BUSI 103 - Introduction to Business (Chapter 9)
August 3, 2026
How does a business find the customers its product is right for - and how does it make every marketing choice reinforce, rather than undermine, the others?
Read time ~37 min - ~5,578 words - problems ~45 min
Why this matters. Customers do not show up just because you built something good. Finding them, convincing them, and managing that whole relationship is a process every business has to run - and the businesses that run it well make choices that fit together, while the ones that run it badly work against themselves.
What you’ll be able to do.
The big ideas.
Key terms. the 5 Cs, marketing funnel, segmentation, targeting, positioning, positioning statement, category frame, the 4 Ps.
The furniture market IKEA’s founder looked at had two well-served camps. Traditional buyers wanted durable, delivered, pre-assembled, beautiful furniture - it was all very high priced, and there were not that many designs. This was a large market but it had a lot of people in it. Premium buyers wanted luxury and service customization. They did not care about price. It took a long time to buy and it was a much smaller market, because not everybody has that kind of disposable income.
One of the insights with the founder of IKEA is that not everybody wants premium furniture. Not everybody can afford premium furniture, and many are going to trade convenience for design. There were these do-it-yourself value seekers. They wanted to have modern design but it had to be affordable. They were willing to be a bit inconvenienced by where to go for furniture and assemble it themselves. There just weren’t many stores that were meant for them. This was a really big unmet demand.
Serving those people means building a company that deliberately turns away almost everyone else - the shoppers who want delivery, assembly, service, prestige. Can a strategy that repels most of the market actually win? Hold the question - this chapter is about how those choices get made.
Customers do not appear on their own - marketing is the process that finds them, convinces them, and manages the whole relationship.
We’ve talked a lot about production and creating value (Chapter 2), but all of that has been kind of in theory and at a level of being pretty abstract. In the end, part of getting a business to run is that you actually have to have customers. You have to find them. You have to convince them that what you’re doing is something that creates value for them. Then they have to pay you, and you have to manage that whole thing. That is not something that just magically happens because you have a great product. It’s something that all businesses have to constantly think about and run as a process in and of itself.
What does good marketing do? It finds the right people - the types of people for whom our product or service is a really good fit and creates value for them. It identifies, for these people, what the needs and wants are that are going to translate into a compelling value proposition. And it designs a marketing funnel to reach customers. What would be easy is if we knew exactly who they were, but the thing is, we’re not really sure if these are the right people. We’re not really sure if these are the people who can make a decision to buy our stuff. For some of these people, with a compelling offer, they’re going to become customers. Some of them are not going to be, so we have to have a whole process for who we reach out to, with an implied hit rate. It’s not going to be 100%.
We have to build an experience. It’s not just that they get a great product, but what’s this whole process by which they discover us, learn about us, and make their final decision? And we have to communicate not just to customers but also the organization about what we’re doing and how we’re implementing this strategy.
Marketing informs the value-creating objective itself - and it demands coherence, including an answer to who you are not serving.
I can always view marketing as being the closest to strategy. It’s fundamentally answering two questions: where are the product, market, and customers we’re going after, and how do we create a compelling value proposition to make them choose us versus some other alternative? Most other functions are design or control functions. Marketing informs what our value-creating objective is, tests if that’s compelling, and tries to make that real in the marketplace.
What’s really important in a good marketing strategy is that there are multiple elements, and it’s important that all the elements reinforce each other. You can’t be everything to everybody, so we have to talk about what the trade-offs are. It’s just as important to answer: who are we not serving? Who are not our customers? The message has to be coherent and motivate action. We’re not just talking to our customers; we’re also talking to our own employees, who are also coordinating their actions to deliver on this value proposition.
How important is marketing in the budget? Here is the rough shape of the line items for a typical product firm:
| Category | Illustrative % of revenue | Comment |
|---|---|---|
| Cost of goods sold (product firms) | 40-80% | Often the biggest line item, but highly dependent on industry and business model |
| Marketing budget | ~7-8% | Large-firm benchmark; measured against revenue, not against profit |
| R&D (non-tech firms) | 1-5% | Much higher in pharma and some tech sectors |
| G&A / overhead | High single digits to teens | Broad overhead bucket |
| Net profit margin | High single digits to low teens | Typical rough order of magnitude for mature firms |
(Marketing figure: Gartner 2025 CMO Spend Survey - budgets averaged 7.7% of revenue among surveyed large firms.)
