Segmentation, Targeting, and Positioning Model

Executive Summary

Segmentation, targeting, and positioning model have been widely used within different industries by diverse companies. Irrespective of their features, companies manage to promote their products effectively due to the flexibility and comprehensiveness of the model. The framework is characterized by helpful details that are relevant in the modern business world. For instance, the segmentation stage involves such aspects as geographic, demographic, geodemographic, behavioral, lifestyle, benefit, and user status. Targeting is implemented with the help of one of the following approaches: undifferentiated, differentiated, concentrated marketing, and micromarketing. Positioning is the less developed stage as it does not involve any classifications or descriptions of models. However, the model is still helpful when marketing products.

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Introduction

Segmentation, targeting, and positioning (STP) can be regarded as the pillars of marketing as these concepts enable companies to sell their products successfully. The model has been employed widely for decades, and various frameworks have been developed to use the STP model in numerous contexts (Thoeni, Marshall & Campbell 2016; Venter, Wright & Dibb 2015). This paradigm is used in various industries and can be helpful for organizations of different sizes. For instance, multinationals and micro-enterprises develop the most effective marketing strategies by conducting STP analysis (Liao et al. 2014). The central idea behind the model is the need for substantial research to understand the market. This paper examines the major aspects of STP, as well as the ways it has been utilized and includes some recommendations as to the most effective methods to use it.

STP Model: Segmentation

The three steps necessary for effective marketing are segmentation, targeting, and positioning. In simple terms, firms segment potential customers in comparatively homogeneous groups, target the most attractive of them, and position their products and services “based on their target market” (Schweidel 2014, p. 193). Segmentation is often regarded as the foundation of successful marketing as it defines the other two steps. The first stage of the model can address different aspects. The most common types include geographic, demographic, geodemographic, behavioral, lifestyle, benefit, and user status segmentation (Khan 2013). Choosing the most appropriate aspect to concentrate on is the key to creating a competitive advantage (Schlegelmilch 2016). Pires and Stanton (2014) claim that the chosen segment should respond differently to certain marketing strategies otherwise another group (or other groups) of customers should be targeted. It is necessary to have a closer look at each type of segmentation.

Geographic segmentation implies the focus on the peculiarities of people living in certain areas. The geographic aspect can be central to the hospitality industry as hotel chains and small hotels can target potential visitors depending on the place they live in (Tyas & Wibowo 2013). For instance, people living in the same city can value the hotel for quite specific characteristics while foreign travelers will have other preferences. However, Pires and Stanton (2014) argue that ethnic segmentation can be a more effective strategy for companies operating in the contemporary globalized world. It is essential to take into account the cultural rather than poorly geographic components. Moreover, Schlegelmilch (2016) states that the distribution of wealth is not even across regions, which reveals another limitation to this method.

Demographic segmentation is one of the most widely utilized frameworks. This method ensures the analysis of potential customers’ peculiarities. For example, such characteristics as gender, age, income, occupation, race, religion, education, marital status, and family size are considered. Books publishing is the business where this kind of analysis is instrumental in effective targeting and positioning (Phillips 2016). It has been acknowledged that people’s age positively correlates with the time spent reading books. Gender differences are also rather conspicuous when dealing with certain genres. Such luxury brands as Porsche often focus on people’s income. McDonald’s also uses demographic data to target its potential customers with a focus on age and ethnicity. Geodemographic segmentation is a combination of the two methods mentioned above.

Behavioral segmentation is another popular method to identify target customers. Organizations concentrate on the use of the product. Khan (2013) mentions juice producers that encouraged their existing, as well as potential, customers to drink their product during the day, and all meals instead of having it as an element of the breakfast. Companies involved in e-commerce often employ this approach as well. Amazon can be a bright illustration of the company using behavioral segmentation since the marketer offers products based on customers’ previous purchases and search history.

As far as lifestyle segmentation is concerned, the focus is on people’s way of life. Khan (2013) emphasizes that companies do not concentrate on the qualities of their product but their customers’ emotional state. Coca-Cola makes use of this approach and targets people who want to make their day and have memorable moments. Another illustration of the use of this paradigm is Marriott International® that manages to address the needs of different groups. For example, Courtyard aims at travelers who need short-term stays while Marriott ExecuStay® offers business people long-term accommodations that are affordable and comfortable.

