Identifying Customers - Segmentation and Targeting

Why Identifying Customers is Central to Marketing Strategy

Customer value is not universal — it depends entirely on who the customer is. A product or benefit that is valuable to one person may be worthless to another. This heterogeneity is the fundamental reason marketers must identify and understand their target customers before designing any value proposition.

Value is Determined by Customer Characteristics

The same individual, at different life stages, values different things. For example:

As the person ages, the same category of “entertainment” shifts from toys to video games to cinema to literature. The value changes because the customer’s needs, preferences, and context change. Marketers cannot build a compelling offer without first knowing which customer they are serving.

The Role of Target Group Identification

A sustainable marketing strategy rests on identifying the right target group — the specific segment of customers whose needs the firm can best satisfy. The entire marketing process flows from this decision:

The Coca-Cola case (discussed in Week 1) illustrates this principle: the company’s successful strategy was built on a clear understanding of who they were targeting. Without precise target‑group identification, even a strong product can fail to deliver the right value.

Exam tip: The core idea – value differs across customers – is the logical starting point for the entire STP (Segmentation, Targeting, Positioning) framework. Almost every exam question on segmentation foundations traces back to this observation.

Key Takeaways

• Value is heterogeneous – what is valuable to one customer may be irrelevant to another.
• Customer characteristics (e.g., age) directly shape what is valued.
• Target group identification is the critical first step in crafting a marketing strategy.
• Successful strategies (like Coca‑Cola’s) depend on accurately identifying the target segment before designing the value proposition.
• Without knowing the customer, no sustainable marketing strategy can be built.

Identifying Target Consumers: A Framework from Coca-Cola Campaign Analysis

Every marketing campaign rests on a deep understanding of the target consumer. The goal is to go beyond surface demographics and uncover the full profile — who they are, where they live, what they value, and how they behave. This analysis of a Coca-Cola ad (featuring three young women and a sugarcane farmer in Punjab, North India) shows the process.

The four bases for profiling a target consumer

Exam tip: The four bases (geo, demo, psycho, behavioral) are the classic segmentation variables. In case studies, look for clues in the ad setting, characters, dialogue, and product use context to fill each category.

Value offered to the target consumer

Value is the total benefit relative to cost. This ad delivers multiple value types:

• Functional value — thirst quenching, refreshment.
• Experiential value — happiness, enjoyment while consuming.
• Social value — friendship, sharing (“Aane waali hai… another Tushan” — bonding over Coca-Cola).

(No evidence of economic value in this campaign — price/cost not highlighted.)

Strategic implications: availability and awareness

Once the target and value are clear, strategy follows. For this set of consumers (young, traveling on a hot highway, loyal users) the immediate strategic imperatives are:

• Availability — the product must be physically accessible where the consumer is (highway, farm).
• Awareness — the consumer must already know the brand and associate it with the value (thirst, fun, friendship).

Key takeaways

• Target consumer identification uses geographic, demographic, psychographic, and behavioral dimensions.
• Value is multi-faceted: functional (thirst), experiential (enjoyment), social (friendship); not always economic.
• From target + value, derive strategic priorities — here, availability and awareness are foundational.
• Analyze ads not as entertainment but as strategic documents: every character, setting, and dialogue is a clue about the segment and the value proposition.

Applying Segmentation: Coca-Cola in India (Examples)

Three Coca-Cola campaigns in different Indian geographies illustrate segmentation and targeting. For each scenario, identify the target group(s), the value delivered, and the strategy used. Across the examples, end-consumer value (refreshment, social, experiential) remains constant; differentiation comes from geographic, demographic, psychographic, and behavioral profiles. The first example also identifies a B2B target (channel partner).

Western India: Parsi Café – Tapori and Shopkeeper

Geographic: Western India (e.g., Mumbai’s Parsi cafés). Target groups: End consumer (a young tapori – street‑smart, flamboyant) and B2B (the shopkeeper).

Value for the end consumer remains refreshment, social value, and experiential value. For the shopkeeper, value is economic (value for money) and customer satisfaction – both B2B benefits.

Strategy focuses on availability and awareness for both groups, consistent with the previous Northern India example.

Exam tip: The addition of a B2B target does not change the value proposition for the end consumer. Segmentation must consider all actors in the purchase chain.

