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.

Related topics

The positioning of Coke and Pepsi during the Cola Wars
The positioning goals of New Coke
The background factors to the New Coke decision