How to Segment Your Target Market: A Porsche Success Story
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.
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:
- Ducati (motorcycles)
Porsche performs target marketing concentrating on the consumers the organization has the strongest potential to satisfy. Porsche performs effective target marketing by:
- Identifying and profiling different consumer groups with differing wants and needs (market segmentation).
- Choosing one or multiple segments to target (market targeting).
- 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’sMarket Segment Strategy
The product lineup for Porsche includes:
- 911 in the midsize premium sporty car segment
- 718 Boxster in the compact premium sporty car segment
- 718 Cayman in the premium sport coupe segment
- Cayenne in the midsize crossover utility vehicle (CUV) segment
- Macan (latest addition) in the compact CUV segment
- 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.
Descriptive and Behavioral Elements
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 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 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”.
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 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.
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.
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.
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.
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.
Innovative Model Strategy
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 massive success with a 43% increase in sales for North America in 2016 and this continued into 2017 with 2% growth worldwide in 2017. However, the new Panamera is the star of the show with 83% sales growth in 2017 worldwide.
Porsche has continued its record-breaking success story in 2017 with another successful year with a 4% sales increase for a total of approximately 246,000 vehicles sold worldwide.
Photo by Benoit cars
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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Are you giving your customers what they want?
Sofia has just started a new job as a marketing manager for a fashion outlet. She conducts a careful analysis of sales data within the first few weeks, and quickly identifies a profitable opportunity with a particular group of high-value customers.
So, she brainstorms several ideas with her team, and they come up with an exciting new product which has the potential to be a real success for the company.
Sofia has identified a profitable segment of the market, but how has she done it? How can her team members develop a perfect product for these people? And how should they communicate its benefits?
In this article, we'll look at the Segmentation, Targeting and Positioning (STP) Model*, an approach that you can use to identify your most valuable market segments, and then sell to them successfully with carefully targeted products and marketing.
Examples of Targeting in Marketing
The STP Model consists of three steps that help you analyze your offering and the way you communicate its benefits and value to specific groups.
STP stands for:
- Step 1: Segment your market.
- Step 2: Target your best customers.
- Step 3: Position your offering.
This model is useful because it helps you identify your most valuable types of customer, and then develop products and marketing messages that ideally suit them. This allows you to engage with each group better, personalize your messages, and sell much more of your product.
Marriott International® owns a number of different hotel chains that target specific consumer groups.
For example, Courtyard by Marriott® hotels focus on travelers on the road, who want a nice, clean place to stay during their trip; Ritz-Carlton® hotels target those who don't mind paying a premium for luxury; and Marriott ExecuStay® hotels are aimed at professionals who need a longer-term, comfortable place to stay.
As you can imagine, Marriott International doesn't communicate the same marketing message to all its customers. Each hotel is designed and positioned to appeal to the unique wants and needs of a specific group.
Applying the STP Model
Follow the steps below to apply the STP Model in your organization.
Step 1: Segment Your Market
Your organization, product or brand can't be all things to all people. This is why you need to use market segmentation to divide your customers into groups of people with common characteristics and needs. This allows you to tailor your approach to meet each group's needs cost-effectively, and this gives you a huge advantage over competitors who use a "one size fits all" approach.
There are many different ways to segment your target markets. For example, you can use the following approaches:
- Demographic – By personal attributes such as age, marital status, gender, ethnicity, sexuality, education, or occupation.
- Geographic – By country, region, state, city, or neighborhood.
- Psychographic – By personality, risk aversion, values, or lifestyle.
- Behavioral – By how people use the product, how loyal they are, or the benefits that they are looking for.
(You can use Simonson and Rosen's Influence Mix to identify factors that influence customer purchases.)
The Adventure Travel Company is an online travel agency that organizes worldwide adventure vacations. It has split its customers into three segments, because it's too costly to create different packages for more groups than this.
Segment A is made up of young married couples, who are primarily interested in affordable, eco-friendly vacations in exotic locations. Segment B consists of middle-class families, who want safe, family-friendly vacation packages that make it easy and fun to travel with children. Segment C comprises upscale retirees, who are looking for stylish and luxurious vacations in well-known locations such as Paris and Rome.
Step 2: Target Your Best Customers
Next, you decide which segments to target by finding the most attractive ones. There are several factors to consider here.
First, look at the profitability of each segment. Which customer groups contribute most to your bottom line?
Next, analyze the size and potential growth of each customer group. Is it large enough to be worth addressing? Is steady growth possible? And how does it compare with the other segments? (Make sure that you won't be reducing revenue by shifting your focus to a niche market that's too small.)
Last, think carefully about how well your organization can service this market. For example, are there any legal, technological or social barriers that could have an impact? Conduct a PEST Analysis to understand the opportunities and threats that might affect each segment.
It can take a lot of effort to target a segment effectively. Choose only one segment to focus on at any one time.
The Adventure Travel Company analyzes the profits, revenue and market size of each of its segments. Segment A has profits of $8,220,000, Segment B has profits of $4,360,000, and Segment C has profits of $3,430,000. So, it decides to focus on Segment A, after confirming that the segment size is big enough (it's estimated to be worth $220,000,000/year.)
Step 3: Position Your Offering
In this last step, your goal is to identify how you want to position your product to target the most valuable customer segments. Then, you can select the marketing mix that will be most effective for each of them.
First, consider why customers should purchase your product rather than those of your competitors. Do this by identifying your unique selling proposition, and draw a positioning map to understand how each segment perceives your product, brand or service. This will help you determine how best to position your offering.
Next, look at the wants and needs of each segment, or the problem that your product solves for these people. Create a value proposition that clearly explains how your offering will meet this requirement better than any of your competitors' products, and then develop a marketing campaign that presents this value proposition in a way that your audience will appreciate.
The Adventure Travel Company markets itself as the "best eco-vacation service for young married couples" (Segment A).
It hosts a competition on Instagram® and Pinterest® to reach its desired market, because these are the channels that these people favor. It asks customers to send in interesting pictures of past eco-vacations, and the best one wins an all-inclusive trip.
The campaign goes viral and thousands of people send in their photos, which helps build the Adventure Travel Company mailing list. The company then creates a monthly e-newsletter full of eco-vacation destination profiles.
The STP Model helps you position a product or service to target different groups of customers more efficiently. This three-step approach helps you quickly zoom in on the most profitable parts of your business, so that you can fully exploit the opportunities these offer.
To use the model, start by segmenting your market into groups. Next, choose which of these you want to target. Last, identify how you want to position your product, based on the personality and behavior of your target market.
* Originator unknown. Please let us know if you know who the originator is.
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