STP Model: Segmentation, Targeting & Positioning
"Good marketing makes the company look smart. Great marketing makes the customer feel smart." — Joe Chernov
What is The STP
STP marketing refers to using the STP (Segmentation, Targeting, and Positioning) model to create marketing strategies that focus on customers, discovering, and optimizing marketing towards your target audience and segment.
STP model is for creating marketing segments where companies can achieve a competitive edge to use in their marketing strategies.
Why is STP marketing important?
STP marketing is important because it can help a business target an audience effectively. It allows a marketing team to categorize their customers and develop specific advertising approaches for each group. You might use this method as an alternative to general messaging that tries to appeal to customers from multiple demographics, which may increase a company's sales and revenue.
Companies can also use STP marketing to understand the characteristics of their target consumers and the ideal way to communicate with them. This personalized method of persuasion may influence a customer's purchasing decisions and increase the number of times they engage with a business. By selecting an audience base, you might also better convey a brand's identity and overall message.
The STEP Formula
If you are looking for a simple way to remember and summarize the STP marketing concept, the acronym STEP is extremely useful:
Segmentation + Targeting Equals Positioning
This formula clearly illustrates that each segment requires tailored positioning and marketing mix to ensure its success. Let’s take a closer look at each of the three steps in the STP marketing model.
Segmentation
The first element of STP marketing is segmentation. This involves creating different categories for a customer base. Each group can have specific criteria based on certain topics and features. The five primary segmentation groups include:
Geographic segmentation: You can categorize an audience based on their location, including the region, state, or country they live in.
Demographic segmentation: Consider arranging your customers by traits like their age, gender, education level, occupation, and income.
Behavioral segmentation: This approach involves grouping an audience by how they interact with a business. For example, you can review what products they buy, how often they make purchases, and which items they view when they shop.
Psychographic segmentation: This method allows you to classify your consumers based on their personal characteristics like their interests, opinions, and activities.
Value segmentation: You can use the religious, cultural, and political beliefs of an audience to divide them into groups.
Targeting
Targeting is another crucial element of STP marketing. This step involves analyzing the categories of customers you previously arranged, then focusing on a specific group for a marketing campaign. You might choose people from a demographic who engage with a product or service more often or otherwise have higher purchasing rates. For example, a company that sells natural cleaning products may try to appeal to parents, as this group may be more likely to purchase a product that can benefit their child's health and keep them safe from certain chemicals.
There are many aspects that might inform your targeting decisions overall, depending on the needs of a business and consumers. Companies often consider each segment's size, growth potential, profitability, and overall accessibility. You may also select a group of customers that you hope to persuade into joining a loyalty program or otherwise interacting with a business. For instance, you might use STP marketing to gain new customers by encouraging them to sign up for an email subscription.
Positioning
Positioning occurs when you use customer data to develop a unique, personalized marketing strategy. This can allow you to fulfill consumer needs and offer your goods or services as a solution to their problems. This advertising approach might also give you some advantage over competitors, as consumers may find targeted ads more persuasive than commercials meant for a general audience. As a result, a company might experience more overall sales through this customization process.
Here are three approaches you can use when positioning a product:
Symbolic positioning: Consider enhancing the sense of belonging and self-image of your customers.
Functional positioning: With this method, you center your advertisement around the most important problem that an audience has and provide them with a solution.
Experiential positioning: This approach allows you to focus on the relationship a company has with its customers.
You might experiment with different combinations of these factors or use all three in the same marketing campaign. This can help increase the number of customers who engage with your advertisements.
Benefits of STP marketing
If you aren’t already convinced that STP marketing is going to revolutionize your business, we’re breaking down the key benefits that STP marketing has over a traditional marketing approach.
Because STP focuses on creating a precise target audience and positioning your products/services in a way that is most likely to appeal to that audience, your marketing becomes hyper-personalized. With personalization:
Your brand messaging becomes more personal and empathetic because you have your customer personas and know exactly whom you’re talking to;
Your marketing mix becomes more crystalized and yields a higher return on investment because you’re no longer wasting your budget on channels that your audience ignores;
Your market research and product innovation become more effective because you know exactly whom to ask for advice and feedback in the development phase.
Recent research shows that eCommerce leaders are adopting personalization at an unprecedented rate – 74% of eCommerce sites now claim to have now adopted some level of the personalization strategy. Their reasons?
Fifty-eight percent found that personalization helps increase customer retention, 55% cited conversion and 45% found that personalization actually helped minimize the cost of new customer acquisition.
How to create an STP marketing strategy
We covered the three stages of the STP marketing model and looked at the benefits and examples of this approach. While this provides you with an excellent overview of the concept, we want to get into the detail of creating an STP marketing strategy that serves your business.
Below you will find 7 steps to creating a solid marketing strategy using the full STP model.
1. Define the market
The global market is far too big and far too vast for anyone – even the biggest corporation with the most resources – to address. That’s why it’s important to break it down into smaller chunks and clearly define the part you are going after.
Typically, to evaluate your business opportunity, you will need to define your TAM, SAM, and SOM: Total Available Market, Serviceable Available Market, and Serviceable Obtainable Market.
Think of it as an iceberg. The very top peeking from under the water is your SOM – that’s the portion of the market that you can effectively reach.
SAM is is the portion of the total available market that fits your product or service offering. Whereas TAM is the total available market, in other words, “the overall revenue opportunity that is available to a product or service if 100% market share was achieved.”
2. Create audience segments
Now that you’ve adequately defined your target market, it’s time to segment it using geographical, demographic, behavioral, and psychographic variables.
Each segmentation variable helps you tap into a different aspect of your audience and when you use them in unison you can create niche segments that really make an impact on your overall marketing effort.