A lot of people think great products are discovered by people automatically, but it turns out companies have to work really hard to basically talk to customers, to tell them what they’re about, to interact with them, to tell them why they’re valuable, and even after the purchase, to manage that relationship. All that goes into marketing, and it’s a non-trivial part of the budget. When you’re building a business, you’re not just building a product, you’re building a system to deliver that product.
Bottom line: marketing claims real resources in the budget, and it is the function that keeps the whole value proposition coherent.
Scan five things before acting - customer, company, collaborators, competitors, and context.
The first organizing framework is the 5 Cs. The idea here is really around situational awareness - where are all the different pieces that we have to look at? The 5 Cs are just good reminders of five things that matter:
Start with the customer. We can think about who the customer is in several different ways: the demographics - who they are, what their ages are, where they live, background, the things that you can describe in a picture of who that person is - their behaviors, what they do and how they act, and their why. What motivates them? What do they value and believe in? What’s really important is not that we are just able to describe them in some kind of conceptual way, but that we can use these factors to identify our customer.
Now, keep in mind that it could be that we have the same person, but they have different needs because of different contexts. There could be a person who happens to be an office worker, and they are working in downtown Atlanta. When they need lunch, the important selling context features are that they’re downtown, they can’t get out, and they’re busy. Things about them are context-specific about why they’re a customer for, let’s say, a food truck. That same person on the weekend might have different needs because they’re in a different geographical place or facing different constraints. When we think about a customer, we have to think about aspects of that person, but it could also be situationally or contextually defined.
Look for alignment between what you have and what customers need - and remember that you rarely deliver value alone.
When we think about the company: what are we good at? Think about your strengths and weaknesses. What are our assets? What do we stand for? Are we equipped to serve this customer in this particular way for this particular good or service? What we’re looking for is a nice alignment between who we’re trying to be for the customer and what it is that we’ve got. We want to leverage our capabilities, our brand and our culture - it has to align with what customers want.
Netflix is a good case here. Before streaming, they were a mail-order business, and they would get a lot of information about customers. They really honed what they were known for: their capabilities in improving the customer experience by knowing more about the customer and making a more personalized presentation of what they might want to view. Eventually, they got really good at getting data on what people viewed and helping get some insights around what different audiences wanted. They expanded into actually creating, not just distributing, content - making some of their own original content, building on those strengths. The lesson is to target opportunities that fit what you’re equipped to do - there should be a really good congruence between capabilities and what customers want or need.
Collaborators matter the same way. Apple relies on app developers to expand the value and functionality of their platforms. Computers are great, phones are great, but what’s important are the apps that run on them. These collaborators make those platforms, especially the phone, more valuable. Apple coordinates and supports the ecosystem of developers through their store, doing distribution, reviews, and standards. There are times where there is some friction around how they divide the gains between the app developers and the app store, but they’re kind of co-dependent on each other, with each taking a role in delivering value to the customer.
Define competition around what the customer is trying to do, not around your product type.
Peloton competes not just with other bike producers, but with the whole area around fitness: how customers stay fit and how they get motivated. When we think about who the competition is for Peloton, it helps to think about this broadly. They’re also competing with fitness apps, gym and studio memberships, other fitness products and services - and, of course, just doing nothing at all.
We’re not just trying to build the best exercise bike. We’re trying to compete against all the other things that person might be doing around fitness, including not doing anything at all. The recent pressure on Peloton’s subscriber numbers shows substitutes matter. The real battle is not just which exercise bike this person is going to choose, but what this customer is going to choose for fitness as far as time, attention, and where they’re going to put their recurring spend. You have to define competition around what a customer is trying to do, not just your product type.
A context change can reallocate value across an entire industry - and the media business is living through one right now.
There’s perhaps no bigger recent example than 2020, when COVID hit. These trends really changed whole markets - the forces opened up opportunities or shut down opportunities. COVID-19 accelerated remote work and online grocery. Brands who understood that could pivot quickly, and brands who could not adapt as quickly suffered from that very rapid and broad context change.
