Segmentation, Targeting, and Positioning (STP)
Segmentation, Targeting, and Positioning (STP) and its Application
The modern market is rapidly changing and becoming highly competitive, necessitating proper strategic planning to improve performance. However, Weinstein (2013) reveals challenges for businesses in expanding their markets due to shortcomings in target marketing. The author cites various potential factors for the challenge, including lack of time, poor focus, and bad planning. Weinstein (2013) proposes the importance of defining, segmenting, and targeting, and positioning (STP) in getting the right market for the organization to enhance its competitiveness. Furthermore, Hassan and Craft (2012) reveal a consensus on the need for marketing managers to ensure effective targeting to improve their position in the market to enjoy productivity and profitability. Recent research provides insight for companies to optimize their market and meet customer needs to remain relevant and enhance their revenue. Hence, although segmentation, targeting, and positioning (STP) suggest different processes in marketing, managers should understand how to use the approaches in practice to gain a competitive advantage and improve productivity in their sectors. The model applies to different industries, to target the right market and expand their business.
Segmentation, Targeting, and Positioning (STP)
Segmentation, targeting, and positioning (STP) are critical concepts in marketing as they define the success of introducing a product in the market and its success in appealing to the target customers. Kotler and Keller (2010) suggested that the STP formula is the beginning point of value creation in companies. Hence, it is at the core of strategic marketing and the basis for success in selling products and services. Therefore, Weinstein (2014) reveals the significance of the value-added analysis, including efforts to understand the market and create customized solutions depending on customer needs. From the investigation, it emerges that marketers cannot target the entire market, but instead should sub-divide their target market into parts that they can serve efficiently. Companies using the model have proven effective in reaching the right customers and gaining a competitive advantage over their rivals (Weinstein 2013). In addition, such organizations become more profitable even in remanufacturing end-of-life products.
Marketers should understand the segmentation concept to target their products or services to the right market. According to Kotler and Keller (2010), markets comprise niches and segments that companies serve with different goods. Hence, business success is informed by its capacity to target the right segments. Darwinian Theory is applicable to understanding the rationale behind segmentation based on competition between biological organisms. The theoretical model posits the impossibility of species to survive in the same environment if they live identically. Similarly, organizations that provide similar products to the same consumers, in the same territory, and under the identical conditions are unlikely to coexist. Although the scenario is possible, one of the companies will dominate the environment depending on the ability to target the market (Weinstein 2014). Thus, managers should comprehend the available channels to dominate the market and counter competition to become highly productive.
Segmentation recognizes the possibility of companies selling similar products to target the same clients. Hence, Lyon, Ball, and Haggerty (2012) suggest a critical definition of the concept of segmentation as the reclassification of objects into different groups (segments), depending on particular characteristics or relationships regarding benefits, costs, and risks. The definition reveals the idea of categorizing the market depending on various features of the customers to ensure maximum focus on their different needs. Marketers in different companies and sector use various characteristics in segmenting the market, including demographic, psychographic, geographic, behavioral and product-related variables. From the segmentation perspective, marketers should recognize differences in the market regarding needs, tastes, preferences, and decision-making tendencies (Lyon, Ball & Haggerty 2012). Thus, marketers should understand all the factors to sell to the right clients.
Marketers use various formulas to segment the industry and effectively target customers. However, Dolnicar, Kaiser, Lazarevski, and Leisch (2012) propose the use of data-driven market segmentation as an effective method of pursuing the clients. The study reveals the increasing importance of technological applications in targeted marketing. The findings support Lyon, Ball, and Haggerty (2012) evidence on the importance of learning the different characteristics of the various segments to focus on the right customers. Dolnicar et al. (2012) highlight the significance of learning about the similar traits of the customers to enable development of the targeted marketing mix. The evidence is obtained through properly designed market research using technology to collect and analyze data from real and potential customers. Hence, marketers have access to large data and analytical tools to understand and segment their markets.
Market-oriented firms have unique marketing approaches to reach their real and potential customers. Guido, Prete, Miraglia, and De Mare (2011) explored their effective use of direct marketing approaches, focusing on particular prospects based on their unique characteristics. On the other hand, Lyon, Ball, and Haggerty (2012) reveal that the direct marketing approach involves the aspect of targeting to ensure that the marketers selectively communicate with a particular group. Hence, Lyon, Ball, and Haggerty (2012) define targeting as a concept of delivering a specific message to an opposite group using the right communication channels. Thus, the targeting moves a step further from segmentation to relay a marketing message to the customers in the relevant segment. Hence, the same techniques that they use in segmenting the market are used in designing promotional messages customized to achieve the desired objectives.
