Module Overview

Module 01 ended with a puzzle: Coca-Cola and Pepsi offered the same functional, social and experiential value, and one grew while the other shrank. The difference was the customer. Module 02 is the machinery for finding that customer.

The module works in two directions. It starts inductively, by reading three Coca-Cola advertisements backwards to recover the target group each was built for, and only then builds the theory: Segmentation, Targeting, Positioning, the five bases of segmentation, the conditions a segment must satisfy to be worth serving, and the five targeting strategies.

Memory hook: Segmentation is dividing. Targeting is choosing. Differentiation is distinguishing. Positioning is communicating. Note that the first three happen inside your office and the customer never sees them. Only positioning reaches the customer.

2.1 Identifying the Target Market from Advertising

Three Coca-Cola India advertisements are analysed in sequence. The pedagogic reason there are three, and not one, only becomes clear at the end: the value proposition stays constant while geography, demography, psychography and behaviour all shift.

2.1.1 Coke Ad I: The Punjab Sugarcane Field

The ad is set in rural North India, Punjab, in hot weather. An urban traveller and a rural sugarcane farmer meet.

Common trap: Socio-economic classification (SEC A, B, C) is a demographic variable, not a psychographic one. It is income and occupation based, which makes it measurable, which is exactly what psychographics are not.

Value delivered: refreshment and thirst-quenching (functional), the shared moment between two strangers (social), the pleasure of the cold drink on a hot day (experiential), and affordability at a rural price point (economic).

2.1.2 Discussion Response: Which Base Did Ad I Lean On?

Based on the segmentation categories discussed in the video, which segmentation base do you think Coca-Cola focused on the most in the first ad? How did the elements of the ad support your interpretation?

According to my analysis of the first ad, Coca-Cola focused on the demographic, geographic and to some extent psychographic segmentation bases.

First, the setting of the ad in a rural area shows Coca-Cola's focus on the geographic base. This effectively communicated Coca-Cola's availability to viewers, which is essential in marketing as it is one of the 4 Ps, Place.

Secondly, the ad demonstrates Coca-Cola's demographic segmentation by contrasting the urban traveller with the rural farmer, showing the brand's appeal across different socio-economic classes.

Lastly, the ad highlights Coca-Cola's ability to quench thirst on a hot summer day, refresh the consumer and bring happiness. The use of the song "Yaara da Tashan" conveys an energetic, upbeat mood and ties it to a social event. All of this suggests psychographic segmentation, as the brand is attaching the drink to an emotion.

2.1.3 Coke Ad II: The Shop Counter

After watching the video, identify the persona you think the company is aiming for. How would you segment this audience?

We can segment the audience targeted in this ad on their flamboyant and outgoing persona as depicted. This target group is also social and generally extroverted. If Coca-Cola can win customers of this specific target group, they are sure to have a loyal customer base, as such people will always prefer a Coke for refreshment.

So this audience can be segmented on demographics and psychographics.

We can also see that the ad targets the shopkeepers, to build the B2B network. It brings awareness to shopkeepers who did not know Coca-Cola, and shows how Coca-Cola can provide them with monetary gain and a satisfied customer base.

Note: This B2B reading was reached independently before the lecture supplied it. It is the correct reading. A consumer ad that also recruits the retailer is doing two jobs at once, and the retailer is a collaborator in 5 C terms.

2.1.4 Coke Ad III: The Mountain Guide

Who do you think the ad is made for? What kind of people or groups are they aiming to connect with?

The ad targets a young age group who are social, extroverted and adventure-seeking. The ad being set in a mountainous rural area shows the availability of Coca-Cola, and the local guide knowing what Coca-Cola is shows the loyal customer base Coca-Cola wants to gather. This loyalty is also shown when the couple reaches for a Coke when they need a "thanda", and when the local guide is dissatisfied on being handed a different drink after asking for a "thanda".

The lecture's own reading of the same ad:

"Thanda matlab Coca-Cola"

In India, Coca-Cola and other soft drinks are extremely popular, especially during the hot summer months, when roughly 70 to 80 percent of all aerated soft drink consumption happens. People use the word "thanda", which means "cold", to ask for a refreshing drink rather than naming a brand. Because Coca-Cola is so well known and associated with being cold, many consumers simply say "thanda" when they want a Coke.

The mechanism is a two-sided understanding. If both the consumer and the retailer accept that thanda means Coca-Cola, then every time a customer asks for a thanda the retailer hands over a Coke, and every time the retailer hands over a Coke the customer is satisfied, because thanda is Coca-Cola. It converts a generic category word into brand property, which is why the campaign ran.

2.1.5 The Cross-Ad Conclusion

This is the reason three ads are shown rather than one, and it is the analytical payoff of the whole block.

