How to Segment Your Target Market

Successfully: A Porsche Case Study

Those of us in marketing are faced with the challenge of trying to improve our marketing
strategy with tactics that resonate with our target market. Porsche provides a very successful
example of how they segment their target market effectively and achieve bottom-line results.

Porsche has taken on an incredibly challenging goal of retaining its heritage and attracting a
younger and more female audience using segmentation. Using segmentation, Porsche can
reach this target audience and create messages and products that resonate with each segment.

Ultimately, segmentation provides Porsche the ability to reposition the brand without losing
its core customers.

Porsche the Car, the Myth, the Legend

If you are anything like me, you grew up with pictures of the 911 and 944 in your room
daydreaming of driving one of these mythical vehicles. No doubt this image included you
wearing sunglasses with the top down feeling the wind in your hair and listening to your
favorite tunes.

Porsche represents an ideal, a lifestyle that a lot of us aspire to become.

So, how does Porsche make us feel this way and achieve the level of success in the
automotive industry?

One of the most significant reasons behind Porsche’s success is their approach to their target
market that includes how the company performs market segmentation, market targeting, and
positioning.

Porsche Background
I think it’s important to give the background on Porsche to provide a thorough understanding
of the subject matter. Porsche is a global market leader in the premium segment of the
automotive industry currently the most profitable automotive brand in the world.

The company was founded in 1931 by Professor Ferdinand Porsche in Stuttgart, Germany
building motors, designing vehicles, and consulting. Porsche designs, manufactures, and
markets sports cars, crossover utility vehicles, and automobile parts worldwide.

Porsche also offers services through its operating divisions and subsidiaries, including
Porsche Design Group, Porsche Engineering, and Porsche Consulting.
Photo by Basheer Tome http://bit.ly/1vxgWil/CC

Porsche and Volkswagen’s Other Brands

On August 1, 2012, Volkswagen Ag purchased Porsche operating it as a subsidiary (brand) in

its automotive division. It came as somewhat of a surprise that Volkswagen owns brands you
may not directly associate with their brand. Volkswagen also owns:

 Audi
 Bentley

 Lamborghini

 Bugat

 SKODA

 SEAT

 Scania

 MAN

 Ducati (motorcycles)

Target Market
Porsche performs target marketing concentrating on the consumers the organization has the
strongest potential to satisfy. Porsche performs effective target marketing by:

1. Identifying and profiling different consumer groups with differing wants and needs (market
segmentation).
2. Choosing one or multiple segments to target (market targeting).

3. Communicate and establish the unique product/service offerings of the organization in the
mind of the consumer (positioning).
Porsche markets to an elite and upscale target audience effectively using market
segmentation, market targeting, and positioning continuing to build on its strong brand
focused on products exclusively in the premium (luxury) automotive segment.

Philip Kotler provides a quote that summarizes Porsche’s approach and provides guidelines
for target market segmentation in general:

“If markets are to be segmented and cultivated, they must meet certain requirements.
Segments must be Measurable, Substantial, Accessible, Differentiable, and Actionable.” –
Philip Kotler

Automotive Industry Segmentation

The automotive industry has approximately 23 different segments according to J.D. Power
and Associates. J.D. Power and Associates do not include segments for vehicles from brands,
such as Maserati, Ferrari, Lamborghini, Bentley, Rolls-Royce, Fisker, McLaren, and others.

Most of these brands compete with Porsche in varying degrees along with more traditional
luxury brands, such as BMW, Mercedes, Lexus, Audi, Infiniti, Land Rover plus others.

J.D. Power and Associates classifies Porsche, BMW, Mercedes, Lexus, Audi, Infiniti, Land
Rover plus others as part of the premium segment.

The automotive industry segments consumers based on demographic data, geographic

information, and a psychographic profile of consumer behaviors with marketing messages
targeted to these groups.