The Mountains: Honeymooners and Mountain Guide

Geographic: Cold, mountainous region (e.g., the Northeast). Target groups: Husband‑wife (honeymooners) and a mountain guide (local professional).

Again, values for the end consumer are refreshment, social, and experiential. The guide, as a professional, values the brand’s consistent availability and quality.

Strategy emphasises availability (Coca‑Cola even in remote mountain locations) and communication to maintain brand awareness and loyalty.

Brand Connection: “Thanda Matlab Coca‑Cola”

A key campaign linked the generic word “Thanda” (cold drink, used widely in India) directly to Coca‑Cola.

• Insight: In a hot and humid country, 70–80% of aerated soft drink consumption occurs during summer months. Customers often ask simply for “ek thanda”.
• Goal: When both consumer and retailer understand “Thanda matlab Coca‑Cola” , every request for “Thanda” results in a Coca‑Cola sale.
• Outcome: Reinforces loyalty and availability – the brand becomes the default choice.

Key Takeaways

• Segmentation bases used across examples: geographic, demographic (age, income, profession), psychographic (extrovert, adventurous), behavioral (loyal, heavy user).
• Value proposition (refreshment, social, experiential) stays the same for end consumers across different segments; targeting adapts only the marketing mix (place, promotion).
• B2B target (shopkeeper, guide) seeks different value: economic benefit, customer satisfaction, or professional reliability.
• “Thanda matlab Coca‑Cola” is a positioning strategy that equates the generic need with the brand, driving both awareness and availability.
• Core marketing actions are availability and awareness; the campaigns do not alter the product or price.

Segmentation, Targeting, Differentiation, and Positioning (STDP)

The STDP framework is the foundation of all marketing strategy — whether B2B, B2C, or institutional. It proceeds in sequence: divide the market, choose a focus, differentiate the offering, and establish the desired perception in consumers’ minds.

Market Segmentation

Segmentation is the process of dividing a heterogeneous market into distinct, homogeneous subsets of consumers who share similar needs, wants, or characteristics. Each subset is a segment. The variables used to split the market are called bases.

Example: Segmentation by Age, Income, Occupation, and Personality

Consider a geographic area of 100,000 people. Using four bases, the market is partitioned into five segments:

Each row is a segment profile — it identifies who they are, what they earn, what they do, and even where they might live (by linking geographic location to the segment). This makes it easier to design targeted strategies.

Key insight: Products are not segmented — customers are segmented. The variety of products (e.g., Sunsilk’s five shampoo variants) is a consequence of segmenting customers by different hair‑care needs (softness, anti‑hair‑fall, thickness, shine, straightness).

Definition (Formal)

A market segment is a group of customers who share a similar set of needs and wants.

Segmentation transforms a heterogeneous market (e.g., the whole city of Bangalore) into a homogeneous group (e.g., all residents aged 30–40).

Targeting

Targeting is the process of selecting one or more specific segments on which to focus. Not all segments are worth pursuing — the choice depends on:

• Segment size
• Growth rate
• Attractiveness (competition, profitability)
• The organisation’s own objectives and resources

Example: Luxury Watch vs. Health Drink

• Luxury watch → intuitively target Segment 5 (highest income, mature, image‑conscious).
• Health drink → intuitively target Segments 1 & 2 (younger, health‑conscious, fitness‑oriented).

Differentiation

Differentiation is the process of creating a distinct offering that stands apart from competitors in the chosen target segment. It can be based on price, quality, durability, service, warranty, brand spokesperson, or any attribute that matters to the segment.

Perceptual Map

A perceptual map plots how existing competitors are positioned on key dimensions (here, price and quality). The goal is to find an unoccupied space that the firm can own.

Example: Target segment 3 (30,000 people). Competitors occupy these positions on a price‑quality grid:

The firm decides to enter at high price + high quality — a position none of the existing players hold. This is differentiation.

Positioning

Positioning is the act of creating the right perception in the consumer’s mind so that they associate the brand with the intended differentiated position. Consumers are unaware of the segmentation and targeting work; positioning communicates it.

