Complete Guide to the STP Framework
What is Segmentation?
Segmentation involves dividing a broad target market into smaller, distinct groups of consumers who have similar characteristics, needs, or behaviors.
Purpose
By segmenting the market, companies can:
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Understand diverse consumer needs and preferences.
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Tailor marketing strategies and messages to specific segments.
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Allocate resources efficiently by focusing on high-potential segments.
How to implement it?
Step 1: Identify Segmentation Variables
Segmentation in marketing begins with identifying and defining the variables or criteria that will be used to categorize your customer base into distinct segments. These variables are essentially the characteristics or traits that differentiate one group of customers from another.
Segmentation Criteria
Demographic segmentation
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Age: (e.g., children, teenagers, young adults, middle-aged, seniors)
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Gender: (e.g., male, female, non-binary)
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Income: (e.g., low-income, middle-income, high-income).
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Occupation: (e.g., white-collar workers, blue-collar workers, professionals)
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Education: (e.g., high school graduates, college graduates etc.)
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Family Size and Life Cycle: (e.g., single, couples, families with children)
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Ethnicity and Culture: (e.g., Hispanic, Asian, African-American)
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Geographic Location: region, city size, climate, or population density
Psychographic Segmentation
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Lifestyle: (e.g., adventurous, health-conscious, eco-friendly)
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Personality Traits: (e.g., ambitious, introverted, risk-taker)
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Values and Beliefs: (e.g., environmental sustainability, social responsibility)
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Attitudes: (e.g., brand loyal, price-sensitive, health-conscious)
Behavioral Segmentation:
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Usage Rate: (e.g., heavy users, occasional users, non-users)
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Purchase Occasion: (e.g., holiday shoppers, impulse buyers, routine purchasers)
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Brand Loyalty: (e.g., brand loyalists, switchers, indifferent)
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Benefits Sought: (e.g., convenience, status, performance)
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Decision-Making Process: (e.g., rational decision-makers, emotional buyers, impulse buyers)
Geographic Segmentation:
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City Size: (e.g., Metropolitan Areas, Suburban Areas, Rural Areas)
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Population Density: (e.g., High Population Density, Low Population Density etc.)
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Climate: (e.g., Warm Climate, Cold Climate, Moderate Climate)
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Topography: (e.g., Coastal Areas, Mountainous Areas, Flat Plains)
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Urbanization Level: (e.g., Highly Urbanized Areas, Semi-Urban Areas, Rural and Remote Areas)
Step 2: Create a Venn Diagram of all the selected variables
Segmentation Methods
Single-variable segmentation: Using one variable to divide the market (e.g., age-based segmentation).
Multi-variable segmentation: Using multiple variables together to create more precise segments (e.g., combining age, income, and lifestyle).
Segmentation based on needs or benefits: Identifying distinct needs or benefits that different groups of consumers seek (e.g., health-conscious consumers, convenience seekers).
Note: After identifying 2-3 segments that you believe are the best fit for your product, targeting helps you refine and prioritize which segment offers the greatest potential. It allows you to focus your resources and efforts on the segment most likely to respond positively to your offering, maximizing your chances of success in the market.
What is Targeting?
It's the process of evaluating these segmented groups to determine which ones are most attractive or viable to focus your marketing efforts on. In other words, targeting involves selecting specific segments (or target markets) that align best with your business objectives and have the potential to generate the highest returns.
Parameters to Evaluate the Target Segments
1. Size of the Segment: Evaluate the size of the segment in terms of the number of potential customers or the revenue potential it represents. Larger segments generally offer more opportunities for sales and growth.
2. Growth Potential: Assess the growth rate of the segment. Is the segment expanding or shrinking? A growing segment indicates increasing demand and potential for future profitability.
3. Profitability:
Determine the profitability of serving the segment. Consider factors such as the purchasing power of customers within the segment, their willingness to pay premium prices, and the potential for repeat business or long-term value.