Porsche’s Market Segment Strategy

The product lineup for Porsche includes:

1. 911 in the midsize premium sporty car segment

2. 718 Boxster in the compact premium sporty car segment

3. 718 Cayman in the premium sport coupe segment

4. Cayenne in the midsize crossover utility vehicle (CUV) segment

5. Macan (latest addition) in the compact CUV segment

6. 918 Spyder (latest addition) in the open-top super sport car segment
Macan Photo by Motorblog

The price of a Porsche ranges from approximately $50,000 to $845,000 with segmented price
points based on the model selected.

The basis of market segmentation for Porsche involves dividing a market according to
defined smaller easily defined group of consumers with the same wants and needs.

Porsche identifies segments to target using two variables including, descriptive elements and
behavioral elements.

Descriptive elements include demographic, psychographic, and geographic.

Behavioral elements include individual responses to brands, usage, and benefits.

Porsche segments markets based on five critical elements required to evaluate a segment.
These elements include ensuring a market segment is measurable, accessible, substantial,
differentiable, and actionable.

Demographic

Demographic segmentation is a form of market segmentation involving dividing a market on

the basis of descriptive elements. Data provides Porsche with a distinguishable way to
measure variables of a market estimating the market size and the media to use to reach the
market segment. Demographic segmentation is based primarily on income, age, gender,
education, occupation, and social class.

The demographic of the Porsche owner, includes a college graduate, household income over
$100,000, 85% male, and 15% female. The typical Porsche owner is 40 years old and up with
Porsche targeting the 25-54 age demographic seeking a slightly younger audience with the
“Engineered for magic, every day” campaign.
Targeting a Younger Audience and Females

Photo by Martin de Witte

The age demographic rose from an average age of 48 in 2007 to an average age of 51 in
2012. Porsche’s targeted marketing efforts focus on reducing the average age of the Porsche
owner and increasing the number of female owners.

Porsche provides an example of an automotive icon focusing on demographics using age and
gender. The “Engineered for magic, every day” campaign, in part, targets women with an
image of a mother in a Porsche 911 in front of a school with the text reading school bus.

Additionally, Porsche uses tennis star Maria Sharapova as a spokesperson to engage a

younger female audience. The results in the last two years indicate a growth from 8% to 15%
in female purchasing the Cayenne CUV and Panamera four-door sports sedan primarily.

Psychographic

Psychographic segmentation uses psychology to increase understanding of consumers’ wants

and needs. Porsche uses a psychographic segmentation approach dividing the segment based
on behavioral elements, such as psychology, lifestyle, personality traits, and values to gain
deeper insight of the consumer. The same demographic can possess different behavioral
elements.

Customizing Messages to Specific Psychographic Profiles

Psychographic profiling provides Porsche with the ability to customize the messaging to
target the specific psychographic profiles developed by Porsche.

 The top gun profile consists of an ambitious and driven individual who cares about power
and control expecting to be noticed.
 The elitist profile, includes an individual from old money (blue blood), has the attitude a car
is just a vehicle and not an expression of a person’s personality.

 The proud patrons owner profile sees a Porsche as a trophy considering it a reward for hard
work with ownership as the main goal not being noticed.

 The bon vivants profile consists of thrill seekers and jet setters with the Porsche as a means
of excitement.
  The fantasist profile sees the Porsche as a form of escape and does not care about
impressing others.

Porsche has added another profile consisting of individuals enjoying a sporty vehicle for
daily use by women and younger drivers with the latest marketing campaign, “Engineered for
magic, every day”.

Geographic

Porsche uses a traditional geographic segmentation approach grouping markets based on

countries, continents, regions, states similar to other worldwide automotive brands. Porsche is
a global brand with dealerships located on every continent in major cities.

In the United States dealerships are located in major cities with the manufacturer dividing the
market into four regions (north, south, southwest, northwest).

Porsche varies the product mix offered by dealerships within each region. As an example, the
dealers in the warmer south and southwest regions offer a higher percentage of convertibles
in the product mix versus the north and northwest regions in the United States with marketing
following suit.

