59  Market Segmentation, Targeting and Positioning

59.1 The STP Framework

STP — Segmentation, Targeting, Positioning — is the strategic heart of modern marketing. Coined by Wendell R. Smith (Journal of Marketing, 1956) — “Product Differentiation and Market Segmentation” — and standardised by Philip Kotler as the bridge between marketing analysis and the marketing mix.

flowchart LR
  S[1. Segmentation<br/>Divide market<br/>into groups] --> T[2. Targeting<br/>Choose attractive<br/>segments]
  T --> P[3. Positioning<br/>Differentiate<br/>offer]
  P --> MIX[4. Marketing Mix<br/>4 Ps]
    classDef default fill:#003366,color:#ffffff,stroke:#ffcc00,stroke-width:3px,rx:10px,ry:10px;

59.2 Market Segmentation

Market Segmentation = the process of dividing a heterogeneous market into smaller, more homogeneous groups of consumers who share similar needs, characteristics or behaviours, and who require separate marketing strategies or mixes.

TipWorking definitions
Author Definition
Wendell R. Smith (1956) “Viewing a heterogeneous market as a number of smaller homogeneous markets in response to differing product preferences.”
Philip Kotler “Dividing a market into distinct groups of buyers who have distinct needs, characteristics, or behaviour and who might require separate products or marketing programmes.”
Stanton “The process of dividing the total heterogeneous market for a good or service into several segments, each of which tends to be homogeneous in significant respects.”
Cravens “The identification of customer groups within the market that have similar response behaviour.”

59.3 Why Segment?

TipBenefits of segmentation
  • Better customer understanding.
  • Higher customer satisfaction through tailored offers.
  • Efficient resource allocation.
  • Identification of growth opportunities.
  • Sharper competitive positioning.
  • Better channel and pricing decisions.
  • Higher ROI on marketing spend.
  • Discovery of unmet needs.

59.4 Bases of Segmentation

TipFive bases of consumer-market segmentation
Basis Variables Examples
Geographic Country, region, city size, climate, urban/rural India urban vs rural; metros vs Tier 2/3
Demographic Age, gender, income, occupation, education, family size, religion Millennials vs Gen Z; SEC A/B/C; women’s segment
Psychographic Lifestyle, personality, values (AIO) LOHAS · VALS (Mitchell)
Behavioural Usage rate, occasion, benefits sought, loyalty, attitude Heavy/light user; brand loyal; Diwali shopper
Hybrid / Geo-demographic Combinations Mosaic, ACORN, PRIZM, India’s IRS

59.4.1 Demographic Segmentation Details

TipCommon demographic variables
  • Age — children, teens, young adults, middle-aged, seniors.
  • Gender — male, female, non-binary, family decisions.
  • Income — SEC (Socio-Economic Classification: A1, A2, B, C, D, E in India).
  • Occupation — white-collar, blue-collar, professional, student.
  • Education — schooling, graduate, post-graduate.
  • Family Life Cycle — single, newlywed, full-nest I/II/III, empty-nest, solitary.
  • Religion · Ethnicity · Nationality · Generation.
NoteFamily Life Cycle — Wells & Gubar (1966)

Stages: Bachelor · Newly Married · Full Nest I (young children) · Full Nest II (older children) · Full Nest III (older children with grown ones) · Empty Nest I (still working) · Empty Nest II (retired) · Solitary Survivor. Adopted widely in consumer behaviour research.

59.4.2 Psychographic Segmentation

TipPsychographic frameworks
  • AIO — Activities, Interests, Opinions (Plummer 1974).
  • VALS (Values, Attitudes, Lifestyles) — Arnold Mitchell, SRI International (1978); revised VALS2 (1989).
  • VALS Segments: Innovators · Thinkers · Achievers · Experiencers · Believers · Strivers · Makers · Survivors.
  • LOHAS — Lifestyle of Health and Sustainability.
  • PRIZM / Claritas — geo-demographic-psychographic.
  • Indian context — MOSAIC India.

59.4.3 Behavioural Segmentation

TipBehavioural variables
  • Occasion — daily, festive, vacation, business.
  • Benefits sought — Yankelovich’s benefit segmentation (1964).
  • Usage rate — heavy, medium, light (80-20 / Pareto).
  • User status — non-user, ex-user, potential, first-time, regular.
  • Loyalty status — hardcore, split, shifting, switchers.
  • Buyer-readiness stage — unaware, aware, informed, interested, desirous, intending to buy.
  • Attitude — enthusiastic, positive, indifferent, negative, hostile.

