What is segmentation, targeting, and positioning in marketing? Keep reading to find out! Here, you’ll learn more about the difference between these processes, their importance, and the steps.
Introduction
Segmentation, targeting, and positioning (STP) is a three-step process designed to aid in the strategic marketing of brands and products. STP is widely used in many industries, as it allows to ensure that a promotional plan is effective in targeting the particular group of consumers that are most likely to purchase a product or service from the company. STP also encourages companies to analyse their customers’ needs and to respond to them, thus ensuring that their products or services are popular among the target customer group (Hooley, Piercy and Nicoulaud 2012). Lastly, STP can help companies to become more competitive. As noted by Hooley et al. (2012), STP aids in building awareness of the competitive landscape by identifying the key competitors and the customers’ perceptions of them, thus increasing the company’s chances to be successful in the chosen market. The present paper will seek to offer a theoretical and conceptual perspective on STP and linked concepts, to examine the application of STP to various industries, and to provide recommendations regarding the use of STP as a strategic marketing tool.
Key Concepts
Segmentation
Market segmentation is the process of dividing a market into particular groups or segments based on customers’ characteristics. Market segmentation theory forms the foundation of this process. According to theory, markets are heterogeneous, and different groups of customers need different marketing approaches and needs regarding a particular product (Khoo-Lattimore and Prayag 2015). When applied in practice, market segmentation seeks to answer the question of “who could be interested in a product or service?”; therefore, it allows a business to develop a more focused approach to marketing.
There are a variety of approaches to market segmentation, each one having different applications, strengths, and weaknesses. One of the most popular methods is demographic segmentation, which focuses on separating customer segments based on age, gender, income, education, or other demographic variables (Ferrel and Hartline 2014). This approach is often used by companies, as it is relatively easy to apply and helps to account for some of the differences in consumers’ needs, behaviours, and values. For example, a study by Valentine and Powers (2013) shows how members of Generation Y, or Millennials, differ from other generations in terms of their values, beliefs, and even buying behaviours. Thus, demographic segmentation may be useful for companies seeking to sell specific products to a distinctive customer group.
On the other hand, Ferrel and Hartline (2014) reveal that demographic segmentation may lead to mistakes in advertising and positioning of products, as marketers might overlook groups of customers who share the same behavioural profile as those from another age, gender, or income group. For example, a tech company that markets graphic tablets for professional digital artists aged 30-40 might miss the opportunity to promote the product to young hobbyists. Other types of market segmentation include behavioural and psychographic approaches. Behavioural segmentation requires focusing on a group of customers with shared buying behaviours, such as benefits sought, price sensitivity, product usage, and more (Ferrel and Hartline 2014). It is considered to be among the most useful approaches to market segmentation, as it allows to develop promotional strategies based on actual buying behaviours of the selected customer group. Moreover, behavioural segmentation is flexible and can be applied to various products and markets.
Nevertheless, it also has significant drawbacks. First of all, it might not be useful when marketing an entirely new product, as it relies on information about the use of similar products. For instance, if a company is attempting to promote a new gadget or tool, behavioural segmentation will not be sufficient. Besides, even when it comes products that have alternatives in the market, behavioural segmentation requires collecting data from customers via surveys, market analysis, and other market research tools. This is a complex process that takes more time than other types of segmentation (Ferrel and Hartline 2014). Moreover, when utilising self-reported data from customers, marketers face the risk of using inaccurate information, which might put the success of the entire promotional plan at risk.
Psychographic segmentation is the third approach to market segmentation, which focuses on certain psychological characteristics of consumers, such as lifestyle, views, opinions, interests, etc., instead of buying behaviours or demographics. For example, Khoo-Lattimore and Prayag (2015) reflected on the past research of the use of psychographic segmentation in the tourism market, listing characteristics such as empowerment, connectedness, and productiveness among the possible psychographic characteristics applied in research. Where behavioural segmentation focuses on specific behaviours, psychographic segmentation considers abstract qualities and characteristics that contribute to these behaviours, which is why using psychographic segmentation in practice is more difficult.
