A key idea in comprehending marketing and business strategies is the market segmentation, targeting, and positioning (STP) approach. The STP approach is outlined as a straightforward three step process in the majority of marketing textbooks.
A marketing model known as segmentation, targeting, and positioning (STP) reconsiders how and to whom you should advertise your products. It improves the emphasis, relevance, and personalization of your marketing communications for your target audience.
Simply said, STP is a marketing strategy approach in which you segment your audience, target the audience groups that are most appropriate for your product, and position your product to successfully reach your target segment.
- Identify segmentation bases and segment the market.
- Develop profiles of resulting segments.
The segmentation stage is the first step in the STP marketing model. The main objective here is to develop various consumer segments based on the features and criteria you select.
Following are the top four categories of segmentation:
1. Geographic Segmentation
Segmenting customers according to their location, such as by state, province, country, etc.
2. Demographic Segmentation:
The division of your customers depending on factors like as age, gender, occupation, education level, and so forth.
3. Behavioral Segmentation
Behavioral segmentation is the process of dividing your customer based on how they engage with your company, such as what they purchase, how frequently they make purchases, what they browse, etc.
4. Psychographic Segmentation:
By dividing your audience based on “who” your potential customers are, you can: Lifestyle, interests, activities, opinions, etc.
The STP marketing model’s second step is targeting. Identifying which of the segments you previously created is most likely to result in the necessary conversions is your major objective at this point.
- Evaluate attractiveness of each segment.
- Select market segment.
A market segment with strong growth, great profitability, and minimal acquisition costs is ideal one:
Size: Take into account the size of your market and its potential for future expansion.
Profitability: Take into account which of your target markets are most willing to pay for your goods or services. Find out the average lifetime value of each segment’s customers and compare them.
Reachability: Take into account how simple or challenging it will be for you to market to each segment. Think about each segment’s customer acquisition costs (CACs). Lower profitability results from a higher CAC.
Data on current sales value, anticipated sales growth rates, and anticipated profit margins for the various segments must first be gathered and analyzed by the company. It’s interesting to study segments with the proper size and growth characteristics. However, “proper size and growth” depend on various factors. Some businesses will wish to focus on market areas that have significant present sales, rapid growth, and strong profit margins.
However, not every organization finds the biggest, fastest-growing segments to be the most desirable. Smaller businesses can discover that these markets are either excessively competitive or that they lack the capabilities and resources necessary to serve the larger segments.
Such businesses might opt for niches that are smaller and less desirable overall but could be more lucrative for them.
A segment is less appealing if the suppliers of its raw materials, equipment, labor, and services are strong enough to raise prices or decrease the Duality or quantity of ordered items and services. Finally, segment attractiveness is dependent on the relative power of suppliers.
When suppliers are many and concentrated, when there are few replacements available, or when the supplied good represents a crucial input, suppliers are more powerful.
Selecting Market, Segments
When a market meets the company’s strengths, the next step is for the company to determine whether it has the capabilities and resources necessary to be successful in that market. Each section has specific prerequisites for success.
A company shouldn’t enter a market if it lacks the strengths necessary to compete successfully in that market and cannot easily acquire such strengths. Even if a company has the necessary strengths, it still needs to use resources and talents that are better than those of the competition to truly dominate a market area.
The business should only enter markets where it can provide higher value and outperform rivals.
- Identify possible positioning concepts for each target segment.
- Develop a marketing mix for each selected segment.
Positioning, the last step in this framework, enables to distinguish the company’s products or services in the eyes of company’s target market from those of the competition. You need to identify what it is that sets your company apart from the competitor’s.
Competitive edge can be acquired by focusing on the following three positioning factors:
Enhance your customers’ sense of self-image, belongingness, or even ego through symbolic positioning.
The luxury car market is a fantastic illustration of this; while they serve the same purpose as other cars, they also help their owners feel better about themselves and look better.
Solve your customer’s problems and offer them real benefits.
Focus on the emotional connection your customers have with your product, service, or brand.
All three elements must be present for the product positioning to be effective.
Brand Positioning Map
Making a perceptual map of your brand / industry may assist you see product positioning. Look at what matters to your customers and where you and your rivals fall on the map.
For clothing brand positioning map, they are focusing on the quality and the prices of the products sold at each of the stores. These retailers sell clothes but each charge different prices and have a different quality of product.
For example, Massino Dutti are seen to have a high quality of products and charge a premium price for them. They are able to do this because their quality of products does match the price and it is affordable for their target demographic.
Also, Primark is seen to do very low quality clothes and therefore is only able to charge a low price for all of their products otherwise people would not buy them.
This is successful for them as a brand as many of their customers are very young and are not seen to brand loyal so do not feel the need to keep hold of their clothes for a long period of time and therefore can throw them away once they have been worn once to twice.
Topshop falls higher up in terms of both quality and price than Primark, but lower than Massino Dutti . In terms of quality, their products range from some being high quality to some not being as high quality and not quite worth their price tag.
It is a brand that is sometimes deemed on the high price side but can also be seen as an affordable place for the latest trends as it offers a range in it’s prices depending on what product you are looking for.
The company begins implementation after developing a positioning strategy. The creation of a marketing mix that will promote positioning in the market is what is being done. This requires the creation and development of suitable products, at a suitable price, with suitable distribution channels, and a successful promotional strategy.
Steps in STP Process
- Identification of a market (Defining Market)
- Identification of the market needs.
- Segmentation of the market (Segmentation Stage)
- Study of different market segments. (Segmentation Stage)
- Selection of particular market segment. (Targeting Stage)
- Formulation and Implantation of marketing strategies.
Advantages of STP
✔Reduced marketing costs
By focusing exclusively on market segments with a high potential ROI, you are no longer wasting money on ineffective channels and market sectors.
Your customer sees you relevant and is more likely to engage with and convert when you are speaking to specific audience groups with personalized messages.
Since you are aware of exactly who you are selling your product to, you can make adjustments depending on their comments, which promotes focused product innovation.
Example of STP marketing: The Cola Wars
We’ll examine a real-world STP marketing case so you can see how it has historically increased conversions and revenue.
In the 1980s, Pepsi-Cola employed segmentation to target specific important audiences as it attempted to take some of Coca-Cola’s market share. They classified the market into three customer segments based on attitude and loyalty segmentation:
→ Customers who had a favorable opinion of the Coke brand and were devoted to it wholeheartedly.
→ Customers who were completely devoted to Coke but had a favorable attitude toward the Pepsi brand.
→ Customers who switched between the two brands yet had a favorable opinion of both and were loyal to both.
Due to its attractiveness and high return on investment, Pepsi had always concentrated its marketing efforts on the third segment. Focusing on Coke customers was seen a waste of time and resources because it was doubtful that they would alter their purchase patterns.
However, everything changed when New Coke was introduced in 1985.
Because many devoted customers didn’t like the new version of America’s favourite beverage, Pepsi replaced it.
As a matter of fact, according to Mental Floss, “Coke’s headquarters received upwards of 1,500 calls every day, up from the typical 400, with practically all of them complaining about the change.”
Pepsi started focusing on devoted Coke customers after noticing the shift in consumer perception.
The rival brand likewise adjusted its positioning; Pepsi began promoting the idea that Coca-Cola allegedly replaced its original Coke with New Coke to make it more similar to Pepsi. Their marketing tactics were severe (at least by today’s standards):
Pepsi reported a 14% increase in overall product sales that same year. Utilizing STP marketing strategies, Pepsi was able to grow their market share and win over Cola-loyal customers.