Purpose of this part of the course: build a foundation for understanding how marketing works in practice.
Four-part definition of marketing (as discussed in class):
It is an organizational purpose, function, and a collection of processes designed to plan for creating, communicating, and delivering to customers and to build effective customer relationships.
The goal is to establish and sustain relationships with customers.
The overarching aim is to benefit the organization and its stakeholders.
Four Ps (Marketing Mix): product, price, promotion, and place.
Also known as the marketing mix.
These are the levers firms use to execute marketing strategy.
Most ultimate goal of marketing:
Make exchange happen (facilitate value exchange between the firm and customers).
Marketing philosophies (historical perspectives):
Production orientation: focus on internal efficiency of operations and product excellence; assumes demand will follow if the product is good enough; vulnerable to competition once multiple players enter.
Sales orientation: focus on selling techniques (promotion, advertising, personal selling) to push products regardless of market needs.
Market orientation: focus on understanding and satisfying customers' wants and needs.
Societal orientation: extend beyond satisfying customers to enhancing individual and societal well-being (ethical, environmental, and broader social considerations).
Core question addressed: how to identify who to serve, what to offer, and how to position it in customers’ minds.
Process overview:
Segmentation (S): divide the market into meaningful and distinct groups based on shared characteristics.
Targeting (T): evaluate and select the most viable segments to enter.
Positioning (P): tailor the marketing mix (Four Ps) to occupy a clear, desirable place in the minds of the chosen target segments.
Contextual example discussed in class:
Are college students a viable market for Mercedes? Reasons they are often not a preferred target (affordability, insurance, maintenance costs, etc.). Yet, some stories suggest firms can target future markets (e.g., banking relationships with youth) or cultivate future users (e.g., Facebook/Messenger Kit).
The idea is to think about who you want to target now versus who you want to cultivate for the future.
The Four Parts of a Market (Definition and Scope)
A market consists of:
People or organizations who will purchase the product (customers or business buyers).
With needs or wants that the product can satisfy.
Having the ability to purchase (money, access) and the willingness to purchase.
If any of these four are missing, it is not a market.
Example discussion:
Sushi restaurant in a town: market size depends on age distribution, preferences for raw fish, budget, and willingness to dine out.
Segmentation Bases (Bases to Segment the Market)
The goal of segmentation is to divide a market into groups that are meaningful and distinct.
Four primary bases:
Demographics: objective, factual attributes (age, family size, family life cycle, ethnicity, occupation).
Behavioral: usage, purchase occasion, loyalty, and engagement (how often, how much, and in what context the product is used).
Needs/Benefits: the different benefits customers seek from a product (benefit-based segmentation).
Meaningful vs. distinct (illustrated with the chair exercise):
Meaningful: segmentation that matters to the firm’s product or service (e.g., whether a chair needs to support kids, adults, or seniors; materials, cushion, armrests may be meaningful for certain products).
Distinct: groups should be clearly separable in terms of needs or characteristics; if a factor is not meaningfully distinct, it may not justify a separate segment.
Importance of bases:
The chosen bases should be relevant to the product and target customers; the same attribute may be meaningful for one product (e.g., eye color for contact lenses) but not for another (shoe size for shampoo).
Why segmentation matters:
Markets have diverse needs and preferences; segmentation helps define customer needs more precisely, enabling better resource allocation and competitive advantage by serving groups more effectively.
Four segmentation bases in practice:
Demographics
Psychographics
Behavioral
Needs (Benefits)
Demographics (Details and Examples)
What it covers: age, family size, life-cycle stage, ethnicity, occupation, gender (example: Victoria’s Secret focuses on female demographics).
Relevance to product decisions (e.g., chair affordability and size may align with family size; SUV vs. small car decisions can reflect family life-cycle).
Psychographics (Details and Examples)
What it covers: values, lifestyle, personality, interests, opinions.
Examples:
Chick-fil-A’s brand aligns with value-based attributes (e.g., family-friendly, certain values).
Patagonia emphasizes environmental values as part of its appeal.
Behavioral Segmentation (and the 80/20 Principle)
What it covers: frequency of purchase, usage intensity, loyalty, product benefits sought via usage patterns.
The 80/20 principle (rule of thumb): often, a small percentage of users account for a large share of revenue. In practice: a minority of customers may drive most sales.
Starbucks loyalty program illustrates segmentation by usage intensity (heavy users, light users, nonusers).
Spectrum example shows targeting new customers with promotional pricing to win them over, then facing churn as they become regular customers.
Determining behavioral vs. psychographic:
Who asks the question matters: if the company asks about consumption frequency, it’s behavioral; if a separate party (e.g., school, a third party) asks about consumption, it could be psychographic (lifestyle/values).
Needs (Benefit) Segmentation
Also called benefit-based segmentation.
Focuses on the different benefits customers seek from the product (e.g., toothpaste varieties: whitening, sensitivity, cavity protection, flavor).
Rationale: customers are drawn to products that deliver specific benefits they value.
Why Segment? Benefits and Implications
Markets have diverse product needs and preferences.
Segmenting helps marketers:
Define customer needs more precisely.
Allocate limited resources efficiently.
Achieve competitive advantage by satisfying needs better than competitors.
Segmentation bases are chosen based on product relevance and strategic goals.
Targeting Strategies (How to Choose Which Segments to Serve)
Definition: evaluating and selecting the most viable market segments to enter after segmentation.