59.4.4 B2B / Industrial Segmentation

TipIndustrial market segmentation
  • Demographics — industry, size, location.
  • Operating variables — technology, user status, capability.
  • Purchasing approach — purchasing function, power structure, criteria.
  • Situational factors — urgency, application, order size.
  • Personal characteristics — buyer-seller similarity, attitudes to risk.
  • Bonoma-Shapiro nested model (1984) — 5 nested levels.

59.5 Criteria for Effective Segmentation

TipEffective segmentation — Kotler’s 5 criteria
  • Measurable — size, purchasing power can be measured.
  • Substantial — large enough to be profitable.
  • Accessible — can be reached and served.
  • Differentiable — distinguishable from other segments.
  • Actionable — feasible to design effective programmes.

(Some texts add Stable — sufficient durability.)

59.6 Levels of Market Segmentation

TipFive levels of segmentation — Kotler
Level Description
Mass Marketing One product, one programme, all buyers (Coca-Cola pre-1980s)
Segment Marketing Distinct programmes for distinct segments (Maruti for different income groups)
Niche Marketing Narrow segment with specific needs (Royal Enfield, Apple’s high-end)
Local / Micro Marketing Local-area customisation (regional brand variations)
Individual / One-to-One Mass customisation, personalisation (Amazon recommendations, Dell BTO)

59.7 Process of Segmentation, Targeting and Positioning

TipSTP process — six steps
  1. Identify bases for segmenting the market.
  2. Develop profiles of resulting segments.
  3. Evaluate segment attractiveness.
  4. Select target segment(s).
  5. Develop positioning for each target segment.
  6. Develop marketing mix for each target segment.

59.8 Targeting / Market Coverage

Target Marketing = the process of evaluating each market segment’s attractiveness and selecting one or more segments to enter. Kotler identifies five target-market coverage strategies.

TipKotler’s five target-market strategies
Strategy Description Example
Single-Segment Concentration One segment with one product Rolex (luxury watches)
Selective / Multi-Segment Specialisation Multiple segments with different products P&G’s multiple brands
Product Specialisation One product for multiple segments Microscopes for many user types
Market Specialisation Multiple products for one segment Servicing universities
Full Market Coverage All products to all segments — undifferentiated or differentiated Coca-Cola, HUL

59.9 Three Marketing Strategies by Segment Coverage

TipThree classic targeting strategies
Strategy Description Example
Undifferentiated (Mass) Single mix for entire market Coca-Cola pre-1980
Differentiated (Multi-segment) Multiple mixes for multiple segments HUL’s Lifebuoy + Dove + Lux
Concentrated (Niche) Single mix for narrow segment Rolls-Royce, Ferrari
Micromarketing / Customised Individualised mix Bespoke tailoring, Dell

59.10 Evaluating Segments — Attractiveness

TipSegment-attractiveness factors
  • Size and growth rate of segment.
  • Structural attractiveness — Porter’s 5 Forces in that segment.
  • Profitability potential.
  • Company objectives and resources fit.
  • Competition intensity in segment.
  • Distribution and channel considerations.
  • Risk profile.

59.11 Positioning

Positioning is the act of designing the company’s offering and image so that it occupies a distinct and valued place in the target customer’s mind. The classic text is Al Ries and Jack Trout’s Positioning: The Battle for Your Mind (1981).

TipWorking definitions of positioning
Author Definition
Al Ries & Jack Trout (1981) “Positioning is not what you do to a product. Positioning is what you do to the mind of the prospect.”
Kotler “Designing the company’s offer and image so that they occupy a meaningful and distinctive competitive position in the target customers’ minds.”
Aaker “The part of the brand identity and value proposition that is to be actively communicated to a target audience.”
Wind “The place a product occupies in a given market, as perceived by the relevant group of customers.”

59.11.1 Ries-Trout’s Insight

Al Ries and Jack Trout — “In the over-communicated society of today, the only hope of scoring big is to be selective, to concentrate on narrow targets, to practise segmentation. In a word: positioning.”

59.12 Positioning Strategies

TipCommon positioning bases
  • Attribute / Feature positioning — e.g., Volvo (safety).
  • Benefit positioning — e.g., Colgate (decay prevention).
  • Use / Application positioning — e.g., Cadbury (gift).
  • User positioning — e.g., Pampers (mothers of infants).
  • Competitor positioning — e.g., Avis (“We try harder” #2 vs Hertz).
  • Product Category positioning — e.g., 7-Up (“Uncola”).
  • Quality / Price positioning — e.g., Walmart (low price); Rolex (high end).
  • Cultural Symbol positioning — Hallmark cards, Patanjali.
  • Hybrid / Multi-attribute positioning.