Memory hook, the punchline: The value does not change. Everything else does. Geography changes, demography changes, psychography changes, behaviour changes, but functional, social and experiential value stay exactly the same in all three ads. That is what makes Coca-Cola one proposition served to many segments, and it is a direct continuation of the Module 01 case conclusion.

2.2 Market Segmentation

2.2.1 Understanding STP: Segmentation

Segmentation is the process of segmenting consumers on some parameters called bases, dividing the market into various homogeneous groups.

Common trap: "It is the customers that are segmented, not the product." Every year students segment the product line instead of the population. Sunsilk's several shampoo variants are not the segmentation; they are the response to a segmentation of shampoo buyers by hair need.

2.2.2 Understanding STP: Targeting

Targeting is the process of choosing one or more specific segments to focus on, rather than the whole market.

2.2.3 Understanding STP: Differentiation and Positioning

The perceptual map plots the competition's offerings so you can find an unoccupied position. Say the green dot is the position we want to acquire.

Differentiation is the process of identifying that position and distinguishing your offering from competitors. It can rest on price, quality, promotion, durability, service facility, guarantee or warranty, the spokesperson, or anything else.

Positioning is creating the right perception in the mind of the customer, using the 4 Ps or 7 Ps.

Common trap: Segmentation, targeting and differentiation all happen to the target market and to consumers, not to the product, and the consumer never sees any of it. You have run the survey, cut the segments and designed the differentiation, and the consumer knows nothing. Positioning is the only step that reaches the consumer's mind, and unless it succeeds, the other three were wasted.

What actually goes on behind an ad campaign:

1. Collect data from the market through surveys and marketing research.
2. Perform statistical analysis to divide consumers into groups.
3. Use algorithms and models to identify the target market.
4. Identify competitors and compare their offerings with yours.
5. Develop the differentiation strategy from that comparison.
6. Plan how to communicate that differentiation to the target market.

You watch the result for ninety seconds. All six steps sit behind it.

2.2.4 Worked Example: Segmenting a 100,000-Person Market

The professor's board work. Take one geographic area containing 100,000 people and cut it on four bases: age, income, occupation and personality.

The segments are exhaustive and mutually exclusive, which is what a valid segmentation must be.

Now the targeting decision. Two different products, two different answers:

Memory hook: The same market yields different targets for different products. The segmentation is a property of the population; the targeting is a property of your offering.

Once segment 3 is chosen (30,000 people, the largest), the perceptual map comes in. Suppose buyers evaluate the category on two parameters, price and quality, each at high, medium and low. Existing players occupy five positions on that map. You pick an unoccupied one, say relatively high price with good quality. That gap is your differentiation.

2.2.5 Differentiated and Undifferentiated Marketing

The Ford Model T anchor case. Ford Motors produced the first mass motorised vehicle at a time when long-distance transport meant horses, bulls or donkeys. The Model T (1910 and 1925 models) came with the classic line:

"Any customer can have a car painted in any colour that he wants, so long as it is black."

One car, one colour, take it or leave it. That is the textbook case of undifferentiated mass marketing.

Common trap, and the professor raises it himself: the Model T was expensive, and only the rich or the new-product enthusiast could actually buy one. In that sense it was not truly reaching the mass at all, and it was close to a monopoly. It counts as mass marketing by the classic definition, because the whole market was offered a single product, not because everybody bought one.

The direction of travel is towards differentiation. Even rice divides into rice for pulao, rice for biryani, rice for kheer and rice for cakes, and then into Daawat and India Gate basmati.

2.2.6 Niche Marketing

Niche marketing is having a specific product for a specific segment. Its defining features:

Examples from the lecture: a supplier providing the full suit, trousers, tie and shirt in a required colour specifically for executives of a particular company; healthcare facilities designed for people who are both diabetic and obese; specialist makeup and personal grooming for film celebrities.

Common trap: Niche marketing is not "a standard product sold to a small group". The whole point is that you do change the product to fit the target customer's need, and that customisation is what justifies the price premium.

So there are three initial approaches: differentiated marketing, mass (undifferentiated) marketing, and niche marketing.

2.2.7 Bases of Segmentation

Memory hook: The bases are never used alone. Every customer simultaneously has a geography, a demography, a psychography and a behaviour. Real segmentation uses cascading or multi-variable combinations: geodemographic, demopsychographic, geopsychographic, psychobehavioural. They are taught separately only for clarity.

2.2.8 Geographic Segmentation

Geographic parameters: region, city, population density, climate, urban versus rural, terrain.

2.2.9 Demographic Segmentation

Demography is the vital and measurable statistics about a human population. Seven sub-variables are taught:

Geography and demography are the most widely used segmentation variables, because every customer demonstrably has both and both are measurable.

But they are not sufficient, and here is why. Suppose a 25 to 30 year old and a 55 to 60 year old both buy Levi's jeans. You have correctly identified two segments, and you still have no idea what strategy to run, because one is in her late twenties and the other in her late fifties and demography alone tells you nothing about why either bought. That gap is what psychographics fills.