4. Accessibility:
Evaluate how accessible the segment is. Can you reach and communicate with customers in this segment effectively through available marketing channels? Consider geographic, technological, and regulatory factors that may impact accessibility.
5. Competitive Intensity:
Analyze the level of competition within the segment. Are there many competitors targeting the same segment? High competition may make it more challenging to differentiate your offerings and capture market share.
6. Compatibility with Business Objectives:
Ensure the segment aligns with your business goals, mission, and values. Targeting a segment that complements your strengths and core competencies enhances strategic fit and operational efficiency.
7. Distinct Needs and Preferences:
Identify the unique needs, preferences, and buying behaviors of customers within the segment. Segments with clear and specific needs allow for targeted marketing efforts that resonate with customers.
8. Sustainability and Stability:
Consider the stability and sustainability of the segment over time. Is the segment influenced by seasonal trends, economic cycles, or external factors? Sustainable segments provide more consistent revenue streams.
9. Potential for Differentiation:
Evaluate whether your products or services can be differentiated to meet the specific needs of the segment better than competitors. A segment that values unique features or benefits offers opportunities for effective positioning and competitive advantage.
10. Cost of Serving the Segment:
Assess the costs associated with serving the segment, including production costs, marketing expenses, distribution costs, and customer service requirements. Ensure that potential revenues outweigh these costs to achieve profitability.
Formula for Evaluating Market Segments
Step 1: Define Criteria:
Identify and list the criteria relevant to your business and market. These may include size, growth potential, profitability, accessibility, competitive intensity, compatibility, needs/preferences, sustainability, differentiation potential, and cost of serving.
Step 2: Assign Weights:
Assign a weight (W) to each criterion based on its significance or priority relative to others. Weights should total 100% across all criteria.
Step 3: Score Each Segment:
Evaluate each market segment against each criterion on a scale that reflects its relevance or performance. For example, use a scale of 1 to 5 (1 being low, 5 being high) or percentages.
Step 4: Calculate Weighted Scores:
Multiply the score of each segment on each criterion by the assigned weight (W). This gives a weighted score (WS) for each criterion within each segment.
Step 5: Sum Weighted Scores:
Sum up the weighted scores across all criteria for each segment to get a total weighted score (TWS). This represents the segment's overall attractiveness based on the evaluated criteria.
Step 6: Rank Segments:
Rank segments based on their total weighted scores (TWS). Higher scores indicate segments that are more attractive and suitable for targeting.
Weighted Score (WS) = Score × Weight (W)
Total Weighted Score (TWS) = ∑(Weighted Scores)
Example Calculation
Let's say you have three criteria (Size, Growth Potential, and Profitability) with weights assigned as follows:
Size (30%), Growth Potential (40%), Profitability (30%).
Segment A:
Size: 4 (out of 5)
Growth Potential: 3
Profitability: 5
Calculating Weighted Scores:
Size: 4×0.30=1.2
Growth Potential: 3×0.40=1.2
Profitability: 5×0.30=1.5
Total Weighted Score (TWS) for Segment A: 𝑇𝑊𝑆=1.2+1.2+1.5=3.9
Segment B:
Size: 3
Growth Potential: 4
Profitability: 4
Calculating Weighted Scores:
Size: 3×0.30=0.9
Growth Potential: 4×0.40=1.6
Profitability: 4×0.30=1.2
Total Weighted Score (TWS) for Segment B: 𝑇𝑊𝑆=0.9+1.6+1.2=3.7
Segment C:
Size: 5
Growth Potential: 2
Profitability: 3
Calculating Weighted Scores:
Size: 5×0.30=1.5
Growth Potential: 2×0.40=0.8
Profitability: 3×0.30=0.9
Total Weighted Score (TWS) for Segment C:𝑇𝑊𝑆=1.5+0.8+0.9=3.2
Decision Making:
Rank segments based on their TWS, with higher scores indicating more attractive segments.
Focus your targeting efforts on segments with the highest scores to maximize marketing effectiveness and business outcomes.
