It is evident that any company or brand, which strives to be successful in the contemporary market, has to apply a profound theoretical framework to its marketing practice. The development of strategic marketing theories has a relatively long history: numerous scientists contributed to it by the elaboration of fundamental marketing concepts. One of the most recognized marketing theories is the segmentation, targeting, and positioning (STP) framework. It is widely used by numerous contemporary companies since it applies to nearly every area of strategic marketing. Also, the theory under discussion is opened to different interpretations by various scholars, despite having several central assumptions and ideas.
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This paper aims to explore, evaluate, and critique the concept of STP primarily by referencing to academic literature. First of all, a profound theoretical and conceptual perspective on the topic will be provided, with the inclusion of critical debates between different researchers. Secondly, it is important to overview the STP framework as an efficient, practical foundation for contemporary companies from various industries to exemplify the diversity of the theory’s application. Thirdly, the essay will provide generic management recommendations for any company, which aims to enter the market successfully. Finally, a conclusion, which summarizes the findings of this paper, will be provided.
Theoretical and Conceptual Perspective
It is appropriate to begin the discussion with the general overview of the concept. According to Hooley et al. (2012, p. 183), “positioning and segmentation are distinct parts of the [marketing] strategy and provide us with some extremely powerful tools; but ultimately they are linked by the central issue of focusing on satisfying customer’s needs in ways that are superior to competitors”. It should be observed that the quoted statement endorses the outline of the essay since it is important to first observe three constituents of the theory to understand their purpose, and then to apply this knowledge to the analysis of the industry examples and provision of management recommendations.
Segmentation as a Basis for Marketing Strategy
Segmentation, targeting, and positioning framework could be described as a three-stage process (Perner 2018, para. 1). The phases are usually implemented subsequently, with the segmentation stage being the first to apply. Perner (2018, para. 2) briefly summarizes the essential purpose of this phase the following way: “segmentation involves finding out what kinds of consumers with different needs exist.” Another definition is proposed by Brian (2015, p. 4): segmentation is “the process of defining and subdividing a large homogenous market into clearly identifiable segments having similar needs, wants, or demand characteristics.” The definition by Wendler (2015, p. 22) is also worth mentioning: segmentation is “the division of the market into sections based on customer needs and wants.”
The segmentation marketing emerged in the middle of the 20th century due to the shift of the industries’ focus from manufacturing needs to consumer needs. Therefore, market-oriented goals became the proponent aspect of the companies’ (Brian 2015). Regarding the history of segmentation marketing, Brian (2015, p. 4) states that it was first introduced by Wendell Smith in 1956, and further it was developed and extended by Peter Dickson and James Ginter in 1987.
Perner (2018) indicates that there are three primary approaches: undifferentiated, concentrated, and differentiated strategies. Undifferentiated strategy treats every consumer group the same, without making any attempt to focus on a particular group (Perner 2018). This approach is most suitable for the companies, operating in the markets where standard products are offered. A concentrated strategy is preoccupied with focusing the company’s efforts on satisfying the needs of a very particular segment (Perner 2018). However, the majority of organizations across the world apply the differentiated strategy, which comprises the equal distribution of marketing efforts among different customer groups (Perner 2018).
As it is stated by Brian (2015), segmentation could be considered as a substantive marketing theory, which could be explored separately. According to the researcher, segmentation comprises five primary steps: (1) choosing a suitable strategy, (2) determining segmentation methods, (3) evaluating the attractiveness of a segment, (4) selecting a target market, and (5) “identifying and developing a positioning strategy” (Brian 2015, p. 5). Concerning the first stage, Doraszelski and Draganska (2006) (cited in Brian 2015, p. 6) distinguish between two possible strategies: niche segmentation and full-line segmentation. The first strategy focuses on the company’s efforts on a relatively small group of customers, while the second one aims to appeal to the maximum possible amount of population. Vriens, Wedel, and Wilms (1996) (cited in Brian 2015, p. 6) determine two methods for the second step: a priori segmentation (the customers are divided into groups based on “demographic and socioeconomic variables a priori”), and componential segmentation (the customers are categorized by characteristics other than socioeconomic or demographic).
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The next step is the assessment of the market’s attractiveness by determining the existing demand and competitive intensity (Brian 2015). After the evaluation is completed, it is important to choose a target market, on which a company would focus its marketing efforts (Gupta 2017). Concerning this stage of the segmentation process, it is appropriate to cite Gengler and Mulvey (2017, p. 6), who states that “identifying which customers are willing to pay higher prices or demand a lower one is a crucial step in developing meaningful segmentations.”
Finally, Brian (2015) suggests that the last step is to develop a positioning strategy. To establish an appropriate position strategy, it is essential to consider what the target market finds to be important features of the product and what is offered by the competitor for the same market (Brian 2015). Since the five steps of segmentation are discussed, it is appropriate to evaluate Brian’s (2015) approach. He shares a somewhat different perspective on the segmentation since he considers it to be a holistic method of marketing strategy building, which includes targeting and positioning. On the contrary, Wendler (2015) distinguishes STP as a separate approach, which is effectively used in various industries to achieve the companies’ goals. Even though the research by Brian (2015) interprets the development of marketing strategy differently, his work is still a highly valuable source of information, which provides an elaborated perspective on the use of STP.
