Case Study - STP

An Example of the Segmentation,
Targeting and Positioning Process

A good example of the STP process (segmentation, targeting, positioning) can be found during
the Cola Wars in the 1980s between Coca-Cola and Pepsi-Cola. As you may be aware, Coca-Cola
eventually took the dramatic act of reformulating their flagship Coca-Cola product and
withdrawing it from the market to replace it with “new” Coke.
Please review this article for further information on the background factors that resulted in the
development and launch of New Coke.
During this era, where Pepsi were quite aggressive with their marketing programs, including the
Pepsi Challenge taste test advertising and the “choice of a new generation” positioning, Pepsi
segmented the market on a very simplistic basis, using an attitude and loyalty
segmentation approach.
Pepsi segmented the market into three consumer segments only, namely:
1. Consumers with a positive attitude to the Coke brand and 100% loyal to Coke
2. Consumers with a positive attitude to the Pepsi brand and 100% loyal to Coke
3. Consumers with a positive attitude to both Coke and Pepsi, with loyalty to both brands,
but switching their purchases between these two brands from time to time
It is in this third market segment that the battle for market leadership in the cola market was
always waged, up to the New Coke decision in 1985. This switching segment were responsive to
sales promotions consisting of point-of-purchase displays, discounts, general advertising, as
well as personal factors such as mood, social situation, taste preference, and so on.
Therefore, the combined promotional budgets of Coke and Pepsi – which at the time were in the
vicinity of $350 million per annum (with Coke spending $200 million and Pepsi spending $150
million) – were essentially targeting the 50% of cola drinkers that would switch between the
Coke and Pepsi brands. There was less expenditure, because there was less marketing return on
investment, on focusing on the brand loyal customers, as they were unlikely to switch their
purchase preferences.
However, following the launch of the New Coke product, Pepsi modified their target market
selection that started targeting loyal Coke drinkers (approximately 25% of the market). This is
because there was dissatisfaction among existing Coke drinkers that the “classic” Coca-Cola
product was no longer available in the marketplace.
As a result of this shift in target market selection, Pepsi positioned their product as the main
reason that Coca-Cola replaced their classic Coca-Cola with New Coke. This positioning
change is demonstrated in the following two TV commercials that Pepsi ran at the time. The first
shows a teenage girl who is virtually discussing a breakup scenario and is emotionally upset that
Coca-Cola has changed. This positioning is consistent somewhat with Pepsi’s youth target
market at the time.
However, the second TV commercial shows an older demographic of very traditional and loyal
Coke drinkers. It is tapping in nicely into the dissatisfaction among Coke drinkers. This is
particularly highlighted in a line in the Pepsi TV commercial where Wilbur says “they changed
my Coke”. The key word here is the word “my”– which demonstrates the mood of the time that
Coca-Cola belonged to the consumer market, not to the company. Following this decision, and
the relaunch of “classic” Coca-Cola, Coca-Cola’s management did recognize that they were
caretakers of an American icon.
You can view both of the Pepsi TV commercials at the bottom of this page.
This change in marketing strategy by Pepsi in response to the competitive action by Coke, clearly
highlights the three steps of segmentation – targeting – positioning. By a change in the
segmentation view, and the selection of a new target market, the company is enabled to
construct a modified market positioning, which should have the effect of increasing market
share.
What is positioning?
Positioning is defined as the target market’s perception of the product’s key benefits and
features, relative to the offerings of competitive products.
 Positioning is the perception held by consumers

 The focus is on the perceptions of the target market
 Only the key features and benefits can be effectively communicated for most brands
 Perception is relative to competing products
The role of positioning in the STP process
Positioning is the third and final major phase of the overall STP (segmentation, targeting and

positioning) process
IMPORTANCE OF POSITIONING
• Support overall strategy

• Differentiate offerings
• Competitive position
• Increase sales and customer loyalty
• Avoid cannibalization
• Clear communication and consistency
• Reduce price sensitivity
• Good for low-involvement purchases
• Good for habitual purchases
• Facilitate W-O-M
• Guide marketing mix development
Tagline or slogan?
 Tagline is usually ongoing, part of positioning

 Slogan is often short-term, for a specific campaign
But please note that it is common to use the terms tagline and slogan interchangeably in
business discussions.
TAGLINE EXAMPLES
 Melts in your mouth, not in your hands (M&Ms)

 Always (Coca-Cola)
 When it absolutely, positively, has to be there overnight (Federal Express)
 We try harder (Avis Rent-a-Car)
 Eat fresh (Subway)
 Choice of a new generation (Pepsi)
*****
 Product Positioning: Useful Notes on Product Positioning!

 Product positioning is the process of identifying the needs of different
groups of customers and the extent to which competing products are
perceived to meet customers needs. In other words, relating a product to
the market is termed as ‘product positioning’.
 It also includes activities like determining the market segments towards
which major marketing effort will be directed on behalf of a product and
suggesting methods to differentiate products from competing ones.
Thus, the whole process is meant to bring together the market segments
and products. The process can be used to retain existing products and
services as well as to introduce new ones.
 Thus, product positioning refers to targeting the product at specific class
of customers or for specific needs. It determines the image of the
product in relation to the rival products. The strategies used for this
purpose are product differentiation and segmentation.
 These strategies are often employed by the firms who want to engage in
non-price competition in markets characterised by imperfect or
monopolistic competition. Both the strategies involve financial
investment in promotional programmes.
 Product differentiation means making the product different in some
manner from the competitive products. It is an important product
strategy in a competitive market. A marketer cannot control the price of
his product which is identical in all respects to the products of
competitors.
 Product differentiation can offer the following advantages:
 (i) It helps in facing competition.
 (ii) It facilitates some control over the price of the product.
 (iii) It enables the marketer to create brand loyalty.
 (iv) Awareness of differences in the product helps to boost the firm’s
goodwill.
 (v) It provides ideas for advertising.
 However, product differentiation tends to increase the problem and
costs of advertising and sales promotion. Firms with limited product
line find product differentiation particularly useful.

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What marketing strategy changes did Pepsi make in response to Coca-Cola introducing New Coke?

What does the term 'positioning' refer to in marketing?

An Example of the Segmentation,

Targeting and Positioning Process

Pepsi segmented the market into three consumer segments only, namely:

 Positioning is the perception held by consumers

The role of positioning in the STP process

Positioning is the third and final major phase of the overall STP (segmentation, targeting and

• Support overall strategy

 Tagline is usually ongoing, part of positioning

 Melts in your mouth, not in your hands (M&Ms)

 Product Positioning: Useful Notes on Product Positioning!

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