To grow your business, you don't have to sell to everyone – in fact, it would be impossible to even try. A better approach is to identify the people who are most likely to enjoy your product or service and focus your marketing there. STP stands for segmentation, targeting and positioning. As a marketing model, it's designed to help you discover your ideal customers and target them with the perfect messages that will persuade them to buy.
TL;DR (Too Long; Didn't Read)
STP in marketing management stands for segmentation, targeting and positioning. Using this model will help you identify your most valuable customer groups and then sell to them successfully with products that meet their exact needs.
Segmentation, the S in the STP Process
There isn't a product on Earth that appeals to every customer, everywhere. For companies with finite time and a finite budget, it's much more beneficial to identify the individual segments of the marketplace that are the most likely to buy your product or service. The S in STP stands for segmentation. It's the process of splitting or "segmenting" a big market into a series of smaller markets that will fit your business perfectly.
Here's an example. In the car market, consumers might buy a new car to satisfy all sorts of different needs, including:
- Just to get around.
- To fit a big family.
- As a show of status.
- To be environmentally conscious.
- For ease of handling.
- For safety and quality.
Each category of consumers is going to be interested in a completely different car model at a completely different price point. A "just to get around" buyer, for example, will be looking for a no-frills model that represents good value for the money, whereas a "status" buyer will demand the exact opposite. If you're making or selling cars, you need to come up with some variables that will segment these different customer groups.
Four Ways to Segment a Market
You can segment a market however you please, but generally, marketers use four tried-and-true categories when grouping their potential customers. These are:
Splitting the consumer market by demographic characteristics, such as gender, age, ethnicity, marital status, occupation, education and so on.
Segmentation by country, state, city, county, town or neighborhood.
Identifying customers by their lifestyle, values, personality, attitudes and opinions. Who do they vote for? What do they do in their spare time?
Segmentation by how consumers use products – regularly or infrequently? Are they loyal to brands? Are they swayed by offers and discounts?
Targeting, the T in STP Analysis
After creating your segments, the next step is to choose the segment or segments (you can have more than one) that will be profitable for your business. This is known as targeting, and the main thrust is to choose the segments that will give you the best return on investment. Here are some things to consider:
- What's the size of the segment and does it have the potential to grow? If the segment has too few customers in it, then you'll quickly reach a saturation point where there's no longer scope to attract new customers and make more money.
- What are the obstacles that may stop you from reaching this segment? For this purpose, you might run a PEST analysis of the Political, Economic, Socio-Cultural and Technological factors that impact your ability to reach these customers. If you have a new HR technology product, for example, but laws and privacy restrictions prevent the product from being used in a certain country, you'll need to rule out that particular segment.
- Does the segment have a group identity? The whole purpose of STP analysis is to find groups of customers where everyone within that group will respond to the same marketing messages. You must be sure that the people in the segment will have a similar reaction to the advertising you put out.
- Is there a gap in the market? If the needs of a segment are being met already, you may have to work much harder and spend more money to make an impact.
Targeting in Action
As a simple example of targeting, suppose you run a car dealership selling used cars. You've taken a look at your customers and have identified the following segments: married couples with children looking for a minivan, men aged between 30 and 50 who want to buy a sports car and high earners who are looking for a luxury sedan.
You determine that, from the married couple segment, you make $300,000 in profits. From the sports car buyers, you make $500,000 in profits. From the final group, you make $1 million in profits. Since the high-earning group gives you the best ROI, you decide to focus your business on serving that customer segment.
Positioning, the P in STP Analysis
Positioning is the final part of STP analysis, and it's the part that most people think about when they think about marketing. How do you market your product to the target segment of customers? What messages will you use to encourage customers to buy from you instead of your competitors? What channels will you use?
In simple terms, positioning is all about finding your competitive edge – the benefit or feature that you offer that your competitors don't offer, which marketers call your "unique selling proposition." There are many ways to figure out your positioning, but it generally involves learning what your customers are looking for in a product (quality, value for money, specific features, etc.) and then ranking yourself and your competitors according to those criteria.
A tool that can help you do this is known as a perceptual map. A perceptual map is intended to help you visualize two things:
- Points of difference, or the attributes of your product that can't be found anywhere else.
- Points of parity, or the features that your product shares with competitors in the marketplace.
Positioning Using Perceptual Maps
To construct a perceptual map, select two attributes that the customer relies on when deciding whether to buy your product. For example, if you're thinking about opening a fast-food restaurant, you might choose the attributes "healthy" and "choice."
Next, plot a graph with an x-axis and y-axis, intersecting in the center to form a cross. Your x-axis might have the word "health" at one end and "junk food" at the other; the y-axis would run from "wide choice" to "limited choice." Now, make a list of your competitors and plot each competitor on the map in whatever quadrant fits the best. For instance, you might decide that Subway has a reasonably healthy menu and offers a wide choice of product, whereas KFC is less healthy and offers a limited choice.
When you're done plotting, look at the map. Are there any wide-open spaces with no competitors nearby? What opportunities exist for potential new entrants to the market? What other attributes might be worthwhile plotting onto a perceptual map?
The Value of the STP Model
The segmentation, targeting and positioning model is one of the most valuable marketing processes that can help you decide who your customer is and how you can market to them. It will test your ability to get under the skin of consumers and research where gaps might exist in the market. It makes sure the market is large enough to matter and helps you present a compelling offer that customers aren't able to refuse.