Targeting is the second stage of the STP framework, which is primarily preoccupied with the proper evaluation of the chosen segment’s needs (Perner 2018). A slightly different definition is proposed by Ananda, Hernández García, and Lamberti (2015, p. 4) as they state that targeting mostly dwell s upon such areas as “public relations, customer support, and market research.” To properly choose a particular target segment (or segments), a company should answer several questions. The primary question is: how the existing market is served by the competitors? It is easier to enter the market, which is insufficiently served than to compete with numerous rivals (Perner 2018).
Secondly, it is of high importance to estimate the current size of the market and the perspectives of its growth (Perner 2018). Rapidly growing segments are usually the most profitable; however, it is important to consider that such segments also attract numerous competitors. Brian (2015) mentions that to target a specific audience easier, it is essential to classify the whole market into smaller groups with particular needs.
Thirdly, it is critical for a business to conduct internal research to retrieve the strengths of the company, which could be appealing to a particular customer group (Perner 2018). From the perspective of Gengler and Mulvey (2017, p. 10), a company would profit the most from the efficient identifying and conveying “an effective value proposition” in targeting the customers.
It is interesting to notice that Wendler (2015) mentions targeting in several different contexts. As it was previously mentioned, Wendler (2015) describes targeting as the constituent of the STP framework. However, he also uses this concept about other theoretical approaches: he describes targeting as a part of the segmentation process as well as combining targeting and positioning into one holistic phase of the marketing strategy development. Based on this fact along with a relatively brief discussion of the targeting process by Perner (2018), it is concluded that this stage could be described as a bridge between choosing an appropriate segment and positioning of the final product.
Positioning as the Final Stage of Marketing Strategy Development
Positioning is the final stage of the marketing strategy formulation, and Perner (2018) suggests that the stage under discussion is the practical application of targeting. Gengler and Mulvey (2017) observe that there is an “interdependence of brand positioning and market segmentation,” which leads to the creation of the company’s marketing mix. Brian (2015) argues that the chosen position in the market must be beneficial both for the company and its customers. However, the overall evaluation of these opinions makes it possible to conclude that this stage could be considered the practical implementation of the whole marketing strategy
Perner (2018) assumes that there are three major types of company that can perform a successful positioning: operationally excellent firms, customer intimate firms, and technologically excellent firms. The first type of company primarily emphasizes the importance of operations’ maximum efficiency, which gives such businesses a competitive advantage. Customer intimate firms, on the contrary, rely on satisfying the needs of a relatively small amount of customers, sacrificing the efficiency to provide a more personal approach to their segment. Such businesses maintain their stable position in the market by the provision of customer-oriented service.
Technologically excellent firms are less prevalent in the market due to their specific approach to manufacturing their products. These companies aim to produce technologically sophisticated products, striving to develop the most advanced technology, and thus they do not necessarily meet the needs of the mass market neither they can adapt their products to the needs of individual customers (Perner 2018). Overall, it is essential to mention that, practically, the described types of companies rarely exist in their pure forms.
It is also important to mention repositioning, which is an important part of developing a marketing strategy. Sometimes the public image of the brand is perceived by the public in a way, which is different from what the company has planned (Anesbury, Winchester & Kennedy 2017). If the company does not meet the market standards, or it made a mistake during the formulation of its marketing strategy, it is suggested that repositioning should be implemented to improve the situation.
STP’s Application in Industry
Since three primary aspects of the STP framework were profoundly explored and elaborated, it is possible to observe how the theoretical approach under discussion is used in the practice of various firms. The purpose of this section is to prove that the theory is widely applicable to a wide range of markets. Employing the examples from different industries, this paper will also reference to scholarly literature to support the assumptions.
First of all, it is possible to exemplify Tesla Motors since it is a very interesting case of using segmentation, targeting, and positioning methods in developing their marketing strategy. Elon Musk (2006), the co-founder and CEO of Tesla Motors, has a unique vision of his company’s overall mission as he mentions four principal stages of Tesla’s development: “(1) building sports cars, (2) use the money to build affordable cars, (3) use that money to build even cheaper cars, and (4) provide zero-emission electric power generation options while doing so” (cited in Wendler 2015, p. 53). The company aimed to enter the high-end premium market, and then to diversify its product line-up to satisfy the needs of middle-class customers. This decision shows that the company’s segmentation is considerably wide. Such an approach to segmenting implies that the company aims to acquire a considerable diverse range of segments. It appears to be an appropriate choice for the company, which initially focused on a very narrow niche market.
Also, the company strives to develop technologies, which would have a minimum impact on the environment. It exemplifies Tesla Motors as a technologically excellent firm. Therefore, it is possible to state that the company’s purpose is to combine several segmentation strategies. Considering targeting, it is evident that the company appeals to the customer group which is interested in luxury cars as well as the group which is concerned about their environmental impact. As a result, Tesla Motors’ positions itself as a market leader of a rapidly growing industry, making bold moves such as the renouncement of any patent lawsuits (Wendler 2015).