2.2.10 Psychographic Segmentation

Where demography explains the who, psychography explains the why. Psychography is the science of using psychology together with demography.

2.2.11 The VALS Framework

VALS stands for Values And Lifestyles. It is the most popular commercially available classification scheme based on psychographic measurement, owned by Strategic Business Insights (SBI), a US company. SBI classifies US adults into eight primary groups.

The grid has two dimensions:

• Horizontal: primary motivation, in three columns, Ideals, Achievement, Self-expression
• Vertical: resources and innovation, running from high resources and high innovation at the top to low resources and low innovation at the bottom

Memory hook: Innovators on top, Survivors at the bottom, and six in between in three motivation columns. The upper row of each column has the resources and the lower row does not. Strivers are the exam favourite, because they show how a segment definition converts straight into a product decision: build something in the lower price range that still looks and feels aspirational.

The point of VALS is combination. Layer demography on top: innovators are aged 40 to 45, thinkers 50 to 55, then add where each lives, their income profile, their family size and number of children. Only with geography, demography and psychography together can you actually identify the customer in detail.

2.2.12 The A.I.O. Inventory

The academic literature on personality and lifestyle is extensive, but usually impossible to implement commercially. Researchers, doctors and psychiatrists can classify people psychographically; a marketer cannot. The practical tool is the A.I.O. inventory.

How it is administered: a battery of statements and questions, to which respondents agree or disagree. From that response set you build the inventory and segment the market. Statistical work then reduces the battery to segments, which is beyond the scope of this course.

Memory hook: A.I.O. is the measurement instrument for psychographics. VALS is a ready-made output you can buy. AIO measures personality and lifestyle; psychographics is personality plus lifestyle; VALS is one commercial classification of the result.

2.2.13 Behavioural Segmentation

Behavioural segmentation looks at the behaviour of current customers. The questions it answers are how to grow the base: can the same customer buy more, or buy more often; can we attract the less committed customers towards the brand; can we raise satisfaction.

Seven behavioural variables:

The loyalty ladder is a strategy, not just a label. As a marketer you want to move people up it:

Switcher → Shifting loyal → Split loyal → Hardcore loyal

Common trap: the variable is loyalty status, and the four rungs describe how consistently a buyer sticks with one brand. A split loyal buys two or three brands consistently; a shifting loyal drifts from one brand to another over time; a switcher has no loyalty at all.

2.2.14 Technographic Segmentation

Technographics segments consumers exactly as psychographics or demographics do, except that it is custom made for the internet economy: for technology products, and for technology-savvy consumers. It looks specifically at how consumers behave online, and in particular at their online shopping behaviour.

The base rests on a single, very large divide: attitude towards technology.

Attribution: technographic segmentation was conceptualised by Mary Modahl in her 1999 book Now or Never: How Companies Must Change Today to Win the Battle for Internet Consumers, written as part of Forrester Research.

The technography by income grid. Technographics is used the way every base is used, combined with another base, here demography, specifically income. That gives four cells and a distinct strategy for each.

The worked case: Flipkart. The Flipkart campaigns of a few years ago in which children play the roles of adults are the professor's example of technographic segmentation done well, and he calls it one of the most successful segmentation campaigns we have seen.

The target is Mainstream-1: middle-aged parents who are not short of money but do not trust the technology for online delivery and online purchase, especially for big-ticket items or fashion, where people want to touch and feel the product. The creative device answers exactly that objection. Children behave like adults and say how easy it is, and the implied message is: even kids can do this, so why are the parents not doing it? It attacks the fear, not the price, because for Mainstream-1 the fear is the binding constraint.

Memory hook: Technographics is what you reach for whenever the product is new technology, online, or app based. And the segment to convert is almost never the laggards. It is the rich pessimist.

2.2.15 The Five Conditions for Effective Segmentation

Having a base is not enough. A segment is only worth building a strategy around if it meets all five of these conditions.

The structural test that sits under all five:

Memory hook: Homogeneous within, heterogeneous between.

Suppose one segment is defined as: age 30 to 40, income 1 lakh per month, occupation executives in IT firms, and there are 50,000 such people in the city. Those 50,000 are homogeneous within on all three of those parameters. Other segments in the same city will be non-IT professionals, or earning less than 1 lakh, or outside the 30 to 40 band, so the segments are heterogeneous between. If a segmentation fails either half of that test, the base was the wrong one.

Common trap: an exam question will give you a "segment" of 40 people, or a segment with no media route to it, or a fashion segment that reinvents itself every quarter, and ask whether it is worth targeting. Run all five conditions, and name the one that fails.