The firm uses the marketing mix (4Ps or 7Ps) — product, price, place, promotion, people, process, physical evidence — to build that perception. Examples:

• Apple → innovation, premium
• Nike → performance, empowerment
• Lux → beauty, glamour
• Lifebuoy → health, protection

Exam tip: Positioning is not what you do to the product; it is what you do to the consumer’s mind. The ad campaign is the visible end result of months of groundwork: data collection, statistical analysis, segment identification, competitor benchmarking, and differentiation strategy.

Differentiated vs. Undifferentiated Marketing

Most modern marketers use differentiated marketing, even for basic goods (e.g., Daawat Basmati vs. India Gate Basmati for different cooking uses).

Key takeaways

• STDP is the backbone of all marketing strategy: segment → target → differentiate → position.
• Segmentation divides the market into homogeneous groups based on bases (age, income, needs, etc.). Customers are segmented, not products.
• Targeting selects the most attractive segment(s) using criteria like size, growth, and fit with organisational resources.
• Differentiation creates a unique position on a perceptual map relative to competitors.
• Positioning uses the marketing mix to embed that position in the consumer’s mind.
• Differentiated (rifle) marketing is preferred over undifferentiated (shotgun) marketing in most markets today.

Niche Marketing

Niche marketing targets a specific, well-defined customer group with a product tailored to their unique needs. Unlike mass marketing (one product for everyone) or differentiated marketing (multiple products for multiple segments), niche marketing focuses on a narrow segment with high customization.

Characteristics:

• Small market size – the segment is limited (e.g., executives needing custom suits, diabetic obese patients, celebrities requiring special makeup).
• Customization – products are adapted to the segment’s precise requirements, not standardised.
• Higher price – because of customisation and smaller volumes, the firm charges a premium and delivers higher service levels.

Examples:

• A company offering matching blazers, pants, ties, and shirts specifically for corporate executives.
• Healthcare facilities designed exclusively for diabetic and obese patients.
• Personal grooming products for movie celebrities.

Exam tip: Niche marketing is contrasted with mass and differentiated marketing. Memorise the three: mass (undifferentiated), differentiated (multiple segments, multiple offers), niche (one very specific segment with high customisation).

Key takeaways

• Niche marketing serves one small, well-defined segment with a customised offer.
• Customisation justifies a premium price.
• Market size is small, but service levels are high.
• Different from mass marketing (no segmentation) and differentiated marketing (multiple segments).

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Psychographic Segmentation and AIO Analysis

Psychographic segmentation divides customers based on their psychological traits, personality, lifestyle, and values. It answers why customers behave the way they do – the internal drivers behind purchase decisions.

While demographics tell who the customer is (e.g., age, income), psychographics reveals motivation (e.g., why a 55‑year‑old buys the same jeans as a 25‑year‑old). It is measured indirectly using the AIO inventory (Activity, Interest, Opinion).

A large set of statements (AIO inventory) is presented, and respondents agree or disagree. Statistical analysis then groups customers into psychographic segments. The implementation details (e.g., factor analysis) are beyond this scope, but the core idea is that AIO quantifies psychographics for commercial use.

Why psychographics matters: Demographics alone cannot explain similar buying behaviour across age groups. Two people of different ages wearing the same Levi’s jeans may share an active, youthful lifestyle – a psychographic trait that demographic data misses.

Key takeaways

• Psychographics = personality + lifestyle + values.
• AIO (Activity, Interest, Opinion) is the tool for measuring psychographics.
• It answers why customers buy, not just who they are.
• Essential when demographics fail to differentiate behaviour.

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The Four Bases of Segmentation

Standard textbooks list four segmentation bases: geographic, demographic, psychographic, and behavioral. A fifth (recently significant) base is mentioned later, but the core four are covered here.

Key relationship: Geographic and demographic are descriptive (identify what/who). Psychographic explains motivation; behavioral focuses on actual purchase patterns.

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Geographic Segmentation

Divides the market by location. Intuitively: a customer’s geography strongly influences needs (climate, urban vs. rural, regional culture).

Common variables:

• Region – e.g., North India vs. South India.
• City size – metro vs. tier‑2 vs. rural.
• Population density – high density (ideal for delivery services like Dunzo, Ola).
• Climate – hot vs. cold vs. humid (drives demand for sunglasses, coats, air conditioners).

Examples:

• Dunzo and food delivery apps concentrate on dense urban areas.
• Winter clothing is marketed in cold regions.
• Sunscreen is emphasised in tropical, sunny climates.

