychographic profile includes a luxurious, status-driven, indulgent lifestyle, with an ambitious, thrill-seeking, image-conscious personality who values prestige and exclusivity

• Toyota's psychographic profile is family-oriented, value-conscious, and practical, with a responsible, rational, dependable personality who values reliability, safety, and affordability

4. Behavioural Segmentation

Divides the market based on how consumers actually behave in relation to a product or brand. Factors include purchasing patterns, product usage rate (how often they buy/use the product), benefits sought (what they want to get out of it), price sensitivity, and brand loyalty.

Examples:

• Boost Juice targets health-conscious consumers who seek convenience and functional benefits such as energy or protein boosts. They also use a loyalty rewards app to retain frequent customers and encourage repeat purchases

• From the slides: Ferrari buyers have a light usage rate (weekends and special events), high brand loyalty, and seek performance, exclusivity, and status from their purchase

• Toyota buyers have a high usage rate (daily commuting), medium to high loyalty, and seek fuel efficiency, reliability, and cost-effectiveness

Segmentation Example Summary — Ferrari vs Toyota

Customer Avatars

A customer avatar (or buyer persona) is a detailed imaginary representation of the ideal customer for a product, built from segmentation variables. Rather than just listing abstract demographics, you build a vivid picture of a real-seeming person.

Ferrari Avatar ("Aunty Ai"): A 42-year-old male hedge fund manager living in Dubai. He enjoys yachting, fine dining, and international travel. He values exclusivity and wants to stand out. He's not buying a car for practical use but as a symbol of success and passion for racing heritage.

Toyota Avatar ("Aunty Ai"): Age 35, primary school teacher. Wears comfortable activewear or smart-casual clothes and carries a reusable coffee cup. Drives 5 days a week, keeps her car clean and organised. Chooses a Toyota RAV4 Hybrid for safety, space, and fuel efficiency.

Jeep Wrangler example from topic: Single male, aged 25–40, middle to high income, living in suburban or rural areas. Benefits sought: ability to traverse tough terrain. Unlikely to be price-sensitive given the vehicle's sale price.

Step 2: Market Targeting

Definition: Market targeting is the process of evaluating each identified market segment to determine its attractiveness and then selecting which segment or segments the business can serve most effectively.

After segmenting the market, the business doesn't necessarily target every segment — it chooses strategically based on where it can be most successful.

Factors considered when selecting target segments:

• Growth rate of the segment — is it expanding or shrinking?

• Profitability of the segment — can the business make money from it?

• Available resources — does the business have the capacity to serve this segment well?

• Existing competition — how many competitors are already in this segment?

The Three Market Targeting Strategies

1. Undifferentiated (Mass) Marketing

The business creates a single marketing campaign that targets the entire market without distinguishing between different segments. The goal is to appeal to as many people as possible with one broad, universal message. This is typically used for products with universal appeal, such as staple foods, household goods, and hygiene products. Mass marketing is commonly delivered through traditional media — television, radio, billboards, and magazines.

Examples:

• Coles — their TV ad markets groceries to everyone, explicitly stating "because we all buy toilet paper," emphasising it is for everybody

• Caltex — their TV ad targets all drivers with the message "everyone deserves the fancy stuff," referring to their premium fuel formula

Advantages: Reaches the widest possible audience; lower cost per person reached Disadvantages: Not tailored to any specific group; may feel generic or irrelevant to many consumers

2. Differentiated (Segmented) Marketing

The business creates separate, tailored marketing campaigns to appeal to two or more distinct segments simultaneously. The objective is to meet the specific needs of each segment more effectively than a single universal approach could. This builds broader customer bases and fosters stronger brand loyalty across multiple groups.

However, differentiated marketing requires more resources — each segment may need its own messaging, product features, and promotional strategy, which increases marketing costs.

Examples:

• Adidas uses segmented marketing by offering distinct product lines for different consumer interests — football, running, golf, basketball, gym training, and outdoor hiking. Each line has its own targeted advertising campaigns.

• Kellogg's targets completely different consumer groups through separate breakfast cereal products: children (Coco Pops, Froot Loops), women (Special K), teen boys/male athletes (Nutri-Grain), health-conscious consumers (All-Bran), and families (Corn Flakes). Each product has different packaging, messaging, and advertising.

Advantages: More relevant messaging for each group; stronger loyalty; higher market penetration Disadvantages: More expensive; requires greater resources and management

3. Concentrated (Niche) Marketing

The business focuses all of its marketing resources on one specific, well-defined segment — a niche — rather than trying to appeal to multiple groups. This approach requires an in-depth analysis of the chosen niche and aims to build deep customer relationships and strong brand loyalty within that segment. The narrower focus allows businesses to become highly specialised and well-known within their niche.

Examples:

• Lefty's — an Australian business specialising in products designed exclusively for left-handed people, who make up approximately 10% of the population. They target a very specific group that has been largely overlooked by mainstream retailers.

Advantages: Deep expertise and loyalty within the niche; less direct competition; strong brand identity Disadvantages: Small target market limits growth potential; business is vulnerable if the niche shrinks or disappears

Step 3: Market Positioning

Definition: Market positioning refers to the perception consumers hold of a brand or product compared to competitors in the same category. This is critically important to understand — a brand's position is determined by consumers' perceived value, not the organisation's own view of itself. You do not control your position; your customers do.

Example: In the airline market, Jetstar, Scoot, and AirAsia are commonly perceived as budget, no-frills carriers, while Singapore Airlines and Emirates are perceived as premium carriers known for exceptional customer service, curated menus, and high-quality in-flight entertainment. This positioning influences which customers choose which airline.

The Positioning Map (Perceptual Map)

A positioning map (also called a perceptual map) is a visual tool that allows businesses to see how their product or service is positioned relative to competitors, based on how consumers perceive them. It helps marketers identify:

• Whether their brand sits where they want it to in consumers' minds

• Potential misalignments between desired and actual market position

• Gaps in the market where new products or brands might succeed (areas of the map with no competitors)

How it works: The map has two axes — an X axis and a Y axis — each representing attributes relevant to consumers. Common attributes include price (low vs. high) and quality (low vs. high), but businesses can use any pair of meaningful attributes such as healthiness, convenience, friendliness, or modernity.

Each brand/product is plotted on the map based on where consumers perceive it to sit on both axes.

Chocolate brand example from slides (price vs. quality):

• High price + high quality: Lindt, Ferrero Rocher, Green & Black's

• Low price + medium quality: Mars, Kit Kat, M&Ms, Cadbury Dairy Milk

Car brand positioning map activity: Plot 10 car brands on a map with X axis = Low Price to High Price, and Y axis = Low Quality to High Quality. Examples: Kia/Hyundai might sit low-medium price/medium quality; BMW/Mercedes would sit high price/high quality; Ferrari/Lamborghini at the very highest end of both. Budget brands like Chery or MG might sit low price/low-medium quality.