58  Market Segmentation, Targeting and Positioning

58.1 What is STP?

STP — Segmentation, Targeting, Positioning — is the strategic backbone of modern marketing. The premise: a single market is rarely homogeneous; firms succeed by choosing which customer groups to serve and what unique position to occupy in their minds.

Philip Kotler frames STP as the “essence of strategic marketing” — a sequence in which the firm first identifies distinct customer groups (segmentation), then decides which to serve (targeting), and finally crafts a value proposition for that target (positioning) (kotlerkeller2022?).

flowchart LR
  S[Segmentation<br/>Identify distinct groups<br/>in the market] --> T[Targeting<br/>Select segments<br/>to serve]
  T --> P[Positioning<br/>Craft a clear<br/>value proposition]
  style S fill:#E3F2FD,stroke:#1565C0
  style T fill:#FFF3E0,stroke:#EF6C00
  style P fill:#E8F5E9,stroke:#2E7D32

Wendell Smith’s 1956 paper introduced the concept of segmentation into modern marketing thought; the STP language was popularised by Kotler in the 1970s (smith1956?).

58.2 Segmentation — Bases

Markets can be segmented on many bases. Kotler’s standard four families:

TipFour Bases of Consumer Market Segmentation
Basis Variables Example
Geographic Region, country, climate, urban / rural India tier-1 / tier-2 / tier-3 cities
Demographic Age, gender, family size, income, occupation, education, religion, race, generation Millennials, Gen Z, dual-income households
Psychographic Lifestyle, personality, values Value-conscious, status-seekers, eco-warriors
Behavioural Occasion, benefit sought, user status, usage rate, loyalty, readiness, attitude Heavy users, brand-loyal customers, special-occasion buyers

For industrial / B2B markets, additional bases include:

  • Demographic of the buying organisation (industry, size, location).
  • Operating variables (technology, user/non-user, capabilities).
  • Purchasing approach (centralised vs decentralised, buying criteria).
  • Situational factors (urgency, specific application, order size).
  • Personal characteristics of buyers (loyalty, attitude to risk).

58.3 Tests of Useful Segmentation

Kotler lists five criteria for an effective segment (kotlerkeller2022?):

TipFive Tests of Useful Segmentation (Kotler)
Criterion What it asks
Measurable Can the segment’s size, purchasing power, and characteristics be quantified?
Substantial Is the segment large or profitable enough to serve?
Accessible Can the segment be reached and served?
Differentiable Is the segment distinguishable from others, and does it respond differently to marketing efforts?
Actionable Can effective programmes be designed to attract and serve the segment?

Mnemonic: MSADA — Measurable, Substantial, Accessible, Differentiable, Actionable.

58.4 Levels of Segmentation

TipFour Levels of Market Segmentation (Kotler)
Level Description Example
Mass marketing One product for the entire market Coca-Cola for decades
Segment marketing A few large segments, each addressed distinctly Hyundai’s car portfolio
Niche marketing A narrow, specialised segment Royal Enfield
Micro / Customised marketing Local or one-to-one customisation Stitch Fix; Nike By You

The trajectory has been from mass to micro — driven by data, digital, and customer expectations.

58.5 Targeting — Strategy Choices

Kotler identifies five targeting strategies based on the segments served and the products offered (kotlerkeller2022?):

TipFive Targeting / Coverage Strategies
Strategy What the firm does Example
Single-segment concentration Serve one segment with one product Rolex (luxury watches)
Selective specialisation Multiple segments, multiple products — but each profitable Diversified consumer goods
Product specialisation One product line across multiple segments Microscope-maker for hospitals, schools, labs
Market specialisation Many products, all serving one segment School-supplies firm
Full market coverage Serve all segments with all products Coca-Cola; Unilever

Three classical targeting approaches in coverage:

TipThree Targeting Approaches (Kotler)
Approach Description
Undifferentiated (mass) One marketing mix for all
Differentiated Different mixes for different segments
Concentrated (niche) Focus on one or a few segments with a tailored mix

58.6 Positioning — The Mind Game

Positioning is the act of designing the company’s offering and image to occupy a distinct, valued place in the target customer’s mind (kotlerkeller2022?).

Al Ries and Jack Trout’s classic book Positioning: The Battle for Your Mind (1981) is the foundational text (riestrout1981?). The shorthand: positioning is not what you do to the product; it is what you do to the mind of the prospect.

58.6.1 Bases for positioning

TipCommon Bases for Positioning
Basis Example
Attribute Volvo on safety; BMW on driving pleasure
Benefit Crest on cavity protection
Use / Application Gatorade for athletes
User Marlboro for the rugged smoker
Competitor Avis: “We try harder” (vs Hertz)
Product category 7-Up: “The Uncola”
Quality / Price Lexus: “Pursuit of perfection”
Cultural symbol Tata Salt: “Desh Ka Namak”

58.6.2 Positioning errors (Kotler)

TipFour Positioning Errors
Error What goes wrong
Underpositioning Vague — buyers have a hazy idea of the brand
Overpositioning Too narrow — buyers think the brand only serves a tiny niche
Confused positioning Conflicting claims confuse buyers
Doubtful positioning Claims are not credible

58.6.3 Perceptual Maps

A perceptual map plots brands on two key attributes (e.g., price vs quality, performance vs status). Gaps in the map suggest positioning opportunities. Tools include factor analysis, multi-dimensional scaling, and conjoint analysis.