However, it may be efficient when it comes to products aimed at customers with specific psychographic characteristics. For instance, in the car industry, psychographic segmentation is useful when applied to luxury car markets, as customers who choose luxury cars value style, comfort, and brand image rather than focusing on price and product features. Also, there are tools that make using this approach much easier. A helpful example of a psychographic segmentation tool is VALS, which is designed to group consumers into one of eight profiles: innovators, thinkers, achievers, experiencers, believers, strivers, makers, and survivors (Ferrel and Hartline 2014). Customers in each group are characterised by common values, lifestyles, motivations, and other qualities that determine their perception of products, services, and promotional activities of a company.
Overall, each segmentation approach can be beneficial to business, depending on product type and market characteristics. An appropriate approach to segmentation ensures success in further stages of the STP process, which is why it is critical to ensure that valid and comprehensive data is collected. Where possible, companies could also opt to combine two segmentation approaches. While this could complicate the process of analysis, it would provide more detailed information about the target segment and help to choose the group of customers who would respond best to the product, thus increasing chances of success.
Targeting
Targeting is the second step of STP, which is designed to define a particular market segment that the company is willing to serve. According to Khan (2013), targeting is based on two concepts: the attractiveness of a specific segment and the company’s capacity. Targeting assists the companies in choosing a particular part of the market that seems to be the most promising in terms of sales while also ensuring that the company does not address a segment that is too large, demanding, or difficult to reach. Depending on these two variables, firms can choose to target a single segment, a few segments, or mass market (Ferrel and Hartline 2014). For example, a new company with a small capacity for production and a tight marketing budget would likely choose to target a single segment before moving any further.
Larger companies, on the other hand, can advertise their product to multiple customer segments, thus attracting more attention to products or brands. An excellent example of different types of targeting can be observed in the cosmetics industry. Mass-market brands, including L’Oreal, Maybelline, and Sephora, target a wide segment of customers, attracting women from various demographic, psychographic, and behavioural groups with extensive marketing campaigns, high stocks, and low prices. Luxury or professional cosmetics brands, such as Mac, Smashbox, Dior, Chanel, and others, target multiple segments of the market, but still appeal to customers with certain common values, lifestyles, and interests. Small new companies, on the other hand, might target local markets or advertise to a narrow group of customers directly before they gain popularity and can increase their budget to target other segments, too.
The example above also shows why targeting is important to businesses. Apart from ensuring success in the chosen segment of the market, targeting allows companies to use their capacities more efficiently. Mass-market brands could lose a large share of their profits if they try to target a single market segment; similarly, a small local company is likely to fail when targeting a large consumer group. Therefore, targeting provides multiple benefits for businesses, and there are hardly any marketers who choose to refrain from it. Nevertheless, there is a theoretical disagreement on the process of targeting. For instance, Khan (2013), Ferrel and Hartline (2014), and Hooley et al. (2012).
Differentiate between market segmentation and targeting, viewing these two processes as separate. However, there is still a body of research that treats targeting as a part of market segmentation. For instance, Cross, Belich, and Rudelius (2015) and Hamka et al. (2014) include targeting in the process of market segmentation. This approach is understandable, as the two processes follow one another closely. However, both targeting and market segmentation require careful consideration and research from the company. Failure to differentiate between the two processes could result in misidentification of the target market segment, thus reducing the company’s chances for success. On the contrary, viewing two processes separately allows distributing efforts and resources accordingly in order to achieve best results. Thus, separating the two processes, as done in STP, is effective to ensure that both are fulfilled correctly.