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Benefit segmentation is concerned with the analysis of major outcomes that can be valued by the customers. This approach can have different domains as well. For example, benefits can be practical or “psychographically oriented” (Khan 2013, p. 58). It is possible to consider the way producers of toothpaste target their customers. In some cases, they draw people’s attention to such outcomes as white teeth and proper hygiene. In other cases, they shed light on the environmental input of the production and consumption of their products. These benefits can be combined.

Finally, user status segmentation is associated with the focus on the frequency or “intensity” of the utilization of products (Khan 2013, p. 59). Loyal customers are often targeted by the vast majority of companies. The example of e-commerce companies is also relevant in this case as such organizations as Amazon, tend to offer products based on past buying behavior. The frequency of buying some items is taken into account as well.

As mentioned above, the types of segmentation are often combined to achieve the highest results. Companies try to target multiple dimensions. For instance, geographic, demographic, and lifestyle segmentation can make marketing efforts more successful than the use of a single strategy. One of the reasons for the use of multifaceted approaches is diversity. It is difficult to target young customers without paying attention to their income or ethnicity. It is also ineffective to aim at certain nations without paying attention to different minority groups and lifestyles.

STP Model: Targeting

Targeting is the second step companies should undertake to market their products successfully. This stage involves choosing the most appropriate segment. To achieve this goal, it is common to “address identical marketing mix” to the segments that have been singled out during the first step (Khan 2013, p. 60). Companies start with an analysis of the profitability of the identified segments. Pyo (2015) notes that companies also consider the size of the target segment and its potential growth. For instance, producers of apparel for the youth are unlikely to target areas with certain demographic patterns. Clothing brands aimed at young adults are likely to choose urban areas and educational hubs where the rate of their target population is always high and growing. At the same time, some recreational areas (such as golf resorts) will focus on the suburban population as middle-aged and older adults are their target audience who live in such communities.

Another common tool for identifying the most appropriate segment is the implementation of a PEST analysis. It is vital to examine the company’s strengths and its ability to address the needs of its potential customers (Khan 2013). Such external factors as political, economic, social, and technological should be considered as they may have diverse effects on the product’s popularity. Such instruments as Porter’s five forces analysis are also employed when targeting certain markets (Khan 2013). Marketers should analyze their industry rivalry, bargaining power of suppliers and buyers, the threat of substitutes, and barriers to entry. Khan (2013) adds that companies’ capabilities should also be taken into account. For instance, the viability of the brand image is an important factor to consider. Coca-Cola with its well-established brand still had to come up with such brands as Fanta and Sprite to target new markets. The cost advantage is another capability that enables organizations to remain competitive. Big retailers often focus on this aspect.

Four major strategies to target the chosen market include undifferentiated, differentiated, concentrated marketing, and micromarketing (Boone & Kurtz 2013). Undifferentiated marketing was widely used as it is the most cost-effective in terms of production. Companies offer their product or products to all the customers paying no attention to their different needs. McDonald’s can be regarded as an illustration of the use of so-called mass marketing (Boone & Kurtz 2013). The chain offered a standardized menu, which made it possible to reduce costs and increase profit. At present, the company is changing its strategy by introducing new products and services that address the needs of different groups. For instance, the menus contain healthier offers.

Differentiated marketing is now becoming quite common in many industries. This approach implies the focus on different markets. Companies offer a range of products to various groups of customers depending on their needs or peculiarities (Thoeni, Marshall & Campbell 2016). This strategy is often associated with high costs as the production and promotion processes are complicated and require additional resources. Boone and Kurtz (2013) claim that Oscar Mayer is a conventional illustration of the marketer using this framework as the company produces numerous items for different groups of customers. The researchers also state that the modern business world often calls for the use of differentiated marketing. The hospitality industry is one of the areas where this approach is the most appropriate (Boone & Kurtz 2013). Travel companies offer products that can attract such groups as environmentally conscious people, luxury travelers, business people, and other groups.