Marketers desire appropriate responses from the target market, explaining the emphasis on direct marketing. Guido et al. (2011) include the definition of the concept by the Direct Marketing Association as “interactive system of marketing which uses one or more advertising media to effect a measurable response and or transaction at any location” (p. 127). Targeting enables the use of direct promotional initiatives by aiming at a selected segment of consumers. Therefore, targeting allows companies to concentrate their marketing efforts to a particular segment to achieve the marketing and organizational objectives (Taken 2012). The process entails identification of the customers whose need perfectly matches the product or service offered by the firm. Consequently, the company achieves cost-effectiveness in its use of the integrated communication strategy.
In addition, targeting relates to market segmentation since the process allows identification of the most suitable customer groups to focus the message. Weinstein and Cahill (2014) reveal market segmentation as examining the various demographic and psychographic factors that allow effective targeting in the actual and potential markets. Hence, the marketing team should understand suitable strategies to collect and use the right information from the market. Furthermore, the process is useful in attracting new business to increase sales and achieve business success (Guido et al. 2011). Thus, the decision on which and how many segments to target is a critical part of the marketing process for companies.
Positioning is another critical process in the STP approach and an essential part of the marketing, branding, and strategy. Positioning goes a step further from segmentation and targeting in the market to create a place for the product in the minds of the consumers within the target segment. Urde and Koch (2014) discuss brand management from the perspective of the brand platform used by marketers to position a product or service in the appropriate market segment. Marketers should establish a position in the market that the brand will assume to appeal to the real and potential customers. Furthermore, the position includes the brand values and promises it represents within the market (Urde and Koch 2014). Hence, brand positioning involves the creation of the consumer’s perception of the brand or product concerning the competitors.
Market positioning involves working directly with the customers to establish an image or brand such that they experience it appropriately. Hence, different authors have considered the concept from different perspectives. For instance, Aaker and Shansby (2009, p. 56) defines the term positioning as “strategic decision related to the customer’s perception and choice decisions,” while Keller and Lehman (2006, p. 740) considers it as setting “the direction of marketing activities and programs – what the brand should and should not do with its marketing”. Thus, positioning is considered from the perspective of brand or product position to appeal to the target customers. It creates a lasting perception in the minds of the consumers to influence their decision-making in the highly competitive market.
The analysis of research findings reveals a lack of agreement on the appropriate definition of market positioning. However, some scholars have provided marketers with critical insight into the concept, including an idea of the aspects to consider when performing market positioning for the products or brands (Urde and Koch 2014). On the other hand, Kapferer (2012) suggests the need to answer four critical questions to develop a comprehensive understanding of the positioning concept: “1) For whom? (segmentation) (2) In which market? (target market) (3) Promising what? (key elements of the brand core) (4) Proven by what? (evidence supporting the value proposition)” (cited in Urde & Koch 2014, p. 479). Regardless of the lack of a generally agreed definition of the concept, marketers agree that brand positioning is critical in marketing activities.
Criticism of Segmentation, Targeting, and Positioning
Although the approach of STP has been effective in expanding and creating new markets, the current economic trends are limiting the applicability of the model. Firstly, the world markets are accessible both locally and internationally, hence the competition has increased. Therefore, customers can access and purchase from any industry in the world, regardless of geographical aspect that was a challenge in a decade ago. The accessibility of products through online channels has created a challenge in marketing strategies that would like to develop effective strategic positioning and segmentation (Lynn, 2011). In addition, the free trade agreements and economic systems initiated by governments have increased competition based on various products and services available in global markets and local industries.
On the other hand, the liberal markets will enhance the creation of significant segments in the market and other segmentation concepts initiated by firms, which might not differentiate the market regarding demand. However, if firms were able to create segments, it would be hard to benefit from them because the drivers of demand might be small to enjoy considerable profits. In addition, new segmentation would not profit much from new industries since e-commerce has emerged, exposing customers to convenient markets that can be accessed through new purchasing channels (Lynn, 2011). Although the customer might benefit from positioning and targeting strategies, the aspect of convenience, delivery services, and pricing would encourage a customer to buy products through an online platform regardless supplier location.
Although STP would appear to work well in theory, in practice the trend might be different. First, those aspects depend on the market a product is operating in. If the market is new and the competition is not aggressive, then the industry can be segmented. However, if the target market is competitive, stable, and mature, especially in developed nations, then targeting and segmentation approaches might not yield competitive advantage (Lynn, 2011). In this kind of market, the success is not based on attracting different customers than the business rivals but innovating new approaches to attract the same customers that enjoy services from the competitors.