58.7 Differentiation — the Companion to Positioning

Positioning needs differentiation to support it. Kotler’s five sources of differentiation (kotlerkeller2022?):

TipKotler’s Five Sources of Differentiation
Source Examples
Product Performance, features, design, durability
Services Ease of ordering, delivery, installation, training, consulting, repair
Personnel Trained, courteous staff
Channel Coverage, expertise, performance
Image Symbols, logos, atmosphere, events, brand stories

A useful integration: a strong positioning statement combines (a) the target segment, (b) the firm’s offering, (c) the source of differentiation, and (d) the reason to believe.

58.8 Practice Questions

Q 01 STP Easy

In the STP framework, the correct sequence is:

  • ATargeting → Segmentation → Positioning
  • BSegmentation → Targeting → Positioning
  • CPositioning → Targeting → Segmentation
  • DTargeting → Positioning → Segmentation
View solution
Correct Option: B
Identify distinct groups (Segmentation) → Choose whom to serve (Targeting) → Craft a clear position in their minds (Positioning).
Q 02 Bases Medium

A firm segmenting consumers by lifestyle, personality and values is using which basis of segmentation?

  • AGeographic
  • BDemographic
  • CPsychographic
  • DBehavioural
View solution
Correct Option: C
Lifestyle, personality, values = psychographic bases. Behavioural uses occasion, benefit, usage, loyalty.
Q 03 Tests Medium

Kotler's five tests of useful segmentation are best remembered by the mnemonic MSADA. The "S" stands for:

  • AStrategic
  • BSubstantial
  • CStable
  • DStylish
View solution
Correct Option: B
Five tests: Measurable, Substantial, Accessible, Differentiable, Actionable.
Q 04 Targeting Medium

A firm offering a single product to the entire market with a single marketing mix is following:

  • ADifferentiated marketing
  • BConcentrated marketing
  • CUndifferentiated (mass) marketing
  • DNiche marketing
View solution
Correct Option: C
One product, one mix, whole market = undifferentiated / mass. Differentiated = different mixes per segment; Concentrated = focus on one or a few segments.
Q 05 Ries Trout Easy

"Positioning is not what you do to the product; it is what you do to the mind of the prospect" — this idea is associated with:

  • APhilip Kotler
  • BAl Ries and Jack Trout
  • CTheodore Levitt
  • DWendell Smith
View solution
Correct Option: B
Al Ries and Jack Trout's 1981 book Positioning: The Battle for Your Mind is the foundational text on positioning.
Q 06 Positioning Errors Medium

A brand whose positioning is so narrow that buyers believe it serves only a tiny niche is suffering from:

  • AUnderpositioning
  • BOverpositioning
  • CConfused positioning
  • DDoubtful positioning
View solution
Correct Option: B
Overpositioning = too narrow. Underpositioning = too vague; confused = conflicting claims; doubtful = not credible.
Q 07 Smith Medium

The concept of "market segmentation" was first introduced into modern marketing thought by:

  • AWendell Smith (1956)
  • BPhilip Kotler (1967)
  • CAl Ries (1981)
  • DTheodore Levitt (1960)
View solution
Correct Option: A
Wendell Smith's 1956 paper "Product Differentiation and Market Segmentation as Alternative Marketing Strategies" introduced the concept; Kotler popularised it.
Q 08 Differentiation Medium

Match Kotler's source of differentiation with an example:

(i) Product (a) Trained, courteous staff
(ii) Services (b) Logos, atmosphere, brand stories
(iii) Personnel (c) Performance, design, durability
(iv) Image (d) Ease of ordering, delivery, installation
  • A(i)-(c), (ii)-(d), (iii)-(a), (iv)-(b)
  • B(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
  • C(i)-(b), (ii)-(c), (iii)-(d), (iv)-(a)
  • D(i)-(d), (ii)-(a), (iii)-(b), (iv)-(c)
View solution
Correct Option: A
Product → performance/design/durability; Services → ease of ordering/delivery; Personnel → trained staff; Image → logos/brand stories.
ImportantQuick recall
  • STP = Segmentation → Targeting → Positioning. Concept introduced by Wendell Smith (1956), popularised by Kotler.
  • Four bases of segmentation: Geographic · Demographic · Psychographic · Behavioural. B2B adds operating, purchasing, situational, personal.
  • Five tests (mnemonic MSADA): Measurable · Substantial · Accessible · Differentiable · Actionable.
  • Four levels: Mass · Segment · Niche · Micro / Customised. Trajectory has been mass → micro.
  • Three targeting approaches: Undifferentiated · Differentiated · Concentrated. Five coverage strategies: single-segment, selective, product, market, full coverage.
  • Ries & Trout (1981): positioning = battle for the mind. Bases — attribute, benefit, use, user, competitor, category, quality/price, cultural symbol.
  • Four positioning errors: Under, Over, Confused, Doubtful.
  • Differentiation: Product · Services · Personnel · Channel · Image.