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Concentrated marketing can be regarded as a preferable approach for many firms, especially small enterprises or companies that produce very specialized items or services (Khan 2013). This strategy does not require the allocation of large funds especially when it comes to promotion as a single market (or even niche) is targeted (Boone & Kurtz 2013). Peanut Butter & Co. offers gourmet items for people who are ready to pay extra for natural products with exquisite flavors. Micromarketing can be regarded as an extreme form of concentrated marketing. The companies that resort to micromarketing concentrate on a specific feature of their target market. For instance, firms focus on potential customers’ lifestyles or even zip codes (Boone & Kurtz 2013). Amazon, as well as other e-commerce companies, make use of this strategy. These organizations utilize big data to customize their products and services. Their existing and potential customers are often addressed by their names and offered items based on the analysis of their previous purchases or even online search.

STP Model: Positioning

Positioning is the third and last step to undertake when developing marketing strategies. Companies try to develop sound tools to make their products attractive to the target market. Khan (2013) emphasizes that this stage is mainly associated with customers’ perceptions of and attitudes towards products and brands. The researcher provides an example of 7-UP that was marketed as Un-cola. This positioning method made people intrigued as they wanted to try something new and different from the well-established brand.

Positioning is mainly conducted through the use of several basic strategies. Positioning by attribute implies the focus on products’ features and customers’ outcomes and benefits (Khan 2013). For example, Apple promoted its products as easy-to-use but effective devices that are perfect for those who are not technological geniuses. Positioning by price and quality is quite a widespread method. Luxury brands often use this approach especially when it comes to the automobile industry. Software developers also tend to use this strategy as they stress the reliability of their products.

The application of items is another way to position products. IBM often resorts to this type of positioning when stressing the high customization of their products. Positioning by class is another strategy often used by luxury brands, as well as companies of different sizes and capabilities. For example, Caress soap is marketed as a bath oil product rather than a bar of soap (Khan 2013). A remarkable positioning strategy is associated with the competition. Companies make almost direct reference to their competitors, which draws people’s attention. The famous rivalry between Audi and BMW can be a bright example. One more illustration is the campaign of Avis that stressed that they were number two, which made them try harder, which was positively accepted by their target market (Khan 2013). Repositioning is an important approach that can help companies enter new markets or gain substantial market share (Boone & Kurtz 2013). It is noteworthy that marketers can and do employ different positioning strategies at different periods or with different products and markets. A combination of different tools often enhances products’ competitiveness.

It is also acknowledged that positioning is closely linked to the development of communication channels with customers. The chosen approach defines the way customers will be reached. The rising role of social media has been well-researched (Schlegelmilch 2016). Social networks are often used to aim at different groups of people. The peculiarity of these channels lies in their applicability as all industries and companies of different sizes and resources can benefit from using these tools.

Recommendations

As seen from the brief description provided above, the STP model is a sound tool that can help companies to market their products and services. The examples indicate that this framework can be applied in many industries and contexts. Each company will accommodate the model to its peculiarities and goals, but it is possible to come up with some general recommendations regarding the most effective use of the instrument.

The use of such tools as PEST, Porter’s Five Forces, and SWOT analysis can be relevant when considering the company’s peculiarities and capabilities, as well as during the segmentation process. These models should be applied to identify the basic peculiarities of each segment (Tyas & Wibowo 2013). It can be advisable for small enterprises to concentrate on a single segment. This precision will ensure proper funds allocation and minimization of costs. At the same time, the risks are also quite high as companies can fail to choose the right target market for their products or services. Therefore, research plays a pivotal role in the process. It is necessary to analyze all the potential segments and choose the most profitable.

Thoeni, Marshall, and Campbell (2016) add that strategic segmentation is the key to the successful utilization of the STP model. Irrespective of the industry companies operate in or their size and available resources, managers should make sure they focus on middle- and long-term goals when analyzing different markets and choosing the most attractive ones. It is essential to pay close attention to the size and potential growth of markets. At the same time, Boone and Kurtz (2013) argue that the rapid growth of a target market is often linked to the entry of numerous competitors. Therefore, companies should make sure they can remain competitive by offering low prices, high quality, or added value.

