Thursday, 20 April 2023

STP (segmentation and targeting and positioning)

 

What Is STP marketing?

Segmentation, targeting, and positioning (STP) is a marketing model that redefines whom you market your products to, and how. It makes your marketing communications more focused, relevant, and personalized for your customers.

In short, STP is a marketing approach where you segment your audience, target the best-fit audience segments for your product, and position your product to capture your target segment effectively.

 

The STEP Formula

 

Segmentation + Targeting = Positioning

 

Segmentation with an example

Suppose your product is plant-based milk. Your general audience is people who want to move away from dairy-based products. You can segment this audience into two categories:

Segment A: people who are looking at dairy-free alternatives for lifestyle purposes, typically high-income groups.

Segment B: lactose-intolerant people looking for other options.

The message you use for these two segments is obviously going to be different from each other. Using tools like Data Studio, you can further segment the above two segments into groups that already use a competitor product and those that don't. You can then hone your messaging according to it.

Targeting

The next step in the STP model is targeting. This is the stage where you decide which segments you created during the segmentation phase are worth pursuing. You should ideally consider the below criteria to choose your targetable segments:

 

Size: Your audience segments must have enough potential customers to be worth marketing to. If your segments are too small, you may not get enough conversions to justify your marketing efforts.

Difference: There should be a measurable difference between any two segments. The lack of it leads to unnecessary duplication of efforts.

Reachability: The segments should be accessible to your sales and marketing teams and not be marred by technical or legal complications.

Profitability: The segment should have a low-to-medium customer acquisition cost (CAC) while bringing in high returns, i.e., the audience must be willing to spend money on your product.

Benefits: Different benefits attract different segments. In our plant-based milk example, Segment A would go for cruelty-free while Segment B for dairy-free.

Positioning

The final stage of the STP model, positioning, is where you use the insights gained from segmentation and targeting to decide how you're going to communicate your product to chosen audience segments.

While segmentation and targeting are about customers, positioning is about your product from the customer's perspective. You can consider positioning as the bridge that connects your product with the audience. This is the stage where you perform competitor analysis, figure out your value proposition, and communicate that to your customers.

Based on what your brand stands for, you can position your product in several ways. If you're in the luxury market, you can appeal to the ‘desire for prestige’ among customers by positioning yourself as a status symbol. Or, if you fall in the budget category, you could differentiate yourself by offering more benefits to your target at a lower cost than your competitors.

The best way to approach positioning is by drawing a Product Positioning Map that has two key market attributes as its axes and plotting your competitors and you in it. This will give you a clear picture of how you stack up against your competition and where you should place your product to maximize profits.

Benefits of STP marketing

Improved engagement: Because you're targeting precise audience segments with personalized messages, your audience finds you relevant and is more likely to engage and convert.

Reduced marketing costs: Since you're going after only those segments with a high potential return on investment, you're no longer wasting your budget on channels and segments that don't work.

More robust product: Because you know precisely whom you're pitching your product to, you can make improvements based on feedback from that audience segment, fostering focused product innovation.

How to create an STP model for your business: Implementation strategy

We've covered the basics of the STP marketing model with benefits and examples. Now, it's time to get down to the brass tacks; that is, see how you can implement a  segmentation, targeting, and positioning model for your business step-by-step.

Step 1: Define your market

The world may be your market, but breaking it down into manageable segments is how you conquer it. To know the market segment in which you can hit the bullseye, you start by defining your Total Available Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM). Let's look at what each of these is:

 

 

Total Available Market (TAM): TAM is the total market demand for a product or service. In other words, it's the biggest available market for the brand. TAM is the maximum revenue that a business can generate if it achieves 100% of its market share.

Serviceable Available Market (SAM): SAM is a subset of TAM, that is, a portion of the total available market that fits your product or service. You can define SAM by geographical or product specialization constraints.

Serviceable Obtainable Market (SOM): SOM is a subset of SAM, that is, the segment of the serviceable available market that you can realistically reach after considering factors like product differentiation, budget, and competition.

Want to know how

In the case of Coca Cola, its TAM is the entire beverage market, while its SAM would be soft drinks. Its SOM is the market that Pepsi does not capture. For Diet Coke, the SOM would be health-conscious, sugar-free drinkers.

Step 2: Create audience segments

Now that you know your market definition, you can segment the audience within that definition.

You can segment the audience based on geography, demography, behavior, or psychography, but ideally, a mix of all four can help you achieve clearly differentiated segments. The more segmentation layers or variables you add, the more delineated your segments would be.

For example, suppose you're selling a luxury makeup product. In that case, you can target high-income working women (demographics) in India (geography), who follow makeup handles on social media (behavior) and are willing to spend money on premium makeup products (psychography).

This kind of repeated layering and segmentation creates focused audience groups that you can target with hyper-personalized messages. Research by McKinsey found that companies that excel at personalization generate 40% more revenue from those activities than average players.

Step 3: Identify the more attractive segments

Have all the segments data in one place and evaluate the attractiveness of each segment. You can use metrics like return on investment, segment size, and growth potential in your evaluation. Again, solutions like Salesforce Data Studio and CDP help gather data and get comprehensive visibility into different audience segments, improving segmentation.

Step 4: Evaluate your competition

With your audience segmentation sorted, it's now time to look at your product and determine how it stacks up against your competition. Prepare a table that lists down all of your product capabilities and your competition's, do a SWOT analysis, identify gaps, and figure out the most viable entry point into your desired customer segment.

Step 5: Fix your positioning

The groundwork on segmentation and targeting is now out of your way, so you can focus on positioning your product to grab the lion's share of the market. You can follow any one or a mix of the following positioning strategies:

  • Competitor-based positioning: where you show in what aspects better than your competitor.
  • Consumer-based positioning: how well your product aligns with consumer needs.
  • Price-based positioning: how you're competitively priced and give customers more value for their money
  • Benefit-based positioning: how your customers benefit from buying your product, either individually or over your competition.
  • Attribute-based positioning: what your unique selling point or value proposition is, above and beyond benefits and price.
  • Prestige-based positioning: how customers get a status boost from buying your product.

Step 6: Determine your marketing mix

The final step of the segmentation, targeting, and positioning model is to choose your 'marketing mix' that helps reinforce your positioning. The marketing mix consists of four Ps - Product, Price, Placement, and Promotions.

Product represents factors like quality, benefits, features, design, services, support, availability, and edge over the competition.

Price reflects what customers are willing to pay for the product. It covers list price, discounts, payment methods, etc. Pricing your product much lower than your competitor might fetch you immediate benefits but will be detrimental to revenue in the long run.

Placement covers "where" your product is available. It includes ecommerce, physical stores, inventory, logistics, trade channels, etc.

Promotion takes into account "how" your product reaches your customer. It covers marketing campaigns, advertising, public relations, sales promotions, word of mouth, and influencer marketing, and so on.

Conclusion

STP model is a scientific, tried-and-tested marketing approach that helps businesses identifies segments where they can indeed provide value, personalize their marketing communications, and reap sizeable profits.

If you want to get started on your segmentation, targeting, and positioning journey, you could give solutions like the Salesforce Marketing Cloud a try. The products inside Marketing Cloud provide you deep insights about your audience, help you identify the most viable segments, and hyper-personalize communications across channels, leading to 1-1 customer connect.

 

AU_BBA_T&D syllabus

 https://drive.google.com/file/d/1BQYHS9adykOhW8nTUM1H8x8fH6BqSGqd/view?usp=sharing