One thing that’s really changing the world of publishing, traffic, and media right now is AI. It used to be that people would search on Google and, from Google, click on pages. The Reuters Institute reported that media managers expected search referrals to decline 43% over the next three years. Those referrals are already down: traffic from Google Search is down 33% and Google Discover is down 21% year over year, and there are a lot of sites that depend on search referrals to fuel media properties driven by ad revenue. Without those views, they’re unable to make those businesses work. AI summaries mean people just read the summary and get the information they need - Pew found that users presented with AI summaries click a traditional result only 8% of the time, down from 15%, and click a link inside the summary only 1% of the time. That is a big context change, and a lot of internet news sites are reeling.
What is exposed, and what holds up? Side by side:
| More exposed | More resilient |
|---|---|
| Open-market display ads | Sponsored research - new insight that doesn’t exist elsewhere, privately packaged |
| Heavy reliance on search engine optimization | Events and webinars, where the value is the audience showing up and interacting |
| Generic content based on the volume of clicks | Lead generation with guarantees that listings generate trackable business |
| Broad awareness buys with weak attribution | Intent and audience intelligence - knowing what readers will actually do |
| Newsletter and community-based products |
Building community is one of the most valuable things a media organization does. It gets a group of like-minded people interested and captures that attention, and for advertisers looking to reach those kinds of people, that is a lot more lucrative. AI isn’t really eliminating ad revenue. Advertising will always still be there, but it’s reallocating it away from commodity aggregation and light-touch attention towards people who can curate qualified attention: people who have intent and can marshal that attention for advertisers who are interested in those very specific targeted populations.
Bottom line: context is the C that moves - and when it moves, it can change which side of every other C you want to be on.
Segmentation reveals the market is not one thing; targeting picks where to play; positioning gives your chosen customer a reason to prefer you.
The next framework is STP - segmentation, targeting, and positioning. This is very laser-focused on the customer: we want to understand who we’re after, and we want to get as specific as we can.
When we talk about segmentation, we talk about looking at the world through some categories - what set of categories describe the world - and it’s about picking the relevant cut. Targeting is picking one of those segments to prioritize. This is one of the most important decisions, because when you talk about who you’re going to go after, you’re also defining who you’re not going after. Positioning is about how we compare in the minds of the customer - how we communicate where we stand with respect to other alternatives, and why our value proposition is superior.
A firm can’t do everything for everyone, and if you try to do that, very often you just end up delivering a very lukewarm answer to people that is not very compelling. Segmentation, targeting, positioning: it brings discipline and focus to these choices.
Break the market into groups with meaningfully different needs - on differences you can observe and act on.
Segmentation starts from the fact that the market isn’t just one monolithic thing. People have heterogeneous desires, needs, and makeups. You want to break up the market into groups with meaningfully different needs - segment customers by type, how they use things, their willingness to spend, what kind of experience they’re desiring, what behaviors they exhibit. We describe who would be our ideal customer, but also what behaviors and traits will allow us to find and identify them.
Good segments have to be identifiable. They have to be substantial - big enough to go after. They have to be accessible - we need to be able to contact and interact with them - differentiable from other segments, and actionable, something we can act on. Sometimes people talk about segments with some very unique, specific attribute that is really insightful but just not very useful. The canonical one: “Hey, we are targeting the people who love us.” This is kind of a tautology - we’re going after the people who would love us the most, but what kind of people would love us the most, and how would you tell? People don’t wear T-shirts to say, “I would be a wonderful customer for you.” We have to segment on things that we can observe on people, find out there, communicate with, and take action with.
Some businesses deal with different segments by having multiple brands. Marriott is a hotel brand, and it doesn’t treat all travelers as one market. Some people are traveling for business. Some people are traveling on vacation. Some are very sensitive to price. Some want a premium experience. Some are going to stay for a really long time - you’re moving and your house isn’t done yet - and some are just staying for one night in the city. Given all those different segments, Marriott has different brands with very different experiences: luxury brands like the Ritz-Carlton, Bulgari, and JW Marriott; lifestyle and collection brands like Edition, Autograph Collection, AC Hotels, Renaissance, and Moxy; the flagship Marriott brand itself; extended-stay brands like Residence Inn, TownePlace Suites, and Marriott Executive Apartments for people who need someplace to live for a while; and destination entertainment for people who want an experience connected to other amenities. The point of these multiple brands is not just to get really busy with things, but to have different offerings that are compelling to specific customers - and to make sure customers associate each brand with that specific type of experience.