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As far as targeting is concerned, it is essential to make sure that the company’s capabilities are aligned with customers’ peculiarities and needs. Boone and Kurtz (2013) argue that differentiated marketing is the most appropriate model in the modern world due to its diversity. Although it is associated with additional costs, it can be beneficial to address particular groups rather than the mass market. This approach is specifically effective for small enterprises. The customization is one of the key values customers place on products, which makes it important to concentrate on smaller groups or niches rather than the entire market. Boone and Kurtz (2013) note that this stage is often regarded as less developed as it is not associated with any classifications or detailed models to use.

Positioning is still regarded as the major step within the STP model. Although it lacks certain precision, the major area to focus on is identified. Choosing the most effective communication strategy to position products and services can be difficult. To reach the widest audience, it is possible to employ social media. Although some still believe that this channel is appropriate for the youth, the growing body of evidence shows that people of different backgrounds are active users of social networks (Schlegelmilch 2016). It is noteworthy that various social networks can be used during the three stages of the model under analysis. These media help in collecting data and analyzing different markets. They also serve as valuable communication channels that can reach different groups of customers by their age, gender, income, lifestyle, and other features.

Conclusion

In conclusion, it is possible to state that the STP model has been widely used in many contexts. Companies of different sizes and capacities employed this marketing tool and became leaders in their markets. The instrument under analysis consists of three stages: segmentation, targeting, and positioning. Segmentation, in its turn, can be divided into the following: geographic, demographic, geodemographic, behavioral, lifestyle, benefit, and user status segmentation. Targeting is linked to the use of such approaches as undifferentiated, differentiated, concentrated marketing, and micromarketing. Positioning is mainly associated with the creation of certain attitudes in customers through the development of proper communication patterns. The model is quite detailed and can be facilitated by the use of such instruments as SWOT analysis, Pest, and Porter’s Five Forces.

The STP framework is rather effective as it enables companies to take into account the major peculiarities of the target market and ways to address these features. Although there is still a lack of specific tools for certain contexts and companies, the model can help in developing an effective marketing strategy. At the same time, it is necessary to work on the development of sound paradigms and models (especially related to positioning) that could be used by different companies in diverse environments. It can also be beneficial to obtain empirical data as to the existing gaps in STP.

Reference List

Boone, LE & Kurtz, DL 2013, Contemporary marketing, Cengage Learning, Mason, OH.

Khan, T 2013, ‘STP strategy for new product launch – a work in progress’, International Journal of Business and Management Invention, vol. 2, no. 3, pp. 56-65.

Liao, CN, Hung, JY, Kao, H & Wu, CJ 2014, ‘Marketing strategy model: a conceptual framework for micro-enterprises’, Human Systems Management, vol. 33, no. 4, pp. 199-206.

Phillips, A 2016, ‘How books are positioned in the market: reading the cover’, in N Moody & N Matthews (eds), Judging a book by its cover: fans, publishers, designers, and the marketing of fiction, Routledge, New York, NY, pp. 19-30.

Pires, G & Stanton, J 2014, Ethnic marketing: culturally sensitive theory and practice, Routledge, New York, NY.

Pyo, S 2015, ‘Integrating tourist market segmentation, targeting, and positioning using association rules’, Information technology & Tourism, vol. 15, no. 3, pp. 253-281.

Schlegelmilch, BB 2016, Global marketing strategy: an executive digest, Springer, Vienna, Austria.

Schweidel, DA 2014, Profiting from the data economy: understanding the roles of consumers, innovators and regulators in a data-driven world, Pearson Education, Upper Saddle River, NJ.

Thoeni, AT, Marshall, GW & Campbell, SM 2016, ‘A resource-advantage theory typology of strategic segmentation’, European Journal of Marketing, vol. 50, no. 12, pp. 2192-2215.

Tyas, AF & Wibowo, SA 2013, ‘Strategic service analysis Pusako hotel to increase occupancy rate’, The Indonesian Journal of Business Administration, vol. 2, no. 4, pp. 460-475.

Venter, P, Wright, A & Dibb, S 2015, ‘Performing market segmentation: a performative perspective’, Journal of Marketing Management, vol. 31, no. 1-2, pp. 62-83.

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