Key takeaways

• Geographic segmentation uses location and environment.
• Climate and population density are powerful geographic variables.
• Many products (weather‑dependent, delivery‑dependent) are naturally geographically segmented.

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Demographic Segmentation

Demographics are vital and measurable statistics about human populations – age, gender, income, education, occupation, marital status, family size. They are the most widely used segmentation variables because every customer has them.

Why so widely used: Ease of identification and measurement. They are concrete (you can ask “how old are you?”) unlike abstract concepts like personality.

Limitation: Demographics identify who but don’t explain why. Two customers with identical demographics (age, income) may behave very differently. For example, a 25‑year‑old and a 60‑year‑old both wearing Levi’s jeans have the same demographic (gender, possibly income?) but different motivations. Demographics alone cannot guide strategy for such segments.

Key takeaways

• Demographic variables: age, gender, income, education, occupation, family size.
• Most common and easy to measure.
• Descriptive, not explanatory – they tell “what” but not “why”.

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Psychographic Segmentation

(Already covered above; here summarised as a base.) Divides buyers based on psychological traits – personality (extrovert vs. introvert), lifestyle (active, home‑oriented), and values (inner‑directed, outer‑directed). Psychographics is the why behind the purchase.

Remember: It uses AIO inventory (Activity, Interest, Opinion) to operationalise measurement. Psychographic segments often cut across demographic lines.

Key takeaways

• Explains consumer motivation and brand appeal.
• Uses psychology and demographics together.
• Separates buyers with similar demographics who have different lifestyles.

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Behavioral Segmentation

Focuses on the actual behaviour of customers (especially current customers). The goal is to understand purchase patterns to increase frequency, move switchers to loyals, and improve satisfaction.

Key behavioral variables:

Behavioral vs. other bases: Behavioral segmentation often uses existing customers’ data, but some variables (attitude, buyer readiness) apply to potential customers as well.

The loyalty ladder: Marketing aims to move switchers → shifting loyals → split loyals → hardcore loyals.

Exam tip: Behavioural segmentation is the most actionable for marketing strategy targeting current customers. Decision roles are especially important for high‑ticket items. Memorise the list of variables (benefits, occasions, loyalty, etc.) as a likely multiple‑choice question.

Key takeaways

• Behavioural segmentation analyses purchase patterns of existing customers.
• Key variables: benefits sought, decision roles, occasions, user status, usage rate, buyer readiness, loyalty status, attitude.
• Goal: increase loyalty, purchase frequency, and move customers up the loyalty ladder.
• Also useful for non‑customers via attitude and readiness.

Technographic Segmentation

Technographic segmentation segments consumers based on their attitude toward technology and online behavior. It is tailored for the internet economy—technology products or tech-savvy consumers. It examines how consumers behave online, especially their shopping behavior.

The Technology Attitude Divide

Consumers fall into two broad camps:

• Technographic optimists – willing to adopt, accept, and use technology for daily life; enjoy learning about and trying new things.
• Technographic pessimists – pessimistic about or even fearful of technology; prefer to avoid it.

Composite Segmentation with Demographics

Technographics is rarely used alone; it is combined with demographics (and geography) to build a relevant model for online purchase behavior.

Origin & Example

• Conceptualized by Mary Modahl in the book Now or Never: How Companies Must Change Today to Win the Battle for Internet Consumers (1999), part of Forrester Research.
• Flipkart’s commercial campaign (kids playing adults) targeted the mainstream segment—parents who are not optimistic about online purchases (especially big-ticket or fashion items). The ads communicated that even kids can do it, aiming to convert technographic pessimists.

Exam tip: Technographic segmentation is especially relevant for new technology products, online services, or app-based offerings. The key is to combine it with demographics for actionable segments.

Key takeaways

• Technographic segmentation splits consumers by technology optimism vs. pessimism.
• A composite model (e.g., income + technographics) yields four segments: early adopters, mainstream (two types), and laggards.
• Forrester Research provides tools for technographic segmentation.
• Flipkart’s campaign is a classic example of targeting the mainstream (high-income pessimists) segment.