Further, it is essential to discuss Gucci, which was already mentioned in this paper. The company operates in the market, which is completely different from the one in which Tesla Motors operates. However, Gucci also employs the same principles of segmenting, targeting, and positioning to maintain its high position in the industry. First of all, it is essential to mention that Gucci is a luxury brand, and thus it is primarily oriented on the segment of upper and higher classes, providing them with premium quality products (Ananda, Hernández García & Lamberti 2015). It is evident that Gucci is profoundly associated with the upper-class lifestyle, and it also provides the premium quality products; and thus the company targets rich clients from the society’s top (Ananda, Hernández García & Lamberti 2015).
Lower classes of society are not in the marketing scope of the company, and it is the primary defining factor of its targeting policy. This aspect of the company’s marketing strategy appears to be both its advantage and weakness. From a certain perspective, such an approach to segmentation and targeting allows the company to maintain its status of a customer intimate firm (Ananda, Hernández García & Lamberti 2015). It is possible to state that one of the primary problems, which Gucci faces during the targeting stage, is the immensely high competition. Since the market for luxury clothing is relatively narrow, there numerous competitors of the company, including Dior, Chanel, Louis Vuitton, and many others (Ananda, Hernández García & Lamberti 2015). Therefore, Gucci positions itself as a customer-oriented company to create a sense of exclusiveness for its clients. However, it should also be noted that the exclusion of lower classes from the brand’s targeting efforts eliminates the opportunities for the extension of its presence in the market (Ananda, Hernández García & Lamberti 2015).
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Also, it is possible to mention other companies that employ the STP framework efficiently. Brian (2015) observes that Apple, which by 2013 was a highly successful company, was primarily known for targeting the segment of financially prominent customers, willing to pay for the high-end product. This could be considered the cornerstone of the organization’s marketing strategy. However, Apple decided to target lower classes of customers without sacrificing its public image of premium production provider. Thus they released iPhone 5C in 2013, which was a cheaper version of the 5S model, yet it still maintained the primary characteristics of the product. This decision indicates that Apple recognized the necessity to extend its presence and influence in the market because the diversification of the targeted segments appears to be beneficial for the company which manufactures such products as cell phones (Brian 2015). However, the company aims to maintain its positioning as a premium brand as well, since it is one of the primary aspects of Apple’s marketing strategy.
Wendler (2015) exemplifies Protonet as the company that was able to successfully employ business-to-business (B2B) segmentation in its marketing strategy, positioning its products for small and medium-sized firms. The researcher argues that Protonet is an outstanding example of “the integration of the whole business portfolio matrix for market segmentation” (Wendler 2015, p. 58). It should be observed that the company under consideration targets several principal segments in the software market, which is a highly demanded service sphere in the contemporary world. Additionally, Protoner strives to maintain its pricing on an affordable level (Wendler 2015). This decision suggests that the company employs a differentiated segmentation strategy (Perner 2018). Emirates Airlines could be exemplified as the company, which employs this strategy since it targets primarily the upper-class customers who are willing to pay for their comfort.
Also, Perner (2018) exemplifies Intel as the firm which is primarily oriented on technical excellence, and yet they meet the standards of cost-effectiveness to a considerable extent. This example proves the assumption which was made previously: it is a considerably rare situation when the company fall strictly into only one type of firm in term of its segmentation strategy (Perner 2018). Intel is a highly prominent stakeholder in the market of computing hardware and software. The company strives to target the audience, which has an interest in the development of new technologies. Perner (2018) also states that Wal-Mart meets a minimum level of customer-oriented service, which benefits the company. Because Wal-Mart is a company, which has to provide its services for an immensely broad range of customers, it is apparent that only a minimum level of customer-oriented service is required, while operational excellence is the primary goal of the company (Perner 2018).
Generic Management Recommendations
Since the analysis of the concept of segmentation, targeting, and positioning was analyzed from a theoretical and practical perspective, it is possible to provide several generic recommendations. the STP model could be applied to an immense range of marketing needs and industry areas, and thus these recommendations would be suitable to nearly every firm. First of all, it is essential for understanding the environments in which a particular firm operates. It would help to minimize the risk of possible adverse implications of appealing to the wrong segment (Metcalf et al. 2016). Also, it is of immense importance to understand to which customer group a company is appealing (Paul 2015). A company should determine with certainty what are their customers’ needs and demands for the final product. Additionally, it is possible to recommend for any company to determine its strengths and weaknesses because they define appropriate positioning to a great extent.
In conclusion, it should be stated that the concept of segmenting, targeting, and positioning is a highly elaborated and complex theoretical framework, which is opened to various interpretations. It is argued that this flexibility allows the theory to be prominent for the implementation in nearly every area which involves offering services or products to people. This paper discussed each of the three main stages of the STP process with references to scholarly literature. Also, the efficiency of the framework was proved by the examples from the contemporary market. Additionally, generic recommendations were provided.
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