59.13 Differentiation

Differentiation creates the basis for positioning. Kotler identifies five dimensions:

TipFive dimensions of differentiation (Kotler)
Dimension Examples
Product Features, performance, durability, design
Service Delivery, installation, training, maintenance
Channel Coverage, expertise, performance
People / Personnel Competence, courtesy, credibility, reliability
Image / Brand Symbols, atmosphere, events, written/audiovisual media

59.14 Perceptual / Positioning Maps

TipPerceptual maps
  • Two-dimensional plot of competing brands on key attributes (e.g., price × quality).
  • Helps identify positioning gaps.
  • Reveals competitive clusters and “ideal points”.
  • Built using consumer-survey data + multidimensional scaling.

59.15 Brand Positioning Statement

Kotler-Keller template:

“To [target segment] who [need], our brand is the [product category] that provides [key benefit] because [reason to believe].”

Example: “To busy urban professionals who value health, Amul Pro is the chocolate milk drink that delivers complete daily nutrition because it is fortified with 21 essential vitamins and minerals.”

59.16 Repositioning

Repositioning = changing the position of a product in the consumer’s mind, usually due to market changes, competitive moves, or product life-cycle stage.

TipTypes of repositioning
  • Tangible (Real) repositioning — change in product.
  • Symbolic repositioning — change in image, not product.
  • Augmented — adding services/features.
  • De-positioning — change consumer perception of competitor.
  • Famous Indian repositioning: Mountain Dew (action → “Dar ke aage jeet hai”), Bournvita (“Tayyari Jeet Ki”), Cadbury Dairy Milk (kids → all-occasion).

59.17 Errors in Positioning — Kotler

TipFour positioning errors (Kotler)
  • Underpositioning — buyers have only a vague idea of the brand.
  • Overpositioning — too narrow image, hides breadth.
  • Confused Positioning — too many claims dilute clarity.
  • Doubtful Positioning — claims not believable.

59.18 USP — Unique Selling Proposition

USP — Unique Selling Proposition — coined by Rosser Reeves (Ted Bates agency, Reality in Advertising, 1961). Three criteria: (1) Each ad must say “Buy this product, you will get this specific benefit”; (2) The benefit must be one competitors cannot offer; (3) It must be strong enough to move millions.

59.19 Positioning Maps and Multidimensional Scaling

Multidimensional Scaling (MDS) is a quantitative technique to construct perceptual maps from consumer similarity / dissimilarity ratings. Pioneered by Joseph Kruskal (1964) at Bell Labs.

59.20 Brand Positioning Models

TipBrand positioning models
  • Aaker’s Brand Identity Prism (1996) — Product · Organisation · Person · Symbol.
  • Kapferer’s Brand Identity Prism.
  • Keller’s Customer-Based Brand Equity (CBBE) Pyramid (2001): Salience · Performance · Imagery · Judgements · Feelings · Resonance.
  • Brand Resonance Pyramid (Keller).
  • Y&R BrandAsset Valuator (BAV).

59.21 STP in India — Famous Cases

TipIndian STP examples
  • Maruti Suzuki — segmented by income (Alto, Wagon-R, Swift, Baleno, Ciaz, S-Cross).
  • HUL — Lifebuoy (mass), Dove (premium), Pears (super-premium); Lux (women).
  • ITC’s Aashirvaad — premium atta segment.
  • Patanjali — Ayurvedic + price-conscious positioning.
  • Royal Enfield — niche cruiser-motorcycle segment.
  • OYO — budget hotels segment.
  • Tata Nano — bottom-of-the-pyramid (Prahalad).
  • MakeMyTrip / RedBus — geographic + behavioural.
  • boAt — youth + audio + affordable luxury.

59.23 Practice Questions

Q 01 Smith Medium

The concept of market segmentation was introduced in 1956 by:

  • AWendell R. Smith
  • BPhilip Kotler
  • CAl Ries
  • DTheodore Levitt
View solution
Correct Option: A
Wendell R. Smith, *Journal of Marketing* (1956).
Q 02 Ries Trout Medium

*Positioning: The Battle for Your Mind* (1981) was by:

  • ARies & Trout
  • BKotler & Keller
  • CAaker & Joachimsthaler
  • DChristensen
View solution
Correct Option: A
Al Ries and Jack Trout (1981).
Q 03 Bases Easy

Income, age and gender are examples of which segmentation basis?

