Segmentation, targeting, positioning

STP is a three-step sequence, and the order matters.

• Segmentation — divide the market into groups with distinct needs. AQA's methods: demographic (age, gender, family stage), geographic, income, and behavioural (usage rate, occasion, benefits sought, loyalty).
• Targeting — choose which segment(s) to serve. This is a resource-allocation decision.
• Positioning — decide what you will stand for in the mind of that customer, relative to rivals, and then build the entire mix to deliver it.

Why segment at all? Because a mix designed for "everyone" delights nobody. Segmentation lets a firm tailor the product, set a price the segment will bear, promote through media that segment actually uses, and distribute where they actually shop — raising conversion, allowing premium pricing, and building loyalty. The cost is complexity: more SKUs, shorter production runs, higher unit costs.

Niche or mass?

Positioning is then made concrete on a market map (e.g. price against perceived quality). Two decisions follow: aim at a gap, or go head-to-head with a rival. A gap may exist because nobody wants what would fill it. Head-to-head requires a genuine competitive advantage, or you simply start a price war you cannot win.

Niche under pressure

The marketing mix: 7Ps

The original 4Ps — Product, Price, Promotion, Place — were designed for physical goods. Services added three more, because in a service the delivery is the product:

• People — the staff the customer meets. In a restaurant or an airline, they are the experience.
• Process — how the service is delivered: booking, queueing, ordering, refunds, fulfilment speed.
• Physical environment — the tangible evidence: store layout, cabin interior, packaging, the app's design.

Consumer goods are also classified by buying behaviour: convenience (low involvement, bought habitually — bread), shopping (compared on price and features — a washing machine), speciality (brand-loyal, will not substitute — a particular watch). The classification drives the mix: convenience goods need intensive distribution; speciality goods need exclusivity.

The extended 3Ps

Tap an element of a service business, then tap which of the extended 3Ps it belongs to.

Product decisions: the product life cycle

The stage dictates the mix. In introduction, cash flow is negative, promotion is informative, price is either skimming or penetration. In growth, distribution widens and rivals arrive. In maturity, the product is a cash generator, promotion becomes persuasive/reminder, price is competitive. In decline, the choice is extend, harvest or withdraw.

Extension strategies: new markets (export it), new segments, new uses, a redesign or facelift, added features, price cuts, repackaging, increased promotion. Extension is cheaper than new product development — but it can only delay decline, not reverse it, and it can look tired to consumers.

Extending maturity

Product portfolio analysis: the Boston Matrix

Plots each product on relative market share against market growth rate.

Value: it forces a firm to look at the portfolio as a system and to plan the cash flows between products rather than judging each in isolation. A portfolio of all cash cows has no future; a portfolio of all question marks has no cash.

Limits: it is a snapshot; it uses only two variables; "dog" is a label, not an analysis (a dog may be strategically essential, or share a production line and absorb overheads); and high market growth does not guarantee profit.

Match each Boston Matrix category to the right strategy

Tap an item on the left, then its partner on the right.

Pricing decisions and price elasticity of demand

• |PED| > 1 — elastic. Demand is very responsive. Cut price to raise total revenue; a price rise would cut revenue.
• |PED| < 1 — inelastic. Demand is unresponsive. Raise price to raise total revenue.

What makes demand inelastic? Few substitutes · strong brand loyalty · necessity · the item is a small share of income · addictive or habitual purchase. Every one of those is something marketing can build — which is exactly why branding is a pricing decision in disguise.

Named pricing strategies: price skimming (launch high to recoup R&D from early adopters, then lower it — needs a genuinely novel, differentiated product) and penetration pricing (launch low to buy share and build habit, then raise it — needs deep pockets and elastic demand).

Your turn — revenue after the price rise

Your turn — PED

Act on the elasticity

Your turn — YED

Income elasticity of demand — what YED tells you

• YED positive → a normal good (demand rises with income). If YED > +1 it is income elastic — a luxury. Kestrel's single-origin range at +2.5 is firmly a luxury.
• YED between 0 and +1 → a normal necessity: demand rises with income, but slowly.
• YED negative → an inferior good: demand falls as incomes rise (own-label value ranges, budget travel).

Why this is a strategic tool, not a statistic: a YED of +2.5 means the premium range is extremely exposed to a recession — a 4% fall in incomes would cut its demand by 10%. A firm whose whole portfolio is income elastic is riding an amplified version of the business cycle. The countermeasure is a portfolio with a spread of YEDs: a value range with a negative YED will actually grow in the downturn that guts the premium range. That is portfolio strategy driven by an elasticity number.

Your turn — using PED to forecast

Promotion and the value of branding

The promotional mix: advertising, sales promotion (offers, coupons), personal selling, public relations, direct marketing, and now digital — social media, influencers, search, email, content.

A brand is far more than a logo. Its commercial value:

• It makes demand less price elastic — the single most valuable thing marketing can do, because it lets the firm hold price and protect margin under competitive attack (look again at PED).
• It builds repeat purchase, cutting the cost of acquiring each sale.
• It creates a barrier to entry (Porter, 3.7.7) — a new entrant must outspend years of accumulated brand equity.
• It supports brand extension into new categories at low marketing cost, and it is an asset that can be licensed or sold.

The risks: brands are expensive to build, and a single scandal can destroy decades of equity overnight — the more the price premium depends on trust, the further there is to fall.

Place, digital marketing and an integrated mix

Distribution (place) decisions: sell direct (D2C — you keep the margin and own the customer data, but you must build the logistics), through retailers (reach and credibility, but they take a margin and own the relationship), or multi-channel — physical stores, own website, marketplaces and wholesalers together. Multi-channel maximises reach and convenience, but risks channel conflict (undercutting your own retailers) and demands consistent pricing and service across every channel.

E-commerce and digital marketing have collapsed the cost of reaching a global niche, made dynamic pricing and personalisation possible, and produced continuous data on what customers actually do. They also expose small firms to global competition and to price transparency that shreds margins.

The mix must be integrated with the product life cycle stage, the Boston position, the type of product, the marketing objectives, the target market, competition and the positioning. A luxury watch sold at a premium price, advertised in glossy magazines, and then stocked in a pound shop has an unintegrated mix — and the place decision has just destroyed the price decision.

An unintegrated mix

Thinking like an examiner

• Elasticity turns pricing from a guess into a decision. Inelastic → raising price raises revenue. Elastic → cutting price raises revenue. But revenue is not profit: always ask what happens to volume, unit costs and total contribution.
• Marketing's real prize is a lower |PED|. Branding, differentiation and loyalty all work by making customers less willing to switch on price.
• Models are lenses, not answers. The Boston Matrix and the PLC are snapshots built on two variables. Use them to structure the argument, then say what they cannot see.
• No P stands alone. Judge every change to the mix by whether it strengthens or contradicts the positioning.

The big ideas to know

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