2.3 Targeting Markets

2.3.1 What Targeting Is

Targeting is selecting one or more of the identified segments and concentrating on those rather than on the whole market. Marketers run a target market decision analysis over the whole market on the relevant characteristics (age, residence, gender, income and so on) and then choose the target market that matches their own resources and goals.

Three blocks of criteria for selecting a target segment:

2.3.2 Determining Segment Size

Segment size is the current demand potential estimation for the product or service concerned. The method is three steps:

What this yields is the number of people who have the need, the willingness and the ability to pay. All three must hold. Need without ability to pay is not demand.

Growth rate is the analysis of how that segment grows over time. If the 30 to 40 age group in Bangalore is 1 lakh today, the question is what it is in five years. If it is still 1 lakh, the market is a bad one, because there is no growth. Is it growing at 2 percent, 3 percent, 5 percent or 10 percent? The data sources are demographic data, the government census, and sociological growth-rate data published in research papers, journals and articles.

Worked numerical: sizing and growing a segment

Given: the target cohort in Bangalore, aged 30 to 40, numbers 100,000 people today. A sample survey finds that 18 percent have the purchase intention plus both the willingness and the ability to pay. The cohort is projected to grow at 5 percent per annum for five years.

Current segment size:

Population in five years:

Segment size in five years, holding the qualified proportion constant:

Answer: current demand potential is 18,000 buyers, rising to roughly 22,973 in five years, an increase of about 27.6 percent. Note that the qualifying screen (need plus willingness plus ability) removes 82 percent of the raw population. Sizing a segment off headcount alone would overstate the market by more than five times.

2.3.3 Structural Attractiveness: Porter's Five Forces

Structural attractiveness is the external analysis of the market. The model is Michael Porter's five forces.

Memory hook: The ideal is high entry barrier, low exit barrier, and all five forces low. In the utopian world that segment does not exist. So you mix and match, score the segments on all five, and pick the one with the best overall profile. You will not get everything low.

Common trap: the first two forces are easy to confuse. Threat of new entrants is about getting in. Threat of intense segment rivalry is about getting out.

2.3.4 The Weighted-Average Segment Scoring Model

The three criteria (size and growth, structural attractiveness, objectives and resources) are combined quantitatively, not by judgement alone. Assign a weight to each criterion, score every segment on every criterion, and take the weighted average. The segment with the highest total score is the target.

Worked numerical

Given: weights of 0.40 for size and growth, 0.35 for structural attractiveness and 0.25 for objectives and resources. Two candidate segments score out of 10 as follows.

Segment A:

Segment B:

Answer: Segment B wins at 6.95 against 6.45, even though Segment A is the larger and faster growing market. A big segment inside a structurally hostile industry, with five forces working against you, is worth less than a smaller segment you can defend. This is precisely why size is only one of three criteria.

2.3.5 Targeting Strategy: Single Segment Concentration

The worked frame runs throughout: three customer groups (teens, adults, elders) against three product categories (cosmetics, apparels, shoes), giving a three by three grid of nine segments.

Single segment concentration: choose one of the nine. Cosmetics for adult women, and nothing else.

2.3.6 Targeting Strategy: Selective Specialization

Selective specialization: focus on several individual segments that need not be related. Shoes for teens, cosmetics for adult women, apparels for elders. Three of the nine.

2.3.7 Targeting Strategy: Product Specialization

Product specialization: one particular product for everybody. Cosmetics for teens, adults and elders alike.

2.3.8 Targeting Strategy: Market Specialization

Market specialization: satisfy all the needs of one particular customer group. Cosmetics, apparels and shoes, all for adult women.

Common trap: product specialization and market specialization are mirror images and are routinely swapped in exams. Product specialization is one row (one product, all groups). Market specialization is one column (all products, one group).

2.3.9 Targeting Strategy: Differentiated Full Market Coverage

Full market coverage takes all nine segments. It comes in two forms.

Differentiated full market coverage: cover all nine cells, but with different offerings for each. Cosmetics go to teens, adults and elders, but not the same cosmetics: price points differ, promotions differ. Apparels go to all three, but sizes, colours, cuts, materials, promotions and prices all differ.

2.3.10 Targeting Strategy: Undifferentiated Full Market Coverage

Undifferentiated full market coverage: one offering for everybody. This is the mass marketing strategy.

2.3.11 The Five Targeting Strategies, and a Sixth

The live revision session adds a sixth strategy at the opposite extreme from mass marketing:

Memory hook: the targeting spectrum runs from one offering for everyone (undifferentiated) to one offering for each person (micromarketing). Everything else sits between those poles, and the choice is driven by the weighted score of size, attractiveness and your own resources.

2.3.12 Where This Leads

Segmentation and targeting are complete. The marketer can now define the consumer and predict their probable response to various stimuli. The next step is a positioning strategy, and before positioning you must first establish how your product or service differs from the competitor's. That is differentiation, and it opens Module 03.

Quick Revision Checklist