Segmentation, targeting, and positioning (STP), the process that can help you identify and evaluate opportunities to increase sales and profits. Defining and understanding the vision or objectives of the company’s marketing strategy and the mission of the company are key factors before starting the STP process. Using a SWOT analysis, companies can find their mission. A SWOT analysis consists of the company’s strengths, weaknesses, opportunities, and threats. Once the company mission is defined, we can go through the STP process.
Let’s dig deeper into what this process means.
Segmentation breaks customers into groups or market segments. A market segment includes consumers who respond similarly to an organization’s marketing efforts. Each segment will have similar needs, wants, and characteristics. This makes it possible to gear your product or service specifically for them. Developing descriptions of the different segments helps an organization better understand the customers in each market segment. One organization’s product or service can have multiple segments.
Companies can choose to break their customers down into segments through:
- Geographic segmentation: organizes customers into groups on the basis of where they live
- Demographic segmentation: groups consumers according to easily measured, objective characteristics such as age, gender, income, and education
- Psychographic segmentation: how consumers describe themselves – how they spend their times and money, what activities they pursue, and their attitudes and opinions about the world in which they live
- Benefit segmentation: groups consumers on the basis of the benefits they derive from products or services
- Behavioral segmentation: divides customers into groups based on how they use the product or service
This gets even more specific than your market segments. After a company has identified the various market segments for its product/service it then evaluates each segment’s attractiveness and decides which ones to pursue. This narrower focus is called a target market and it’s where the company will spend most of its marketing budget.
Companies use the following target markets:
- Undifferentiated targeting strategy, or mass marketing: when everyone might be considered a potential user of its product
- Differentiated targeting strategy: target several market segments with a different offering for each
- Concentrated targeting strategy: selecting a single, primary target market and focuses all its energies on providing a product to fit that market’s needs
- Micromarketing or one-to-one marketing: tailoring a product or service to suit an individual customer’s want or needs
A company must now decide how it wants to position itself within each market. This market positioning involves defining the marketing mix variables so that target customers have a clear, distinctive, desirable understanding of what the product does or represents in comparison with competing products. The positioning strategy helps communicate the firm’s or product’s value proposition, which communicates the customer benefits to be received from a product or service and thus provides reasons to purchase.
Here are some real-world examples of using STP to identify and evaluate opportunities for increasing sales and profits.
Information gathered from Grewal, Dhruv, and Michael Levy. Marketing. 5th ed., McGraw Hill Education, 2017.