Four targeting approaches:
Undifferentiated (mass marketing): treat the market as one segment with a single marketing mix. Historical example: early Coca-Cola era, Ford Model T era. Today, this approach is rare due to diverse customer needs.
Differentiated (multi-segment): target two or more well-defined market segments with different marketing mixes for each segment.
Niche (concentrated): focus on a single, well-defined segment to serve with specialized offerings (barbershop example focusing on men).
Cannibalization risk (undifferentiated or poorly differentiated strategies can cannibalize own products when new variants steal demand from existing ones).
Example: Tesla targets multiple vehicle segments with different models (Model S, Model 3, Model X, Model Y, Cybertruck, etc.) to cover diverse needs and lifestyles.
Practical exercise: given a product like shampoo, teams brainstorm different targeting strategies (undifferentiated: 3-in-1 shampoo; differentiated: by hair type; niche: organic or dandruff-focused; micro: customized formulas).
Positioning (How to Place the Product in the Mind of the Target)
Positioning definition: the placement of a product or service in the minds of the target markets.
Key concept: develop a unique selling proposition (USP) that makes the brand stand out from competitors.
Examples:
Subaru: safety plus family-friendly, generation-spanning messaging (the “love” and safety angle).
Volvo: historically safety-focused, later repositioned toward luxury; challenges with changing brand associations.
Positioning factors to consider (must-haves):
Distinct from competitors (differentiation).
Easily communicated to customers.
Profitable and valuable to the target market.
Difficult to copy by competitors.
Affordable to target market (consider budget constraints of the segment, e.g., college students).
Real-world positioning cases:
Brand repositioning can be dramatic (KFC’s AI-generated campaign) to stay relevant and modern while maintaining core identity.
The importance of aligning positioning with the needs and values of the target segment (e.g., safety-focused brands vs. luxury-focused variants).
Case Study: Candy Market and Nerds
Background on Nerds brand and product evolution:
Original Nerds product targeted at kids (Halloween candy, ice cream toppings).
Introduction of new variants expanded target markets: Nerds Gummy Clusters, Big Chewy Nerds, Nerds Rope, etc.
Revenue impact:
2002: Nerds sales were around 40{,}000{,}000.
2018: After introducing new products, sales grew to about 800{,}000{,}000.
Target market evolution:
Original target: kids (primary).
New products broadened appeal to young adults and other segments.
In-class activity setup (as presented):
Each group designs a new candy product, identifies the target market, describes the product, pricing, and distribution channels.
Create a marketing campaign for the new product.
Presentation format emphasized a competitive, Shark-Tank style pitch.
Example group ideas discussed:
A diabetic-friendly hard candy caramel (sugar-free), targeting older adults (60+) with diabetes; price around 5.99 for an 8 oz bag; easy-to-open packaging.
An alcohol-infused lollipop concept for 21+ (college-age/young adults); price and distribution discussed in class context.
A sushi-roll-inspired candy concept with chopsticks and bite-sized portions; priced for grocery and gas stations; seasonal flavors and influencer tie-ins suggested.
Nostalgic “Fruit Roll Bites” concept: bite-sized version of classic Nerds flavors to appeal to both kids and adults who remember the original candy; discussed placement in front-of-store or cashier areas to build awareness.
Observations from the exercise:
Teams used case-based thinking to connect segmentation, targeting, and positioning to real product ideas.
Emphasis on discovering multiple segments and tailoring the product and marketing mix accordingly.
Practical Takeaways for Exam Preparation
Four pillars of marketing philosophy to anchor understanding:
Production orientation, Sales orientation, Market orientation, Societal orientation.
The STP framework is the core of market strategy:
Segmentation: create meaningful, distinct groups using Demographics, Psychographics, Behavioral, and Needs bases.
Targeting: choose the viable segments using undifferentiated, differentiated, niche, or micro strategies.
Positioning: craft a USP and a marketing mix that creates a clear, valuable, and hard-to-copy mental image in the target.
Positioning criteria to audit a plan:
Distinct and relevant to the target, easily communicated, profitable, hard to copy, and affordable for the target market.
Real-world applications and caveats:
Cannibalization risk in differentiated strategies must be managed.
Repositioning is possible, but it requires consistent messaging and market alignment (e.g., traditional brands updating their image).
Quantitative takeaway:
The 80/20 principle in behavioral segmentation (a small subset of customers can drive a large share of revenue) highlights the importance of identifying and prioritizing the most valuable segments.
Quick Recap of Key Terms
Market: a group of potential buyers with needs, ability, willingness, and a defined segment.
Segmentation: dividing a market into meaningful, distinct groups based on bases.
Targeting: selecting which segments to pursue.
Positioning: crafting a perceptual map in the minds of the target customers using the marketing mix.
USP: unique selling proposition – the compelling reason to choose a brand over competitors.
Cannibalization: new products stealing sales from existing products within the same brand.
Micro targeting: one-to-one customization for individual customers.
Notes for the Exam
Be able to define each circle of STP and describe how they connect.
Be able to identify segmentation bases for a given product and explain why they are meaningful and distinct.
Be able to compare undifferentiated, differentiated, niche, and micro targeting, including advantages, disadvantages, and examples.
Be able to explain positioning and articulate what makes a strong positioning statement (distinct, easily communicated, profitable, affordable, hard to copy).
Be able to discuss the role of case examples (Mercedes college market, Subaru vs Volvo, KFC repositioning) as demonstrations of STP in action.
Be able to analyze a scenario and propose a candied product idea with target market, pricing, channels, and a basic promotional concept (e.g., a Shark-Tank style pitch).