Creating New Segments

Photo by Alexandre Prévot

In 2003, Porsche launched the Cayenne creating the first sports utility vehicle with luxury
and high performance. Porsche’s introduction of the Cayenne created a new market segment
in an attempt to expand the brand. The introduction of the Cayenne has resulted in a vehicle
that accounts for half of Porsche’s profits.

In 2009, Porsche launched the 2010 Panamera a four-door sports coupe based on the market
research department identifying a need for a sporty four-door that drives like a sports car. The
Panamera is the first of its kind creating a new segment of the four-door luxury sports car.

Porsche’s effort to move outside of the sports car niche with the Cayenne and Panamera
product launches have stimulated demand resulting in increased sales for the brand. The
Panamera and Cayenne have proved to be effective brand extensions appealing to a wider
audience by offering unique product offerings.
 Market Targeting
Market targeting involves Porsche evaluating the viability of each market segment and
deciding which segment or segments to pursue (target). Porsche uses a hybrid market
targeting strategy focused on a large share of the premium sport car and sport CUV segment
using a finely tuned marketing mix based on marketing messages tailored to Porsche’s
psychographic segmentation.

The “Engineered for magic, every day” campaign uses a niche concentrated marketing
approach tailored to change position slightly. Porsche is trying to change the perception that a
Porsche is an everyday vehicle appealing to a larger audience to increase sales. Porsche
targets consumers at differing performance and price levels in the premium sport car and
CUV market segment.

Positioning
Porsche offers high-quality products for a premium price with various price points for the
products in their lineup. The Porsche brand is a lifestyle brand because of its legendary status
and attributes associated with their products.

Porsche achieves the ultimate goal of locating a brand in the consumers’ mind differentiating
it in terms of attributes or benefits, quality, price, and use or user to maximize the brand.
Porsche positions itself as a high priced, high quality, exclusive sports car.

Focusing on the premium (luxury) segment with sports cars (five segments) and crossover
utility vehicles (two segments), Porsche provides the consumer with a frame of reference for
the company. Porsche offers a distinct product in each vehicle segment. The Boxster, 911,
Cayman, and 918 Spyder provide the vehicles traditionally associated with Porsche.

Attributes and Benefits

The attributes the Porsche brand evokes primarily consists of exciting, sporty, beautifully
designed, performance, and German engineering. Other attributes commonly associated with
Porsche, include quality, powerful, highly sophisticated, style, purity, very exclusive, exotic,
racing heritage, and elegant.

The benefits associated with Porsche, include excitement, performance, achievement,

success, status, and high income.

The Porsche product lineup offers products that are more fun to drive and faster than any
competitor in the segment providing the latest technology with a historic culture making the
brand impossible to imitate.

Porsche’s legendary association with racing and numerous appearances in television, movies,
and books gives Porsche a unique position in the automotive industry and automotive history.
Porsche with 70% of all vehicles built by the company still in operation provides indisputable
evidence of their unique position.
Points of Parity

Porsche has points of parity with the American performance vehicles, such as the Chevrolet
Corvette and the Dodge Viper. A segment of Porsche products also have point-of-parity with
Cadillac, when comparing United States luxury vehicles.

Points-of-Difference

Porsche’s German design, performance, and engineering along with its racing heritage
provide a point-of-difference on performance compared to the competition. The tagline used
by Porsche in the past “There is no substitute” sums up the iconic brand immortalized in the
movie Risky Business starring Tom Cruise.

Repositioning the Brand

In an effort to reposition the Porsche brand to expand into different, but similar markets the
company has introduced the “Engineered for magic, every day” campaign. The campaign
primarily uses the 911 to reposition the brand for everyday use.

The essence of peak performance designed to excite your everyday driving and lifestyle
provides an appropriate positioning statement considering the repositioning of the brand. The
slogan captures the essence of the Porsche brand remaining consistent with its heritage and
conveys the revised position of the company.