  • AGeographic
  • BDemographic
  • CPsychographic
  • DBehavioural
View solution
Correct Option: B
Demographic variables.
Q 04 VALS Medium

VALS (Values, Attitudes, Lifestyles) framework was developed in 1978 by:

  • AArnold Mitchell / SRI
  • BKotler
  • CPlummer
  • DYankelovich
View solution
Correct Option: A
Arnold Mitchell at SRI International (1978); VALS2 in 1989.
Q 05 Criteria Medium

Kotler's criteria for effective segmentation include all EXCEPT:

  • AMeasurable
  • BSubstantial
  • CAccessible
  • DRisky
View solution
Correct Option: D
Five: Measurable · Substantial · Accessible · Differentiable · Actionable.
Q 06 USP Medium

"Unique Selling Proposition" (USP) was coined by:

  • ARosser Reeves
  • BDavid Ogilvy
  • CBill Bernbach
  • DLeo Burnett
View solution
Correct Option: A
Rosser Reeves, *Reality in Advertising* (1961), Ted Bates agency.
Q 07 Mass marketing Easy

Which is the broadest level of market segmentation?

  • AMass Marketing
  • BNiche Marketing
  • COne-to-One Marketing
  • DMicro Marketing
View solution
Correct Option: A
Mass Marketing — one product, one programme, all buyers.
Q 08 Differentiation Medium

Kotler's five dimensions of differentiation include all EXCEPT:

  • AProduct
  • BService
  • CChannel
  • DProfit
View solution
Correct Option: D
Five: Product · Service · Channel · People · Image.
Q 09 Positioning error Medium

"Too many claims about a brand dilute its image" — this is:

  • AUnderpositioning
  • BOverpositioning
  • CConfused positioning
  • DDoubtful positioning
View solution
Correct Option: C
Too many claims → confused positioning.
Q 10 Avis Medium

"We try harder" (Avis vs Hertz) is an example of:

  • AAttribute positioning
  • BCompetitor positioning
  • CBenefit positioning
  • DCategory positioning
View solution
Correct Option: B
Competitor positioning — explicitly comparing against #1.
Q 11 Bonoma-Shapiro Hard

The "Nested Approach" to industrial market segmentation (1984) was proposed by:

  • ABonoma & Shapiro
  • BWebster & Wind
  • CKotler
  • DDay
View solution
Correct Option: A
Bonoma & Shapiro (1984) — 5 nested levels for B2B.
Q 12 Family Life Cycle Hard

"Family Life Cycle" segmentation was developed in 1966 by:

  • AWells & Gubar
  • BYankelovich
  • CMitchell
  • DPlummer
View solution
Correct Option: A
Wells & Gubar (1966).
Q 13 Concentrated Easy

A "Concentrated" marketing strategy is most suitable for:

  • AFMCG firms
  • BNiche luxury brands (e.g., Rolls-Royce)
  • CNational retailers
  • DMass marketers
View solution
Correct Option: B
Single mix for narrow segment — Rolls-Royce, Ferrari.
Q 14 Volvo Medium

Volvo's positioning is based primarily on:

  • ASafety (attribute)
  • BPrice
  • CSpeed
  • DStatus
View solution
Correct Option: A
Safety — classic attribute positioning.
Q 15 Benefit Hard

"Benefit segmentation" was developed in 1964 by:

  • ADaniel Yankelovich
  • BKotler
  • CSmith
  • DMitchell
View solution
Correct Option: A
Daniel Yankelovich, HBR (1964) — benefit segmentation.
Q 16 Perceptual map Medium

A "perceptual map" typically plots:

  • ABrands on two key attributes as perceived by consumers
  • BSales over time
  • CGeographic store density
  • DInventory turnover
View solution
Correct Option: A
2-D plot of competitor brands on key attributes; reveals gaps.
Q 17 Repositioning Medium

Mountain Dew's shift from action to "Darr ke aage jeet hai" is an example of:

  • ARepositioning
  • BUnderpositioning
  • CDoubtful positioning
  • DDe-positioning
View solution
Correct Option: A
Brand image shifted in consumer mind → repositioning.
Q 18 JTBD Hard

"Jobs-to-be-Done" segmentation is associated with:

  • AClayton Christensen
  • BTheodore Levitt
  • CPhilip Kotler
  • DSeth Godin
View solution
Correct Option: A
Clayton Christensen — focus on the "job" the product is hired to do.
Q 19 CBBE Hard

Keller's CBBE Pyramid has at its apex:

  • ASalience
  • BPerformance
  • CImagery
  • DResonance
View solution
Correct Option: D
Pyramid: Salience → Performance/Imagery → Judgements/Feelings → Resonance.
Q 20 Match bases Hard

Match the segmentation basis with its variable:

(i) Geographic (a) Loyalty
(ii) Demographic (b) Region
(iii) Psychographic (c) Income
(iv) Behavioural (d) Lifestyle
  • A(i)-(b), (ii)-(c), (iii)-(d), (iv)-(a)
  • B(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
  • C(i)-(c), (ii)-(d), (iii)-(a), (iv)-(b)
  • D(i)-(d), (ii)-(a), (iii)-(b), (iv)-(c)
View solution
Correct Option: A
Geographic — Region; Demographic — Income; Psychographic — Lifestyle; Behavioural — Loyalty.

