Introduction to Segmentation, Targeting, and Positioning (STP)
Welcome to one of the most practical and exciting areas of marketing: Segmentation, Targeting, and Positioning, commonly referred to as the STP model. This chapter forms part of Unit 1 (AS): Business and markets.
Imagine trying to design a pair of shoes that fits every single person in the world: babies, marathon runners, construction workers, and fashion models. It is impossible! If a business tries to appeal to everyone in the exact same way, it usually ends up pleasing no one. Instead, successful businesses break down big, diverse markets into manageable groups, pick the best group to focus on, and shape their product to stand out. That three-step journey is STP.
Quick Memory Aid: Think of STP as a simple sequence:
1. Segmentation = Slicing the market into parts.
2. Targeting = Choosing which slice(s) you want to serve.
3. Positioning = Placing your brand clearly in the minds of those chosen consumers.
Step 1: Market Segmentation
Market segmentation is the process of dividing a total market into distinct groups of buyers who have similar characteristics, needs, or behaviours.
A single sub-group is called a market segment. Customers within the same segment will generally respond in a similar way to a particular marketing mix (Product, Price, Promotion, and Place).
Common Bases for Segmenting Markets
Businesses can divide a market in several different ways depending on their product and customer base:
1. Demographic Segmentation
This divides the market based on measurable population characteristics. It is the most common method because demographic data is relatively easy to measure and gather.
Examples include:
• Age: Toys for toddlers versus retirement plans for senior citizens.
• Gender: Personal care products, clothing, or cosmetics.
• Income / Social Class: Budget supermarkets appealing to lower-income households versus luxury sports cars aimed at high earners.
• Family lifecycle: Young singles, married couples without children, or large families.
2. Geographic Segmentation
This involves dividing customers according to where they live, work, or shop.
Examples include:
• Region or Country: Selling winter coats in colder climates and swimwear in tropical regions.
• Urban vs Rural: Compact city cars for crowded urban streets versus durable four-wheel-drive vehicles for rural farming areas.
3. Behavioural Segmentation
This focuses on how consumers actually interact with, purchase, and use a product.
Examples include:
• Usage rate: Heavy users, light users, or non-users (e.g., frequent flyer programmes rewarding heavy business travellers).
• Brand loyalty: Highly loyal customers who always buy the same brand versus switchers who hunt for bargains.
• Occasions: Products bought for specific times, such as chocolates for Valentine's Day or greeting cards for birthdays.
4. Psychographic Segmentation
This groups customers according to their lifestyle, personality, values, and attitudes.
Examples include:
• Outdoor and adventure enthusiasts buying rugged camping gear.
• Environmentally conscious consumers seeking organic or zero-waste household items.
Benefits and Drawbacks of Market Segmentation
Benefits:
• Better meeting customer needs: Products can be tailored precisely to specific tastes, increasing customer satisfaction.
• Focused marketing spending: Advertising budgets are not wasted on people who have zero interest in the product.
• Identification of market gaps: A business might discover an underserved group that competitors have overlooked.
• Higher pricing power: When a product matches a customer's specific needs, they may be willing to pay a higher price.
Drawbacks and Limitations:
• Higher production and stock costs: Offering different variations of a product reduces the chance to gain economies of scale.
• Increased research and promotional costs: Running multiple advertising campaigns across different media channels is expensive.
• Risk of misjudging segments: Customer tastes change rapidly; a segment defined today might shrink or shift tomorrow.
Key Takeaway for Segmentation: Segmentation is about dividing a broad market into identifiable, manageable groups of customers with shared needs.
Step 2: Market Targeting
Once a business has identified its market segments, it must decide which segment (or segments) to pursue. This decision is called targeting.
A target market is the specific group of customers toward which a business decides to direct its marketing efforts and resources.
Targeting Strategies
Businesses generally choose between three main approaches to targeting:
1. Mass Marketing (Undifferentiated Targeting)
The business ignores individual segments and targets the entire market with one single product and one marketing mix.
• Example: Basic commodities like plain white sugar or table salt.
• Advantages: High sales volume; significant economies of scale in production and purchasing, keeping unit costs low.
• Disadvantages: Fierce price competition; fails to satisfy customers who desire specific features.
2. Segmented / Differentiated Marketing
The business targets several different market segments and designs separate product offerings or marketing mixes for each.
• Example: A large car manufacturer producing small economy hatchbacks, family estate cars, and executive saloons under the same parent brand.
• Advantages: Spreads business risk across multiple markets; can generate larger overall revenue than focusing on a single group.
• Disadvantages: Very high operational, promotional, and development costs.