Porsche Results
The results have seen Porsche 911 sales increase year over year since the campaign started.
Porsche continues to be the most profitable automobile manufacturer, with a 17% profit
margin. The Cayenne, Macan, and Panamera provide Porsche with the ability to extend the
brand with vehicles better suited for everyday use.
Porsche’s innovative strategy to expand consists of introducing a combination of non-sports
models and sports vehicles. Porsche has expanded the product lineup with vehicles such as an
SUV, sedan while launching new sports cars directly aligned with its heritage.

Porsche provides an intelligent and effective balance of market expansion for the brand while
remaining true to its Porsche heritage especially critical for the loyal Porsche consumer.

The introduction of the Macan crossover utility vehicle with the 918 Spyder supercar
provides evidence of this strategy. The Macan has been a huge success with a 43% increase in
sales for North America in 2016. The Macan has had a significant impact on the bottom-line
with 19% growth in 2016 resulting in 95,642 vehicles sold globally.

Porsche has continued its record-breaking success story in 2016 with another successful year
with a 6% sales increase for a total of 237,778 vehicles sold worldwide.

Photo by Benoit cars

Summary

The target market segment strategy of Porsche provides an example of an iconic brand and its
ability to reinvent itself creating new markets extending the Porsche brand in a meaningful
manner while remaining true to its heritage.

The Porsche strategy of targeting female consumers to optimize the demographic profile by
expanding the product lineup and repositioning the brand as an everyday vehicle has resulted
in great success. The repositioning of the brand has started to change perceptions of Porsche
as a weekend vehicle resulting in additional sales.

Porsche with its many awards for quality, style, and engineering also have sophisticated
marketing complementing the superior products making it easy to understand why it’s the
most profitable automotive brand in the world.

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Analyzing Apple market segmentation strategy

In the real world of building products and attacking market opportunities, market
segmentation is the process of defining and sub-dividing the aggregate, homogeneous market
into addressable, targeted needs and aspirations buckets. Buckets that are in turn, thresholded
by demographic, psychographic and/or budgetary constraints.

Market segmentation strategy enables a company to drive complete, unified product solutions
that are harmonious with messaging, customer outreach, and channel strategies for selling
and supporting customers.

In this regard, Apple’s product strategy is a study in market segmentation. Versus merely
trying to stuff a product, burrito-style, with as many different features as possible, they target
specific user experiences, and build the product around that accordingly.

Consider the recent iPod event in September, where Apple completely rebooted the iPod
nano, rolled back the iPod shuffle to an earlier interaction model, and majorly forked the iPod
Touch in a way that also speaks to iPhone positioning.

Mind you, each of these efforts represent major strategic iterations of successful products,
not reboots of failed ones, so it speaks volumes about how the company thinks about its
users, their workflows and corresponding segments.

Moreover, it underscores the integral-ness of continuously re-calibrating on the definition of

the situation; not merely doing more for the sake of an added bullet point or to support a
desired price point.

Does Apple have a perfect crystal ball on these things? The history of the nano and the degree
of iteration of this generation’s shuffle, suggests that no, in fact, they don’t always have a
perfect read. But make no mistake: While they may not always be right, they are never
confused or haphazard in their approach, and that is the hallmark of sound market
segmentation strategy.

Apple segmentation from iPod shuffle to MacBook

As such, the chart below is an attempt to logically organize Apple’s product line so as to
better understand the company’s approach to market segmentation:
So what does it all mean?

If (in football terms) we are now entering the second quarter of the age of mobile computing,
it helps to see the continuum of connected devices from the perspective of their means of
mobility; namely, whether they are wear-able, pocket-able, bag-able or portable.

Similarly, the diverse set of device input methods that Apple embraces — from physical
buttons, keyboards and mice to multi-touch and tilt — provides a window into the types of
use cases and workflows that they are optimizing around.