Application of Segmentation, Targeting, and Positioning
Segmentation, Targeting, and Positioning (STP) model is commonly used in contemporary marketing efforts. It is one of the most popular models among marketers who realize the real benefits of being market-oriented. However, the popularity of the approach is relatively recent since many of the previous models focused more on the product as opposed to the customer (Khan, 2013). Camilleri (2017) adds that in the 1950s, the primary strategy in marketing was “product differentiation.”’ Although the differentiation still plays a role in marketing, the STP model has proven effective in designing communication plans, allowing marketers to prioritize prepositions and create personalized messages to the target audience. Companies strive to engage the customers to understand and target the right segments and position their brand to become successful. Companies in various sectors have realized the importance of the STP strategy to target the right customers.
In traditional marketing, markets are segmented based on different customer groups. However, Camilleri (2017) suggests a reality that customers have diverse needs, wants, and preferences. Thus, the application of personalized marketing considers the different aspects of the consumer to reach the most suitable for the product or service. Pyo (2015) recommends the possibility of integrating the market segmentation, targeting and positioning functions in marketing. The benefits of the model emanate from the potential of creating an integrative link between customer needs and wants, and destination attribute to position the brand effectively in the market. Pyo (2015) confirms that marketers in the industry recognize the systematic contribution of segmentation, targeting, and positioning processes while considering their relationship. The modern competitive market requires the integrative function to remain productive by allowing marketers to segment and position their brand as well as continued monitoring any changes that might affect their marketing efforts.
Segmentation, targeting, and positioning functions in sectors that market products have significantly been explored. However, the application of the model in the service industry is still limited. The few studies that have investigated the use of the model in the industry reveal considerable success in targeting more customers and positioning the brand in their minds to increase revenue for the firms (Pyo 2015; Camilleri 2017). Pyo (2015) investigated the use of the model when clients have common traits such as culture, nightlife, shopping, interesting activities, and various attractions. Marketers who understand these facts become more effective not only in segmenting the market but also in effectively targeting the customers and positioning their brands in the markets to attract more customers while building their revenue. Companies within the industry have reinvented themselves to target unique customers, including digital consumers.
Effective communication is at the core of operational segmentation, targeting, and positioning concepts. As a result, the digital platform has provided the most successful communication channels for firms to collect information to segment markets and still deliver the message to the target consumers to position the brand in the market (Camilleri 2017). Social media platforms such as Google, eBay, Facebook, and Amazon have dominated the digital marketing arena and pushed advertising to another level (Camilleri 2017). Consequently, firms should have more effective channels to reach their target customers with the right message about their services. Users leave a digital trail of information that marketers can follow and apply to create more targeted communication strategies for their companies. Hence, firms using the new media to reach their customers are increasingly becoming more competitive compared to those that use conventional communication channels.
Companies are using mobile applications effectively to segment their markets, target customers, and position their brand. Shaikh and Karjaluoto (2015) reveal the way companies capitalize on mobile analytics to provide business intelligence as they utilize the STP model. Organizations use mobile applications to collect segmentation information, including demographic, geographic, and psychographic data about the market that they use in identifying particular client needs and wants. According to Camilleri (2017), various firm use devices to target consumers based on their location, needs, desires, and preferences. They further use mobile communication and geo-positioning technologies in positioning their brands in the market by engaging their customers. Camilleri (2017) adds that the location-targeted mobile advertising has increased the market share for the company by enabling targeted marketing strategies.
Digital technology is used to deliver ads and coupons that are customized to the particular needs of the market segment. The most successful application of the mobile devices is the potential to understand individual tastes of the consumers, geographic location, and the time of day when the company can communicate with particular clients. For instance, companies may have a digital communication department with marketers who collect the necessary data to target specific customers across the world (Jung, Choe, & Byun 2009). As a result, the company has successfully targeted a global clientele based on different segmentation information. The company understands the needs of the local and international clientele, the youth and older customers, as well as business and luxury clients among others. As a result, the agency is successfully connecting customers to the most suitable tourist destination sites, improving their level of satisfaction while gaining more clients.
Such companies are using various mobile and digital applications to target their customers efficiently and effectively. For instance, tourist firms in South Korea are using browser cookies to track customers through their mobile appliances including phones and tablets. According to Camilleri (2017), the devices are applications are more efficient for the current customers who visit the various sites in the country. Companies may use browsing session data together with the history of the client in dealing with the company to deliver “suitable” brands and services that appeal to their real and potential customers. Companies are taking advantage of mobile and other technological platforms in segmentation, targeting, and positioning to personalize their offers from collecting, classifying, and using large data volumes on the behavior of the customers. By creating appropriate apps, the companies can perform useful market research to get suitable data to apply the STP model in their marketing efforts.
Organizations Applying STP
Tesla has been able to target its customers by expanding its market to reach more clients. The aspect includes targeting various generations that are keen on innovation, including those who are above 40 years, those in their 20s and the generation Y as well as the middle class, which are gaining ground in the economy. Therefore, more innovative cars that meet the needs of each group has enabled the company to target its prospective clients.