3. Niche Marketing (Concentrated Targeting)
The business focuses on a single, well-defined, and often small segment of a larger market.
• Example: Specialized gluten-free bakeries, or handcrafted diving watches designed for deep-sea divers.
• Advantages: Lower levels of direct competition from mass producers; easier to build strong brand loyalty; can charge premium prices.
• Disadvantages: High vulnerability if demand drops or if a larger competitor enters the niche; limited potential for overall sales volume.
Factors Influencing Which Target Market to Choose
When selecting a target market, managers should consider:
• Business resources and capabilities: Does the firm have the finance, skills, and capacity to serve this segment effectively?
• Segment size and growth potential: Is the segment large enough to generate acceptable revenue and profit?
• Level of competition: Is the segment already crowded with dominant competitors, or is there an unfilled gap?
• Profitability: Are customers in this segment able and willing to pay prices that yield a viable profit margin?
Key Takeaway for Targeting: Targeting is the choice of which segment(s) to enter, moving from broad mass markets to focused niches depending on resources and competitive conditions.
Step 3: Market Positioning
After segmenting the market and picking a target group, the firm must decide on its positioning.
Market positioning refers to how a product or brand is perceived by consumers relative to competing products in the same market. It is not just about physical features; it is about the mental image and value proposition in the customer's mind.
How Businesses Position Their Products
A business can position its offering based on attributes such as:
• Price and Quality: Positioned as a luxury, high-end alternative or as a low-cost, budget-friendly option.
• Features and Performance: Highlighting superior reliability, speed, convenience, or durability.
• Usage and Application: For example, positioning a beverage as an energising morning drink versus an evening relaxation drink.
Market Mapping (Positioning Maps)
A visual tool often used in positioning is a market map (also called a perceptual map). This is a two-dimensional grid illustrating customer perceptions of competing brands based on two key buying criteria (such as price and quality, or modern versus traditional design).
How a market map works:
• Axis 1 (Vertical): Low Price vs High Price
• Axis 2 (Horizontal): Low Quality vs High Quality
• Brands are plotted on the grid according to customer perceptions.
Why is market mapping useful?
• It helps identify gaps in the market (unoccupied spaces on the grid) where customer needs may not currently be met.
• It helps a business understand who its closest direct competitors are.
• It assists an existing business in deciding whether to reposition its product if current sales are declining.
Limitations of market maps:
• Choosing only two dimensions simplifies customer buying behaviour, which is often influenced by many more variables.
• The map reflects subjective perceptions rather than objective facts.
• A "gap" on a map does not automatically mean profitable demand exists; there might be no customers who want that specific combination.
Key Takeaway for Positioning: Positioning is about carving out a distinct, desirable identity for your product in the minds of target customers relative to rival offerings.
Connecting STP to the Wider Marketing Process
STP does not happen in isolation. It forms the bridge between market research and designing the functional marketing mix (4Ps: Product, Price, Promotion, Place).
• Research feeds into STP: A business uses market research (covered in Marketing data) to identify segments and understand consumer perceptions.
• STP directs the Marketing Mix: Once you know your target customer and how you want to be positioned, your product design, pricing strategy, advertising channels, and retail outlets must all align to reinforce that exact position.
Common Exam Mistakes to Avoid
Mistake 1: Confusing Segmentation with Targeting.
Correction: Segmentation is the act of dividing up the whole market into groups. Targeting is making the deliberate choice of which specific group(s) to focus on. You cannot target until you have segmented.
Mistake 2: Assuming every gap on a market map is an opportunity.
Correction: Just because an area on a market map is empty does not guarantee success. For example, a gap for an "extremely expensive, low-quality smartphone" exists because nobody wants to buy it!
Mistake 3: Describing positioning as merely where a product is placed on a supermarket shelf.
Correction: Shelf placement is physical distribution ("Place" in the 4Ps). In marketing strategy, "Positioning" refers to the psychological position—the perception and reputation the product holds in the customer's mind compared to competitors.
Quick Review Quiz
Check your understanding with these three review questions:
1. What type of segmentation is a company using if it divides its market into "frequent business travellers" and "occasional holiday travellers"?
Answer: Behavioural segmentation (specifically, segmentation by usage rate or occasion).
2. State one key benefit and one key risk of pursuing a niche marketing strategy.
Answer: Benefit: Lower direct competition and ability to charge a premium price. Risk: Small market size means vulnerability if consumer preferences change or if total demand falls.
3. Why might a business decide to reposition an existing product?
Answer: To reverse falling sales, respond to new competitors entering the market, or target a growing, more profitable consumer segment.