[Exhibit omitted from this web edition pending a rights-cleared version.]
Marriott’s brand portfolio spans six segments of travelers.
This is exactly the move IKEA’s founder made with furniture: traditional buyers, premium buyers, and a third group nobody was building a store for.
Choose the segment you can win with - and accept that choosing is also choosing who not to serve.
Once you’ve decided how to divide up the world, the question is: where are we going to play? Firms have to focus. We can’t pursue every segment equally well, because segments want different things, and it’s hard to do many things well for different people - it also just isn’t very coherent. Targeting means choosing which customers are the most attractive and which align with what we can do. That choice can range from mass marketing to very differentiated, very niche approaches to a specific group of people.
Targeting can also change over time. Firms start with one segment, and once they’re really good at this area, they build trust and they build capabilities. Those capabilities might be valuable to other segments. Airbnb didn’t start trying to serve a broad set of travelers, kind of like it does now. It first had to gain traction with customers who just had an open mind about an alternative that wasn’t hotels: people looking for flexibility or variety or sometimes lower cost. At the beginning that just kind of seemed strange - people weren’t sure if they could trust other people’s homes. After it became more normal and they built that trust, then they were able to expand into more premium offerings and experiences. Targeting is about choosing where to start and where to focus. That can be revisited, but at the beginning you have to know who you’re going after.
Look at the anchor case through this lens. IKEA is looking for cost-conscious people who are on a budget but who like design: young adults, students, early families. Demographically they’re kind of 20-something to early 40s, people who live in cities, middle income, not super rich. They’re pragmatic and self-reliant - they feel comfortable assembling this stuff, they value creativity, and they want a functional piece of furniture, not a big status piece. They’re willing to go to stores, pick up flat packs, get them strapped to cars, and assemble them at home.
And who’s repelled by this? People who are time-poor professionals who just want white-glove delivery - “I don’t want to worry about this, I just want the full installation.” Premium buyers who are looking for really good quality with no compromises at all. Shoppers who think, “Oh, if you have to assemble it, it’s just going to be low-quality stuff.” These are not the kind of people who are going to be valuing IKEA, and that’s why IKEA is not going after these people.
Bottom line: it’s about deciding which customers to prioritize and not trying to be all things to all people.
Positioning is the meaning customers attach to you - and it comes before messaging and storytelling.
Positioning comes before you start on messaging and storytelling. You have to have a sense of, in the space of how your customers have used different solutions, where you stand in relation to everything else. That context is really important to make sure customers can understand what you do, what category you’re in, who you are, what you stand for, and what strengths you bring to the table.
People who focus on positioning often say it’s about owning a place in the mind of the customer - what is the meaning that customers attach to your brand? Good positioning answers: Who is this for? Why is it valuable? Why is it different from the other alternatives that exist to solve this problem? Why should customers believe this? Good positioning is focused, it’s credible, it’s not vague, it’s not generic, it’s not everything for everyone.
One way of thinking about this is that a good positioning statement answers a kind of Madlib-like question: for a given target customer, this brand X is the frame of reference that has some kind of unique value, and here’s the evidence to believe that. Run IKEA’s core message through it. It’s for people who want stylish, functional home furnishings at low prices. IKEA offers affordable, approachable Scandinavian-design furniture that you assemble yourself, because good design should be available for everyone - you don’t have to be really rich to do it. And in the statement it’s very clear who this is not for: this is not for luxury buyers, it’s not for great craftsmanship in the furniture, it’s not for custom-made stuff. This is style for the masses.
Customers use categories to make fast assumptions - pick the frame that makes your strengths legible, or they will pick one for you.
The reference category matters a lot. Customers use categories - they make fast assumptions, and your category frame shapes what they expect about who the competitors are, what the features are, and what good prices are. Picking the right category frame can make you look stronger, or it could make you look weaker. If you don’t actually take control of this narrative of how you are being positioned, customers are going to put you in some category. It just may not be the one that makes you look the best - so better to take initiative and be more assertive about positioning.