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Conditions for Effective Segmentation

A segment must satisfy five conditions to be worth targeting:

1. Identifiable & measurable – can be defined and quantified.
2. Distinct needs – the segment has unique requirements.
3. Sizable – contains enough potential customers to be profitable.
4. Demand exists – customers are willing and able to buy (have money and willpower).
5. Reachable – marketers can communicate effectively (traditional or modern media).
6. Stable – does not change too rapidly over time (otherwise targeting becomes obsolete).

Homogeneous Within, Heterogeneous Between

• Within a segment: customers are similar on the chosen segmentation bases (e.g., age 30–40, income ₹1 lakh/month, IT executives).
• Between segments: segments differ on those same bases (e.g., non-IT professionals, different income levels, different age groups).

Key takeaways

• Effective segments are identifiable, measurable, distinct, sizable, demand-driven, reachable, and stable.
• Segments must be homogeneous within and heterogeneous between.

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Psychographic Segmentation & the VALS Framework

While demographics and geography are easy to measure, psychographic segmentation captures psychological aspects: personality and lifestyle.

VALS (Values and Lifestyles) Framework

Developed by Strategic Business Insights (SBI) , it classifies U.S. adults into eight primary groups based on psychographic measurements.

VALS is a commercially available classification scheme and is typically combined with demographics and geography for richer customer profiles (e.g., geodemographic, demopsychographic, geopsychographic, psychobehavioral).

Constituents of Psychographics

• Personality – the way a person interacts with and responds to their environment (e.g., interpreting a tap as friendly, violent, or threatening).
• Lifestyle – the manifestation of personality; how a person lives (activities, interests, opinions).

Key takeaways

• Psychographics capture personality and lifestyle—dimensions not covered by demographics alone.
• VALS is a widely used psychographic segmentation tool dividing U.S. adults into eight groups.
• Segmentation is almost always multi-variable: combine geography, demographics, psychographics, and behavior.
• Knowing a segment’s psychographics (e.g., strivers) enables tailored product offerings (e.g., affordable stylish products).

Targeting: Selecting Target Segments

Once market segments are identified (by geography, demographics, psychographics, behaviour, etc.), targeting means selecting one or more of those segments to focus marketing effort on. The goal is to concentrate resources on a group the firm can serve better than competitors, then develop a positioning strategy for that group. The choice is made via a target market decision analysis that compares segments against three criteria.

Criteria for Selecting a Target Segment

1. Segment Size and Growth

• Size: current demand potential – number of people with the need, willingness, and ability to pay. Estimated by sampling the target area, measuring purchase intention and ability to pay, then extrapolating to the full population.
• Growth: expected change in segment size over time (using census data, demographic trends, research reports). A stagnant segment (zero growth) is less attractive than one growing at 2–10% per year.

2. Structural Attractiveness (Porter’s Five Forces)

The segment’s external environment is evaluated using Michael Porter’s five forces. An attractive segment is one where all five forces are low. The table below shows each force and the ideal condition.

Exam tip: The “ideal” segment has high entry barriers (low threat of new entrants) and low exit barriers (low threat of rivalry). This combination keeps profits sustainable.

3. Organization’s Objectives and Resources

The segment must align with what the firm wants to achieve (e.g., growth, market share, customer satisfaction, revenue, profit) and the resources it has (manpower, money, technology, machines, materials). Even a large, growing, structurally attractive segment is useless if the firm lacks the capacity to serve it.

Putting it together: Marketers typically assign weights to each criterion (size/growth, structural attractiveness, objectives/resources), score each segment on them, and pick the segment with the highest weighted score.

Targeting Strategies

After evaluating segments, firms choose one of five strategies. The example uses a 3×3 grid: segments = Teens, Adults, Elders; product categories = Cosmetics, Apparels, Shoes.

Exam tip: “Full market coverage – undifferentiated” is the same as mass marketing. “Differentiated” means segment‑specific strategies (price, promotion, product features).

Key takeaways

• Targeting is selecting one or more segments after segmentation; the choice determines positioning.
• Three evaluation criteria: segment size & growth, structural attractiveness (Porter’s Five Forces), and fit with objectives & resources.
• Structural attractiveness is highest when all five forces are weak – especially high entry barriers and low exit barriers.
• Five targeting strategies exist, from single‑segment concentration to full market coverage (differentiated or undifferentiated).