59.23.1 Advanced Format Questions

AR 1Assertion-ReasonHard

A: Effective segmentation requires segments to be measurable, accessible, substantial, differentiable, actionable.
R: Kotler's MASDA framework provides these criteria.

  • ABoth true; R explains A
  • BBoth true; R does not explain A
  • CA true, R false
  • DA false, R true
View solution
Correct Option: A
S 1Statement-basedMedium

Bases of segmentation: (i) Demographic. (ii) Geographic. (iii) Psychographic. (iv) Behavioural.

  • AAll four
  • B(i) and (ii) only
  • C(iii) and (iv) only
  • D(i) only
View solution
Correct Option: A
S 2Statement-basedHard

Targeting strategies: (i) Undifferentiated. (ii) Differentiated. (iii) Concentrated. (iv) Micromarketing.

  • AAll four
  • B(i) and (ii) only
  • C(iii) and (iv) only
  • D(i), (ii), (iii) only
View solution
Correct Option: A

59.24 Quick Recall

ImportantQuick recall
  • STP = Segmentation · Targeting · Positioning.
  • Origin — Wendell R. Smith (JM 1956) — coined market segmentation.
  • Definitions: Smith · Kotler · Stanton · Cravens.
  • 8 benefits of segmentation.
  • 5 bases: Geographic · Demographic · Psychographic · Behavioural · Hybrid.
  • Demographic variables: Age · Gender · Income (SEC A1-E) · Occupation · Education · Family Life Cycle (Wells-Gubar 1966) · Religion · Generation.
  • Psychographic: AIO (Plummer 1974) · VALS (Mitchell SRI 1978; VALS2 1989) · LOHAS · PRIZM · MOSAIC.
  • Behavioural: Occasion · Benefit (Yankelovich 1964) · Usage rate · User status · Loyalty · Buyer-readiness · Attitude.
  • B2B: Bonoma-Shapiro nested model (1984) — 5 levels.
  • Kotler’s effective segmentation criteria (5): Measurable · Substantial · Accessible · Differentiable · Actionable.
  • Levels (Kotler): Mass · Segment · Niche · Local/Micro · Individual / One-to-One.
  • STP process (6 steps): Identify bases → Profile segments → Evaluate → Select → Position → Mix.
  • Targeting (Kotler 5): Single-Segment Concentration · Selective · Product Specialisation · Market Specialisation · Full Market Coverage.
  • 3 classic targeting strategies: Undifferentiated (Mass) · Differentiated (Multi-segment) · Concentrated (Niche); plus Micromarketing.
  • Segment evaluation: size/growth · 5 Forces · profitability · resource fit · competition · distribution · risk.
  • Positioning — Ries & Trout (1981) Battle for Your Mind.
  • Positioning bases: Attribute · Benefit · Use · User · Competitor · Category · Quality/Price · Cultural symbol · Hybrid.
  • Differentiation dimensions (Kotler 5): Product · Service · Channel · People · Image.
  • Perceptual maps; MDS — Kruskal (1964).
  • Brand positioning statement template (Kotler-Keller).
  • Repositioning: Tangible · Symbolic · Augmented · De-positioning.
  • Positioning errors (Kotler 4): Under · Over · Confused · Doubtful.
  • USP — Rosser Reeves (1961) Reality in Advertising.
  • Positioning models: Aaker · Keller’s CBBE Pyramid (Salience → Performance/Imagery → Judgements/Feelings → Resonance) · Kapferer · Y&R BAV.
  • Indian examples: Maruti · HUL · ITC Aashirvaad · Patanjali · Royal Enfield · OYO · Tata Nano · MakeMyTrip · boAt.
  • Modern trends: micro-segmentation with AI · hyper-personalisation · behavioural cohorts · lookalike models · JTBD (Christensen) · tribes (Godin) · values-based · real-time contextual · privacy-first · gen-AI personas · sentiment segmentation · omnichannel positioning.