Here’s an example of how much the frame changes things. If you say Starbucks is a place you buy coffee, we compare that against other food things, and we talk about how good it tastes. If you say, “Actually, Starbucks is more of a reliable place to go and meet people,” it’s a very different vibe. We compare it to different things, and how we measure whether they’re delivering on the value is very different than if we just think about this straight up as food. Very often every value proposition is a basket of many things, not just the product in and of itself - it also stands for service and reliability and expectations when we purchase.
Positioning is kind of vague, so it’s good to have a practical checklist. To really have a good positioning statement, you’d have to know what the competitive alternatives are - if customers didn’t use you, what would they do instead, including the option of doing nothing? What are the unique attributes that you have that others do not? The value: why is that valuable to this particular segment you have chosen to target? Who is the best-fit customer who would find this the most compelling, and how would you identify them? And the market category: what category or frame of reference makes it easier to understand the rest of this basket?
Take an app many of us have experience with: Duolingo. Duolingo helps us learn language, but it doesn’t position itself like formal classroom instruction or tutoring. It’s free, it’s a language-learning app, it’s about building habits, it’s gamified, and it’s supposed to make learning fun and easy to do. Everything around it - the iconography, the way the app works, the way it has rewards - all reinforce that positioning. It’s very different from other language-learning products geared toward people learning very seriously and as quickly as possible. If you’re going to be a foreign journalist or a diplomat, you’re probably not using Duolingo, because that’s a very different segment, and the positioning has to align with a more serious aim than what Duolingo does. Who is it for? People who want to learn a language without a lot of formal instruction. What is it? A language-learning app. The value is that it’s free, it’s fun, and it’s low-friction and habit-forming. Why believe it? Really short lessons, and features focused on building habits: streaks, reminders, personalization.
Bottom line: good positioning doesn’t start with getting the whole complicated story out - meet customers where they’re at, and give them a frame of reference so they can situate your story and interpret your message correctly.
Product, price, place, and promotion are the four levers that make the strategy real - and every one of them signals the positioning.
The final framework is the 4 Ps - the components of marketing strategy. Product: what is the good or service you’re offering? Price: how much are we charging, and why? Place: another word for distribution - where do people find out about you and access this product? Promotion: what are the ways that you communicate and persuade customers to buy?
Product first. Dyson wasn’t just selling appliances - it was selling the promise of this nerdy engineer who really made a super high-performance vacuum. When you look at it, it looks like something that came out of a lab. They talk a lot about technical language, and the features and the way they sell it are all about performance. The product is that argument: its design, the way it looks, the way it feels, and the messaging all reinforce the idea of high innovation and premium performance.
Price sends signals too. Trader Joe’s doesn’t use price simply to get the highest margin on each item - it supports the whole vibe of value with personality. It uses a lot of private labels, because that way they can avoid some of the high cost of branded products while still delivering products that are perceived as high quality and specific to them. The prices stay accessible, but still give this idea that people who go to Trader Joe’s are getting special products just for them.
Place is about more than logistics. Glasses used to live at the local optician - you had to go there, someone fit you. Warby Parker went direct-to-consumer and online, and distribution was going to be tough, because being able to put your hands on frames matters. It’s a big-ticket purchase, and fit matters a lot. They made distribution work with very generous return policies - get frames, try them on at home, send back the ones you didn’t want. Then they started putting in physical stores to add something websites couldn’t: try-ons, guidance, eye exams. Distribution isn’t just warehousing and how we ship products. It’s how products show up where customers can access information, learn, and have that experience - it shapes the trust, the access, and the kind of relationship you’re going to have with customers.
And promotion. A lot of us look forward to the end of the year when Spotify releases Wrapped. This is a promotion, and it really fits the brand, because Spotify is all about personalization - something that’s built for you, with a social piece tied to music. It’s not just “do I have all the tracks I want?” but “what does it say about me, and how do I share this with others?” Wrapped used their data to help people get more value out of Spotify on the things it primarily stands for. And it enabled people to act, in the sharing aspect, as promoters of Spotify - showing people who are perhaps new to Spotify what it could offer. In 2023, over 120 million users shared their Wrapped summaries.
Weak marketing is less often about wrong choices than inconsistent ones - every element has to reinforce the rest.