Note: By applying this formula, businesses can systematically evaluate and prioritize market segments, ensuring that their targeting strategies are aligned with strategic goals and optimized for success in the marketplace. Adjust weights and criteria as needed based on specific business contexts and objectives.
What is Positioning?
Positioning in marketing is all about how a company wants its products or services to be seen by customers. It's like shaping the image and reputation of what you sell in people's minds so that they see it as unique and better than what others offer.
Purpose of Positioning
Creating a Distinct Image:
It's about making your product or brand stand out from competitors by highlighting what makes it special. This could be quality, price, features, or even the way it makes customers feel.
Targeting Specific Customers:
Positioning involves understanding who your ideal customers are and crafting your message to appeal directly to them. It's about speaking their language and addressing their needs.
Setting Yourself Apart:
You want customers to think of your product as different and better suited to their needs than similar products from other companies. This helps build loyalty and preference.
Consistency is Key:
Positioning needs to be consistent across all interactions customers have with your brand—whether it's through advertising, customer service, or the product itself. This builds trust and reinforces the brand image.
Adapting Over Time:
Market conditions change, and so do customer preferences. Effective positioning means staying aware of these changes and adjusting your approach to stay relevant and appealing.
Frameworks for Positioning
1. Positioning by Attributes and Benefits:
This framework focuses on identifying the unique attributes or benefits of a product or service that differentiate it from competitors. It involves:
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Identifying Key Attributes: What specific features or characteristics of your product/service are distinct?
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Highlighting Benefits: How do these attributes translate into tangible benefits for the consumer?
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Communicating Value: Emphasizing these attributes and benefits in your marketing messages to position your brand as superior in those aspects.
2. Perceptual Mapping:
Perceptual mapping visually represents consumer perceptions of brands within a market. It helps identify gaps and opportunities for positioning by:
Mapping Competitors: Placing competitors’ brands on a graph based on consumer perceptions of attributes (e.g., price vs. quality).
Identifying Positioning Space: Determining where your brand currently stands and where there is potential to differentiate.Repositioning Strategy: Adjusting your brand’s positioning relative to competitors based on consumer perceptions and preferences.
3. Value Proposition Canvas:
The Value Proposition Canvas, developed by Alexander Osterwalder, helps clarify how a product or service creates value for a specific customer segment. It includes:
Customer Profile: Understanding customer jobs (needs and wants), pains (challenges and frustrations), and gains (desired outcomes and benefits).
Value Map: Mapping how your product/service alleviates customer pains and creates gains better than competitors.
4. Brand Essence Wheel:
This framework focuses on defining the core essence of your brand and its positioning by:
Core Values: Identifying the fundamental values and principles that define your brand.
Brand Personality: Describing the human traits and characteristics associated with your brand.
Brand Promise: Articulating the key promise or commitment your brand makes to customers.
5. Competitive Positioning Framework:
This framework involves analyzing competitive strategies and positioning to identify opportunities for differentiation by:
Competitor Analysis: Assessing competitors’ strengths, weaknesses, and positioning strategies.
Differentiation Strategy: Identifying areas where your brand can offer unique value or benefits that are not effectively addressed by competitors.
Market Positioning Strategy: Developing a clear and compelling positioning strategy that leverages your unique strengths and fills gaps in the market.
frameworks provide structured approaches to defining, refining, and communicating your brand’s positioning strategy in the marketplace. Depending on your specific business objectives, target market, and competitive landscape, you can adapt these frameworks to create a positioning strategy that resonates with your audience and drives competitive advantage.
STP (Segmentation, Targeting, Positioning) approach forms the cornerstone of effective marketing strategy. By meticulously segmenting the market to understand diverse customer needs, targeting specific segments with tailored solutions, and positioning our brand uniquely in the minds of consumers, we not only enhance relevance but also drive competitive advantage. This structured approach ensures that businesses can align their offerings with customer expectations, foster deeper connections, and ultimately achieve sustained growth in today's dynamic marketplace. Embrace STP to not just meet customer demands but to exceed them, ensuring lasting success and meaningful engagement.