3. Construct segment profiles
When you’ve landed on your viable market segments, it’s time to develop segment profiles. Segment profiles are very similar to your ideal customer personas but they act as subsets of your main persona – they are detailed descriptions of the people in each segment.
Describe their needs, behaviors, demographics, brand preferences, shopping traits, marital status, and any other characteristics. Each profile should be as detailed as possible to give you and your business a good understanding of the potential customers within each segment. This will allow you to compare segments for strategy purposes.
4. Evaluate the commercial attractiveness of each segment
Cross-referencing your findings with available market data and consumer research will help you assess which of your constructed segments can bring in the biggest return on your investment. Consider factors like segment size, growth rates, price sensitivity, and brand loyalty.
With this information, you will be able to evaluate the overall attractiveness of each segment in terms of dollar value.
5. Select the target audiences
Now that you have detailed information on all of your segments, you need to spend some time deciding which ones are the most viable to use as your target audience. You’ll need to take into account your overall business strategy, the attractiveness of the segment, and the competition that exists in that segment.
The best way to determine the most viable segment is by performing cluster analysis. Quite a complex and technical topic on its own, clustering in the context of eCommerce segmentation means using mathematical models to identify groups of customers that are more similar to one another than those in other groups.
Your ideal audience segment is one that is both large and still growing, and you are able to reach with your marketing efforts. You’ll also want a segment that aligns with your business strategy – it makes no sense to focus your efforts on a segment of men in Australia if you are phasing out your menswear and don’t offer free shipping to Australia.
6. Develop a positioning strategy
Next, you need to develop a positioning strategy that will give you the best edge to compete with the selected target audience. Determine how to effectively position your product, taking into account other competitors – focus on how your positioning can win the largest amount of the market share.
There are several positioning strategy paths you can follow:
Category-based positioning – This calls for determining how are your products or services better than the existing solutions on the market.
Consumer-based positioning – This calls for aligning your product/service offering with the target audience’s behavioral parameters.
Competitor-based positioning – This is a pretty straightforward approach that calls to prove you are better than competitor X.
Benefit-based positioning – This calls for proving the benefits that customers will get from purchasing your product or service.
Price-based positioning – This calls for distinguishing based on the value for the money people get when purchasing your product/service.
Attribute-based positioning – Competitors, price, and benefits aside, this calls for zeroing in on a unique selling proposition that makes your product or service stands out from the rest.
Prestige-based positioning – This calls for proving that your products supply a particular boost in status to those who purchase.
Product Positioning Map – The product positioning map is a technique where the business uses a visual display to show their products against competitors. This allows for an easy way of navigating and understanding which products are being represented in comparison with others, ultimately helping them make decisions about what should be prioritized or modified based on company needs.
Chose what positioning model makes the most sense based on your previous research, and which would allow you to reach your specific segment.
7. Choose your marketing mix
The last and final step in this long and winding process is to actually implement your strategy. For that, you will need to determine a marketing mix that will support your positioning and help you reach the target audience(s) that you’ve chosen.
A marketing mix consists of the so-called 4 Ps: Product, Price, Place, and Promotion. The 4Ps are one of the essential marketing models.
Lets breakdown what the 4Ps include:
The product takes into consideration factors like variety, quality, design, branding, features, packaging, services, availability, and convenience.
Price takes into consideration factors like pricing strategy, list price, penetration price, premium, discounting, payment methods, credit terms, and payment period. Are your target audience segments price sensitive?
The place considers factors like channels, coverage, location, inventory, logistics, and trade channels.
Promotion takes into consideration factors like digital marketing, public relations, social media, sponsorship, influencer marketing, content marketing, product placement, sales promotion, and marketing communications. How will you communicate your value proposition to your target audience segments?
A carefully-curated marketing mix will ensure business success. However, if you do leave gaps in it, all the precious work you did at the previous stages might go to waste.
STP marketing examples: Coke Vs Pepsi
STP marketing has been around for a long time – and it has been effective for just as long. We’re going to take a look at a real-world example of STP marketing so you can see how it has worked historically in increasing conversions and revenue.
Back in the 1980s, when Pepsi-Cola was trying to claim some of the market share from Coca-Cola, Pepsi used segmentation to target certain key audiences. They focused on an attitude and loyalty segmentation approach and divided the market into three consumer segments:
Consumers with a positive attitude to the Coke brand who were 100% loyal to Coke.
Consumers with a positive attitude to the Pepsi brand who were 100% loyal to Coke.
Consumers with a positive attitude to both brands, with loyalty to both, who switched their purchases between both brands.
Pepsi had always focused its marketing efforts on the third segment, as it was the most attractive and had the highest return on investment. Focusing on customers loyal to Coke was considered a waste of time and money, as they were unlikely to change their purchasing habits.
However, that all changed with the launch of New Coke in 1985
The new iteration of America’s favorite beverage missed the spot with a lot of loyal consumers, so Pepsi swopped in. In fact, as Mental Floss points out, “Coke’s headquarters received upwards of 1,500 calls a day, up from the usual 400, with virtually all of them complaining about the change.”
Sensing the change in consumer sentiment, Pepsi began targeting loyal Coke drinkers. The rival brand also refocused its positioning – Pepsi started drumming up the fact that Coca-Cola, supposedly, changed its classic Coke with New Coke to resemble the taste of Pepsi. Their marketing campaigns were brutal (well, in today’s terms at least):
That same year, Pepsi announced a 14% spike in overall product sales. Pepsi was able to use STP marketing strategies to increase their market share and convert Cola-loyal customers to Pepsi-lovers.
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