Tesla has also been able to segment its market in various categories, including those clients who are technologically savvy, luxury cars at the entry level, and eco-friendly consumers. For those consumers who are sensitive to the environment, the company is already producing electric cars that are more efficient than other cars from competitor regarding driving range, performance, and style that characterize Tesla cars. For those who appreciate more innovation, the fully developed and operational electric cars are already in the market targeting this group. Finally, for the who need luxury vehicles, the company has already manufactured such cars with a sophisticated interior, which will fascinate the tech-savvy segment. The segment in this category includes the young professional who aspires to drive high-end vehicles.
The aspect of Positioning is also evident in the company where the manufactured cars have been set at the entry-level operating fully in electric without compromising on the performance. Although many younger buyers may not consider electric cars as attractive without sophisticated design and performance, the company is positioning such vehicles at the entry-level luxury vehicles with the advantage of zero emissions.
Huawei has been able to position its brand through business to business in many countries across the world. The aspect has enabled it to be among the biggest brands in smartphone manufacturing in the world. The company also has an outstanding technical team, which has increased the presence of Huawei phones to both the Chinese and the global markets.
Although Huawei produces standardized products and the market demand is the same, the company has segmented its market based on culture, economy, and geography of its target market. The entire market is then subdivided into sub-markets with the same environment. For instance, Huawei has taken advantage of the Russian market where the economy is characterized by low market growth yet the demand is high.
Targeting for Huawei is focused on near and far markets based on the income of customers, population distribution and location. Therefore, the first target market starts at Hong Kong and then focus on the third world nations. Finally, the company targets the developing and developed countries as the final market.
Panadol has been able to segment its industry by ensuring that it is an over the counter medicine that does not require a prescription from a physician. The drug has segmented its market to include many countries in its marketing approaches, making it the market leader in almost all the states.
The product has an appealing positioning statement, indicating “gentle to the stomach.” The statement acts as an assurance that whoever is taking the product, no side effect would be experienced. Panadol has been positioned in all the outlets, including supermarkets as the best pain and fever reliever. The product is readily available, has high efficiency, no side effects, and can be purchased without a prescription. These factors have positioned this brand in the pharmaceutical industry, making it the leading over the counter drug.
The target group for panadol is the masses suffering from fever and pain. In fact, the aspect of targeting is very successful given that individuals can take the drug regardless of their profession without any prescription from the physician. Hence, the company demonstrates this competitive advantage in the pharmaceutical field, which enhances increases its target market and consequently the profit.
Companies operating in various sectors are facing numerous challenges, including competition and a growing need for profitability. Kwak and Kim (2013) propose an effective means of improving performance and profitability in industries facing growing rivalry, through the application of segmentation, targeting, and positioning of end-of-life products. The proposal includes the aspect of integrating technology to ensure that companies reuse their products through end-of-life recovery. However, effective use of technology could restore end-of-life products to functionality and appeal to customers through effective targeted marketing.
Segmentation is the beginning place in achieving the objective of recovering end-of-life products and restoring them to profitability. While traditional communication channels could prove ineffective in targeting customers with information about such products, mobile and technological applications can be useful in achieving the objective (Camilleri 2017). For instance, when using the digital communication platforms, companies can post information and collect feedback about the segments of customers that would be interested in visiting such sites or purchasing products. The data plays a critical role in segmentation and targeting as marketers will analyze the customers and create customized communications targeting the specific customer segment based on their needs, wants, and preferences. Communication enables the companies to position their brands in the market in a way that creates a lasting impression in the mind of the customers.
Effective use of segmentation, targeting, and positioning (STP) model will allow companies in various sectors to remanufacture profitable products and market them using digital communication capabilities. However, marketers should understand the importance of effective decision-making in the application of the model in the digital environment. For instance, marketers are facing an increase in big data, necessitating useful analysis to generate the most accommodating approach in making marketing decisions. Thus, Kwak and Kim (2013) propose the use of valid analysis tools to create the essential information from the raw data and apply it in segmentation, targeting, and positioning. Firms in all sectors can gain a competitive edge in the fast-paced market by using technology in STP.
As it is evident from the analysis, marketers should understand that it is entirely impossible to satisfy all customers, explaining the need to select particular parts of the market that they can serve effectively. Although many companies target a global clientele, they can still target the most profitable segments and position their brand effectively to achieve their business objectives. Targeted marketing involves the development of a marketing mix using the STP model (market segmentation, targeting, and product/brand positioning). Segmentation entails identification of consumer groups that share characteristics of interest to the marketer. Many firms sub-divide their markets using demographic, psychographic, geographic, behavioral and product-related factors. Hence, they effectively target the different segments with a customized message about their products or brands. As a result, companies would manage to appeal to the smaller groups of consumers, and hence expand their markets locally and globally.