Go back to IKEA and lay its 4 Ps side by side:
| Element | IKEA’s choice | Who it attracts | Who it repels |
|---|---|---|---|
| Product | Flat-packed, minimalist, functional | Cost-conscious, design-minded | People wanting ready-made luxury |
| Price | 30-50% below traditional retailers | Young adults, renters, students | High-income, brand-prestige buyers |
| Place | Suburban warehouse stores, self-serve layout | Value seekers willing to drive | Time-poor urban elites |
| Promotion | “Democratic design,” catalog, immersive store | Design lovers on a budget | Premium shoppers seeking exclusivity |
Place is not a convenient place to get to, especially if you’re an urban city dweller. You have to get out there, get a car, get carts, pack this stuff up, and transport it yourself. That’s for people who are willing to go through some of that labor to get these types of prices and designs. And from a promotion standpoint, focus is what it’s all about: democratic design, an immersive store where you can see and try different things. If you’re a design lover but you don’t have much money, this is a great experience. If you’re looking for something more exclusive, a little more bespoke, something exuding status, going to IKEA is not your thing. When you put all four together, not only are they coherent individually, they work together and reinforce each other, and that is the hallmark of a great marketing strategy.
Here’s the general lesson. In marketing, we may not know what the right answer is, but we have to make choices - a lot of choices - and what’s really important is that those choices are coherent together. Weak marketing is less often about the wrong choices, although it can be, and very often about inconsistent choices, where our marketing strategy works against its different parts. That’s bad because each one of these choices is costly. It’s costly to get good at something, and it’s also costly in that we give up going after something else. For example, if we position ourselves as high quality, great for the customer, with high prices that go along with that, that makes sense - but if we don’t invest in great customer service, good training, and strong systems to help people resolve their problems, then we’ve done all this work to communicate this thing, and because we haven’t invested in making good on it, it ends up hurting our brand image in the end.
Bottom line: you don’t have to be good at everything, but you do have to be consistent and truthful in what you tell your customer, so when they look at the value proposition, they see that it’s there.
So can a furniture company that says no to most of the market win? This concept has been very successful. There are over 480 stores in more than 60 countries, and in 2024 revenue was around €47 billion. Gross margins are 45% - very high for a discount retailer. Part of this is because the labor of getting things finally to the house, the customer is doing that work: they do the last mile of delivery and the last mile of labor. On average people are going to spend $90 to $100 a visit - that middle-market price point. When people think about the brand, it’s high on good value but not very good on high service or luxury. This is not because they happen to be bad at this. They are specifically just choosing to be bad at something so they can be good at other things and also have low price - and that polarization, some people loving IKEA while others never shop there, is the proof of strong positioning. IKEA dominates this mid-market global furniture because they identified there was this gap of what customers really wanted and nobody was serving, and they positioned themselves very well for it.
9-1 The Campus Cafe. [LO1, LO2] A cafe near campus currently tries to serve everyone: morning commuters who want speed, students who camp at tables all afternoon, and families on weekends. Revenue is flat and the owner is exhausted. (a) Run a quick 5 Cs scan - two or three observations per C. (b) Propose two plausible segmentations of this market, using observable, actionable differences. (c) Choose one target segment, justify it on attractiveness and alignment, and name explicitly who the cafe would stop serving well.
9-2 The Positioning Statement. [LO3] Choose a real brand you use regularly (not one featured in this chapter). (a) List its competitive alternatives - including doing nothing. (b) Name its unique attributes and the customers who care most about them. (c) Write its positioning statement in the template form: for [target], Brand X is the [frame of reference] that [unique value] because [reason to believe]. (d) Name one other category frame the brand could plausibly claim, and say how expectations about competitors and price would change under it.
9-3 The Coherence Audit. [LO4] Pick a business you know - a local restaurant, a gym, an online store. (a) Build its 4 Ps table in the IKEA format: element, the firm’s choice, who it attracts, who it repels. (b) Identify the least coherent cell - the choice that fits the positioning worst - and explain what it costs the firm. (c) Recommend one change that would make the choices reinforce each other, and state the trade-off it implies: who do you give up?
© 2026 Eric Lin. All rights reserved. This chapter is provided for students in BUSI 103 - please do not repost or redistribute without permission.