Further, when you see how Apple has used its vertical integration of the iPod media player
and the iTunes marketplace across all of its devices to create a billing relationship with 160
million consumers vis-à-vis simplified discovery, purchase and distribution, it provides a
window into how they’ve facilitated a market segmentation approach that is simultaneously
harmonious and discrete.

In the harmonious bucket is the way that iOS-based Apps and their corresponding “ecosystem
surround” directly overlay on top of iTunes and the iPod media player. This approach is no
doubt a business school study of how companies can marry strategy and tactics across
product lines and product lifecycles.

Ironically, it is the holistic approach that has given Apple the ability to be judicious in its
implementation of differentiating hardware components at the display, phone, camera and
video capture level.

Want the best build quality device that Apple makes? Get the iPhone 4. How do we know
this? While the iPod Touch has recently received iPhone 4 pixie dust, in the form of a camera,
HD video recording and a retina screen, the build quality is a step below the iPhone 4, which
feels like a jewel box forged by a craftsman.

To be sure, the iPod Touch is beautiful and solid, but its screen is slightly diminished in
effect, and the camera is intentionally hobbled. In other words, while Steve Jobs himself may
refer to the iPod Touch as the “iPhone without the phone,” in truth, the functional
segmentation keeps it a step below the iPhone.

Now, this is completely logical when you consider how much more expensive the iPhone is.
Pricing (and margins) that are hidden from the customer via carrier subsidies.

That is also why recent analyst data that suggests that the iPad is “cannibalizing” low-end
MacBook sales — versus simply swallowing the low-end Windows PC and netbook
segments for lunch — is dubious at best. If you own an iPad and a Mac, you know two
things:

1. The iPad targets a set of “jobs” that are not dependent upon keyboards and mice, but there
are plenty of jobs for which a tablet is an unsatisfying replacement for a traditional
computer;
2. Apple doesn’t make low-end MacBooks, or similarly hobbled devices, for which an iPad
would represent a practical alternative.

But then again, as I’ve stated before, Apple is a rare bird, pursuing non-linear, high-
orchestration, high-leverage strategies. Exactly the type of complex storyline that is easily
dismissed by simple-minded analysts, investors, competitors, media and the like.

Value delivery process

VALUE DELIVERY PROCESS
The traditional view of marketing is that the firm makes something and then
sells it. In this view, marketing takes place in the second half of the process.
The company knows what to make and the market will buy enough units to
produce profits. Companies that subscribe to this view have the best chance
of succeeding in economies marked by goods shortages where consumers are
not fussy about quality, features, or style – for example, with basic staple
goods in developing markets.

The traditional view of the business process, however, will not work in
economies where people face abundant choices. There, the “mass
market� is actually splintering into numerous micro markets, each with its
own wants, perception, preferences, and buying criteria. The smart competitor
must design and deliver offerings for well-defined target markets. This belief is
at the core of the new view of business processes, which places marketing at
the beginning of planning. You can see this in action at your local mall. In the
struggle to grow, retail chains are creating spin offs that appeal to ever smaller
micro markets:

Spin offs

Gymboree, a 530-store chain, sells children’s clothing to upscale parents.

Since there are not enough parents making more than $65,000 per year to
support even to stores, Gymboree has created Janie and Jack, a chain selling
upscale baby gifts. Hot Topic, a chain that sells rock-band-inspired clothes for
teens, recently launched Torrid to give plus-size teens the same fashion
options. Women’s clothing store Ann Taylor spawned Ann Taylor Loft, with
lower-priced fashions, and Chico’s, a chain aimed at women in their forties
and fifties, begat Pazo, for slightly younger working women.

Instead of emphasizing making and selling these companies see themselves

as part of a value delivery process.
The process consists of three parts. The first phase, choosing the value,
represents the “homework� marketing must do before any product
exists. The marketing staff must segment the market, select the appropriate
market target, and develop the offering’s value positioning. The formula
“segmentation, targeting, positioning (STP)� is the essence of strategic
marketing. Once the business unit has chosen the value, the second phase is
providing the value. Marketing must determine specific product features,
prices, and distribution. The task in the third phase is communicating the
value by utilizing the sales force, sales promotion, advertising and other
communication tools to announce and promote the product. Each of these
value phases has cost implications. An example of Nike is given below to give
an idea of these phases.

