One of the best examples of the STP process (segmentation, targeting and positioning) comes from the Cola Wars of the 1980s between Coca-Cola and Pepsi-Cola. What makes it so useful for us is that we get two STP examples in one story. We can see how Pepsi segmented, targeted and positioned before Coca-Cola launched New Coke in 1985, and then how Pepsi quickly redid all three steps once Coke had changed its flagship product.
So let’s walk through the story, step by step, and keep asking the same question as we go: what did Pepsi see in the market, who did it choose to chase, and what did it say to them?
The background: Pepsi on the attack
By the early 1980s Pepsi was a very aggressive competitor. It had been running the Pepsi Challenge since 1975, where people tasted two unlabeled colas and picked the one they preferred. Many picked Pepsi, and Pepsi put those results on TV. It was also building its “Choice of a New Generation” positioning, aimed squarely at younger drinkers.
Coca-Cola was still the bigger brand, but it had been losing share to Pepsi for years. In the end Coke took the dramatic step of changing its formula. New Coke was launched on April 23, 1985, and the original Coca-Cola was taken off the market.
If you would like more detail on why Coke made that call, have a look at this case study on the background factors that led to the launch of New Coke.
Example one: Pepsi’s STP before New Coke
Segmentation
Pepsi divided the cola market in a very simple way. Rather than using age, income or location, it used an attitude and loyalty approach. That gave it just three market segments:
- Coke loyalists: people with a positive attitude to Coke who always bought Coke.
- Pepsi loyalists: people with a positive attitude to Pepsi who always bought Pepsi.
- Switchers: people who liked both brands and moved between them from time to time.
Think about your own buying for a moment. Is there a brand you always buy, no matter what? And is there a category where you happily swap between two or three brands depending on what’s on sale? Most of us belong to both kinds of segment, just in different product categories.
Targeting
Which of these three segments would you spend your marketing money on?
For Pepsi, and for Coke too, the answer was the switchers. This is where the battle for market leadership was fought. The switchers responded to the things marketers can control: point-of-purchase displays, price discounts and general advertising. They were also swayed by personal factors, such as their mood at the time, who they were with and what taste they felt like that day.
The loyal groups were a different story. A loyal Coke drinker was very unlikely to be won over by a Pepsi discount, and a loyal Pepsi drinker didn’t need much persuading to keep buying Pepsi. So spending heavily on either loyal group gave a poor return on the marketing investment. Both companies therefore put the bulk of their promotional effort into the middle group, the drinkers who could go either way.
Positioning
Pepsi’s positioning to the switchers was built around taste and youth. The Pepsi Challenge said “try it and you’ll prefer it”, and “Choice of a New Generation” said Pepsi was the fresher, younger choice. Both messages gave a switcher a reason to pick Pepsi up the next time they reached for a cola.
Example two: Pepsi’s STP after New Coke
Then Coke changed the rules. Once the original Coca-Cola disappeared from the shelves, a large number of loyal Coke drinkers were unhappy. Many of them didn’t want a new, sweeter Coke. They wanted their old Coke back.
Now let’s run the STP process again and see what changed for Pepsi.
Segmentation
The segments themselves didn’t change much, but what was happening inside them did. The Coke loyalist segment, which had been almost unreachable for Pepsi, was suddenly upset with its favorite brand. Pepsi’s view of the market shifted from “loyalists we can’t touch” to “loyalists who feel let down”.
Targeting
This led Pepsi to change its target market selection. Alongside the switchers, it started going after unhappy loyal Coke drinkers. Pepsi moved fast. Roger Enrico, who ran Pepsi’s North American business, took out a full-page ad in The New York Times declaring that Pepsi had won the Cola Wars, and gave Pepsi staff a day off to celebrate.
Positioning
With a new target came a new positioning. Pepsi positioned itself as the reason Coca-Cola had changed its formula in the first place. One Pepsi ad had a first-time Pepsi drinker announce, “Now I know why Coke did it!” The message was simple: Coke changed because Pepsi tastes better, so why not switch to the real winner?
Pepsi ran TV commercials that showed this positioning change very clearly. One featured a teenage girl who talked about Coke changing almost as if she were going through a breakup. That ad still fitted Pepsi’s youth target.
The other commercial, which you can watch below, went after an older group of very traditional, loyal Coke drinkers. Its key line is an older man saying, “They changed my Coke.” Notice the word “my”. It captures the mood at the time: many drinkers felt that Coca-Cola belonged to them, not to the company. Pepsi was tapping straight into that feeling of loss.
Coke listened. On July 11, 1985, just 79 days after New Coke was launched, the company announced that the original formula was coming back as Coca-Cola Classic. Coke’s management had learned that it was the caretaker of an American icon, not its owner.
What the Cola Wars teach us about STP
So what can we take from these two examples? The big lesson is that segmentation, targeting and positioning are linked. A change in one step flows through to the others.
Before New Coke, Pepsi’s view of the market pointed it toward the switchers, and its positioning was built to win them over. After New Coke, the same market looked different. A segment that had been out of reach became a real opportunity, so Pepsi picked a new target and built a new position to suit it. All of this happened in weeks, not years.
It also shows us that STP isn’t a one-off exercise you complete and file away. When a competitor makes a big move, it’s worth running the three steps again. Ask yourself:
- Has the competitor’s move changed how any of our segments feel or behave?
- Is there a segment that was hard to reach before but is open to us now?
- What position would make sense to that segment right now?
Here is a question to test yourself. Imagine a local cafe whose biggest competitor across the street suddenly changes its coffee blend, and its regulars start complaining. Using what Pepsi did, how would you segment, target and position the cafe over the next few weeks?
If you would like to see how the two brands were positioned against each other during this period, have a look at these related articles:
- The positioning of Coke and Pepsi during the Cola Wars
- The positioning goals of New Coke
- The background factors to the New Coke decision
Sources
- New Coke, Wikipedia (launch and return dates, Pepsi’s response).
- Pepsi Challenge, Wikipedia (launched 1975).
- Cola wars, Wikipedia.
