STP - Segmenting, Targeting, PositioningSummarized by Sam Mishra, MBA (MIT Sloan)
Segmenting a market helps a company target its products / solutions better to its customers. It is a strategic approach midway between mass marketing and individual marketing. Segmentation is based on the concept that customers in a specific segment have similar needs, purchasing power, geographic location, etc.
A market can be segmented according to customer needs. For example, car manufacturers can segment the car market into two broad segments: basic cars and luxury cars. They can have separate product lines for each segment. For example, for the luxury car segment, Toyota has the Lexus product line, Honda has Acura, and Nissan has Infiniti.
Targeting is a process of prioritizing target segments based on the firm’s core competencies or capabilities, and other researched factors including segmented market size, growth potential of the segmented market, competitive dynamics, etc.
Unless the target segment is chosen based on considerable market research and careful planning, a company’s product / solution will not be able to capture the intended market share in the target segment. So, targeting is key, because businesses battle for market share in these target segments.
This involves developing a marketing mix for each targeted segment. One way to think of a marketing mix is using the 4P’s framework. Another way to look at positioning is articulating the value of the company’s products / solutions vis-à-vis customer needs, competitive products, etc. Product data sheets, hot sheets, beat sheets, cheat sheets, white papers help articulate this value tactically.
STP Best Practices
Older ways of segmenting customers geographically / demographically should be coupled with more modern methodologies. For example, by segmenting customers according to the jobs they hire your products to do for them, you can justify better why a firm should buy your products vis-à-vis the competition. This requires a little elaboration.
Suppose you work as a marketing strategist in a company with two products A and B. Product A helps customers D, E, and F do jobs X, Y, and Z better / cheaper / faster. Product B helps customers G, H, and K do jobs M, N, O, and P better / cheaper / faster. Customers D, F, and K are in the mid-market space and customers E, G, and H are in the enterprise space. If you company segments customers by size into small, mid-market, and enterprise, it will miss the key insight being articulated here that at the end of the day, customers hire your products to do their day-to-day jobs more easily / efficiently. And it may not be material to them as to how big they are in terms of their annual revenue when they choose your products vis-a-vis the competition.
Thus, as a market strategist, you can better serve your company and your customers if you segment your customers by the jobs they hire your products to do for them, than going for a plain-vanilla demographic customer segmentation by company size, such as big, mid-market, and small!
Second ExampleThe above insight on segmenting business customers by product usage is just one of many insights one should bring as a marketing strategist. What follows is another example from the high-tech Mecca or Silicon Valley. The example is from a hardware company, which believes that its top three marketing channels are word-of-mouth, direct sales, and indirect (or channel) sales. It typically segments customers (most of whom are large to mid-size businesses) into the following three segments for all downstream sales and marketing activities:
Customer Segment A: If the company gains or retains a customer in this segment, it will provide the company the needed buzz in the market place. So, the company strives to retain all the firms in this segment, no matter what the cost, and usually succeeds, irrespective of new product / service introductions from the competition. Needless to say, the company deploys resources at the highest level (including CEO-to-CEO sales pitches) to get the required marketing buzz.
Customer Segment B: Customers falling into this category are the next in the order of importance. These may be customers of existing cash-cow products or hot prospects for new products. The company earns a significant chunk of its revenues from these customers as well, and tries its best to retain these customers.
Customer Segment C: All other firms which will be best served by the company’s products / solutions fall into this category.