NIKE

Critics of Nike often complain that its shoes cost almost nothing to make yet
cost the consumer so much. True, the raw materials and manufacturing costs
involved in the making of a sneaker are relatively cheap, but marketing the
product to the consumer is expensive. Materials, labor, shipping, equipment,
import duties, and suppliers’ costs generally total less than $25 a pair.
Compensating its sales team, its distributors, its administration, and its
endorsers, as well as paying for advertising and R&D, adds $15 or so to the
total. Nike sells its product to retailers to make a profit of $7. The retailer
therefore pays roughly $47 to put a pair of Nikes on the shelf. When the
retailer’s overhead (typically $30 covering personnel, lease, and
equipment) is factored in along with a $10 profit, the shoe costs the consumer
over $80.
THE MARKETING ENVIRONMENT
CONSUMERS CONFOUND MARKETERS

Household spending by all UK households amounted to over £500 billion in 1997, or

63% of gross domestic product. This level of expenditure is very closely related to
conditions in the country's macro-economic environment. For marketers, it is crucial
to be able to read the macro-economic environment and to predict the effects of
change in demand for their goods and services. Identifying turning points in the
economic cycle has become a work of art as well as science, as consumers
frequently confound experts by changing their expenditure levels in a way which
could not have been predicted on the basis of past experience.

During the Autumn of 1998, mortgage rates in the UK were falling; unemployment
was close to its lowest level for two decades; pay rises were keeping ahead of
inflation; and share prices were recovering from their recent falls. Yet expenditure by
British households was falling sharply. For three consecutive months retail sales fell
in value, with retailers such as Marks and Spencers and Storehouse reporting below
expected levels of sales. Retailers have traditionally found excuses to justify poor
sales to their shareholders, including weather which is too cold/too hot. Even the
death of Diana Princess of Wales was widely blamed for keeping people out of the
shops.

Throughout 1998, prices of consumer goods had fallen significantly, with consumer
durables down in price by an average of 2% in a year and clothing by 5%. Economic
theory would have suggested that lower prices would have resulted in higher sales,
especially considering the other favourable elements of the macro-environment.
However, this did not appear to be happening.

What else could have been happening in the marketing environment to explain
falling household expenditure? At the time, the media was full of reports of an
impending global economic crisis, triggered by difficulties in the Asian economies.
Consumer confidence is crucial to many high value household purchases such as
houses and cars, with consumers reluctant to commit themselves to regular monthly
repayments when their source of income is insecure. Even this may be only a partial
solution, as a survey of consumer confidence carried out in October 1998 by GFK on
behalf of the European Commission showed that although consumers were
pessimistic about the state of the national economy, they were quite upbeat about
their personal financial situation.

One possibility was that consumers had become cannier. If prices are falling, why
not wait longer until prices have fallen further? Consumers had also witnessed the
effects of previous over-borrowing and had been more cautious during the recent
period of economic growth, resulting in a historically low level of personal sector
indebtedness. In 1997, 9% of disposable household income was saved, compared
with just 3% at the height of the economic boom of 1988.

For companies who need to commit resources a long while in advance in order to
meet consumers’ needs, an accurate understanding of the market environment is
crucial if stock surpluses and shortages are to be avoided. But this case shows that
getting it right can still be very difficult.

CASE STUDY REVIEW QUESTIONS

1. Identify all of the environmental factors that can affect the demand for consumer
durables and assess the magnitude and direction of their impact.
2. In what ways can a manufacturer of consumer durables seek to gain a better
understanding of its marketing environment?
3. How can a manufacturer of consumer durables seek to respond to environmental
change as rapidly as possible?