Positioning
One important theoretical problem with regards to positioning is the variety of interpretations of the term (Mats and Koch 2014). Although positioning refers to one particular stage of STP, there are multiple definitions of the term available. For instance, Ferrel and Hartline (2014) refer to positioning as “creating a mental image of the product offering and its differentiating features in the minds of the target market” (p. 211). Khan (2013), on the other hand, considers positioning in terms of choosing the target market and developing a differential advantage, thus creating an overlap between targeting and positioning. The vagueness of definition affects the process of applying positioning to marketing practice, as it becomes unclear what should be involved in the process of positioning. The present paper treats positioning as the process of identifying the product’s position in the market in relation to key competitors, as proposed by Hooley et al. (2012). Based on this definition, positioning has several notable strengths and applications. First of all, positioning is used to identify the key competitors of the product, service, or brand. Next, positioning helps to establish a differentiating feature, something that would make customers choose the promoted product or service as opposed to its main competitors. Combined, these two steps allow developing the desired image of the product, service, or brand in the eyes of target customers.
STP in Practice
Apple, Inc.
Tech industry is a large and competitive market that has truly global coverage. The success of companies operating in this sector is primarily driven by innovation and brand image, as evident in the case with Apple, Inc. Apple is among the most powerful tech companies in the world, which has created a distinctive brand identity that supports the success of all products released by the company. A significant part of the brand’s success was due to its marketing campaign, which allowed it to gain global popularity following the release of iPod and iPhone. Apple uses psychographic segmentation, which enables the company to target a wide array of customers while maintaining a narrow selection of products offered. For instance, iPhone appeals to customers of all ages, genders, and buying behaviours. However, the customers share common psychographic characteristics. In particular, they are active, willing to stay connected, and like simple styles packed with useful features. Obtaining a psychographic portrait of Apple’s target consumer allowed the company to market its products effectively and to target a particular group of consumers interested in the product.
Similarly, Apple’s approach to positioning also contributed to the company’s success. Apple offered several differential features that allowed it to outrun competitors in the long-term, including innovative features, such as FaceTime, compatibility of all products of the brand, and ease of use. The last feature has very important in improving the popularity of the brand. As noted by Haverila (2013), technology acceptance is an important factor in the segmentation of the tech market, as it is believed that older consumers find it harder to navigate new technology and are thus less likely to buy a new, innovative product. The interfaces of iPhone, iPod, and other Apple products were easy to navigate intuitively, which allowed the company to promote the product to various segments of the market.
Porsche
Another prominent example of the link between STP and success can be found in Porsche, a car brand that operates in the luxury market. The segmentation strategy applied by the brand used a mixture of psychographic and demographic variables to study the market and determine a target segments. On the one hand, Porsche cars appeal to people with high income, from upper social class, aged between 25 and 45 years. On the other side, there are also certain common psychographic characteristics evident in the brand’s target segment, such as materialism, appreciation of luxury, desire for comfort, and more. By completing segmentation and positioning, the brand was able to position its products in relation to the critical competitors by highlighting the style, flexibility and range of interior features, and the individual differences between car models. Single customers living an active lifestyle would appreciate the sporty look and features of the 911 model, whereas more family-oriented customers would be more driven to try the Cayenne or Macan.
Airbnb
A mixture of psychographic and demographic segmentation is also evident in Airbnb’s STP strategy. Airbnb is a website that allows hosts and travellers from all over the globe to connect with one another. On Airbnb, travellers can find short-term accommodation, such as a room, an apartment, or a house, whereas hosts can rent out their place on a day-by-day basis. Guttentag et al. (2017) explain that Airbnb can be viewed as a market in itself, as it has a wide range of accommodation options available for different customers’ needs and budgets. Nevertheless, there are common motivations behind the tourists’ use of Airbnb, including price, value, opportunity for interaction, and more (Guttentag et al. 2017). Also, there are common demographic variables that are characteristic of Airbnb users, such as age and income status (Guttentag et al. 2017). Using a mixture of psychographic and demographic variables to determine its target market allowed Airbnb to establish a large segment that could bring high profits. The differentiating features provided by Airbnb included ease of use, service, reviews on accommodation, and insurance against damage for hosts. Therefore, the use of STP enabled Airbnb to gain popularity among hosts and tourists alike.
Conclusions and Recommendations
Overall, it is clear that the use of STP is beneficial for businesses, whether they are entering a new market, developing a new product, or are willing to increase the brand’s popularity in the present market. Besides, STP strategy is flexible and can be applied to a wide variety of companies. Nevertheless, there are certain considerations and recommendations regarding the use of STP in practice.
First of all, the marketers should consider various segmentation approaches before selecting one. As stated by Ferrel and Hartline (2014), using a segmentation approach that is appropriate to the chosen market and helpful in promoting the selected product category assists companies in producing a successful promotional plan, thus contributing to success. Besides, as noted in the Targeting section of the paper, it is essential to separate the process of targeting from market segmentation so as to perform both processes correctly and ensure a good choice of the target customer segment.
Moreover, companies should be careful when positioning their products, services, or brands. As described by Mats and Koch (2014), there are five separate schools of positioning, grouped in two main approaches: brand-oriented and market-oriented. Where brand-oriented positioning focuses on the internal potential and image of the brand, market-oriented positioning is centred on demand and competitive landscape (Mats and Koch 2014). The choice of positioning depends on the status of the company and its target segment of the market. Thus, managers should review the company’s goals in order to determine the correct strategy for positioning. This process must be performed regularly, as companies can evolve from market-oriented to brand-oriented as they develop a brand identity. Apple is an excellent example of such brand; starting out as market-oriented, Apple has grown its image enough to rely less on market conditions when positioning a new product. Instead, Apple places the product in accordance with other products of the brand to ensure a consistent brand identity while also contributing to higher sales.
The present paper attempted to present the body of knowledge available on STP and provide a critical evaluation of all the processes involved. Besides, researching STP allowed exemplifying its fundamental principles and establishing their contribution to company success. Nevertheless, a significant limitation of this research area is the low number of current, high-quality studies on STP and its application in various markets. Future research in the field of STP is crucial to providing guidelines for its use in practice, as well as to allow for defining and clarifying some of its central concepts.
Reference List
Cross, JC, Belich, TJ, & Rudelius, W 2015, ‘How marketing managers use market segmentation: an exploratory study’, in Proceedings of the 1990 Academy of Marketing Science (AMS) Annual Conference, Springer, Cham, pp. 531-536.
Ferrell, OC & Hartline, MD 2014, Marketing strategy: text and cases, 6th edn, Cengage Learning, Mason, OH.
Guttentag, D, Smith, S, Potwarka, L & Havitz, M 2017, ‘Why tourists choose Airbnb: a motivation-based segmentation study’, Journal of Travel Research, vol. 57, no. 3, 242-359.
Hamka, F, Bouwman, H, De Reuver, M & Kroesen, M 2014, ‘Mobile customer segmentation based on smartphone measurement’, Telematics and Informatics, vol. 31, no. 2, pp. 220-227.
Haverila, MJ 2013, ‘Market segmentation in the cell phone market among adolescents and young adults’, Asia Pacific Journal of Marketing and Logistics, vol. 25, no. 3, pp. 346-368.
Hooley, G, Piercy, NF & Nicoulaud, B 2012, Marketing strategy and competitive positioning, 10th edn, Prentice Hall, London, UK.
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.
Khoo-Lattimore, C & Prayag, G 2015, ‘The girlfriend getaway market: segmenting accommodation and service preferences’, International Journal of Hospitality Management, vol. 45, no. 1, pp. 99-108.
Mats, U & Christian K 2014, ‘Market and brand-oriented schools of positioning’, Journal of Product & Brand Management, vol. 23, no. 7, pp. 478-490.
Valentine, BD & Powers, LT 2013, ‘Generation Y values and lifestyle segments’, Journal of Consumer Marketing, vol. 30, no. 7, pp. 597-606.