Segmentation, Targeting and Positioning

STP is a three step process involving segmentation, targeting and positioning.

Smith (1957) describes segmentation as being based on the observation of the evolution of demand and represents a more precise and rational adaptation of the product and the marketing effort to meet customer or user demand.

Kotler (2000) describes segmentation as: “the subdividing of a market into homogenous (or similar) subsets of customers, where any subset may conceivably be selected as a target market to be reached with a distinct marketing mix"

Segmentation: Dividing the market up into distinctive groups.
Targeting: Selecting a group (segment) to market to.
Positioning: Developing a market strategy which positions the product to appeal to a target customer base within the chosen segment.

It is only suitable to use segmentation when the following are true:

• Consumers in the segment can be reached by a unique marketing mix.
• Consumers in the segment will respond to the marketing mix designed for them.
• The segment is big enough to be profitable.
• There are significant differences between the segments, but the product need is the same for consumers within different segments.

Segmentation is beneficial as it allows better matching of customer needs, which in turn improves brand loyalty. The ability to raise prices in some premium sectors can enhance profits.

There are many variables to segment markets and some of them may overlap or be included in one segment:

• Demographic profiles: such as age, gender, social class, culture, stage in life or purchaser verses user.
• Geographic: Regional or national differences or urban vs rural
• Psychographics: Self concept, personality or lifestyle.
• Behavioural: Brand loyalty, extent of usage, usage situation, benefits desired. An example of brand loyalty would be consumers who own 4 iPods that do similar things.

What factors affect which segment to target include:

• Size of market segment
• Potential for growth
• Competition
• Potential competition
• Available resources
• Corporate objectives and aims
• Accessibility & sustainability
• The ability of the company to establish itself in the market.

The benefits of targeting are that you can focus on the most profitable segments, as the largest segment isn't necessarily the most profitable. It allows you to analyse competitors and fill gaps in the market that the competition has missed. It helps communication to the customer by employing a more focused marketing mix as well as enabling businesses to focus resources on segments they understand or similar segments.

To correctly position you must understand the perceptions of all the consumers within the segment, and the positioning for each target segment, when this is known an appropriate marketing mix can be created to cement the position. Market positioning allows the product to occupy a distinctive, clear and desirable place in the mind of the targeted consumer, helping to place the product in relation to its competitors which helps the consumer to choose a product that fills their needs.

There are different segmentation strategies to use, depending on what segments exist.

Undifferentiated marketing: ignores segmentation and treats all customers the same. This is more suitable when products are so standard they cannot be changed significantly.

Focussed strategy: Targeting a particular segment or segments.

Differentiated marketing: A different marketing mix for each segment.

An example of STP marketing.

In this diagram, A to E are segments of the amount of passengers flown to different countries by an airline. The segment A is the largest segment, but it is not necessarily the one that makes the most profit. The profit on tickets in Segment B could be double the profit from tickets as in segment  A. 

If a new rival airline wanted to compete with the existing airline with a minimal start up cost could choose to offer flights to target segment B. Within the B group there might also be a large difference the class of flight taken, whether expensive business and first class tickets, or tickets booked far in advance for economy seats. 

The new rival airline would try to position itself to be appealing to business and first class ticket holders and choose an appropriate marketing mix to target those customers.

Differentiated marketing:
An example of multiple types of segmentation can be shown by the Arcadia group, which owns different high-street brands and employs a differentiated marketing strategy. Each of the brands in the Arcadia group have their own identity and target different market segments. A strategy which has proven to be successful, with over 2,500 high street and shopping centre outlets combined owned by the Arcadia group. http://www.arcadiagroup.co.uk/about/brands_history.html


Four of the different market segments the Arcadia group market to are below:

Evans

Evans is the leading specialist fashion brand for 20 to 45-year-old women offering great value to women who want to celebrate their curves. The brand's core values are fashion, specialism and value. http://www.arcadiagroup.co.uk/about/evans.html

Dorothy Perkins 

The brand provides customers with affordable, feminine fashion. The brand's core target market is 25-35 year old women who take a close interest in fashion, and to whom quality, fit and price are important. Customers look to Dorothy Perkins for style inspiration on new trends and how to wear them, plus advice on how to dress for their body shape. http://www.arcadiagroup.co.uk/about/dp.html

Miss Selfridge 

Variety, individuality and originality are key to the Miss Selfridge brand, which targets feminine and stylish, individual and self-assured customers aged 18 to 24. http://www.arcadiagroup.co.uk/about/missSelfridge.html

Topshop 

Topshop is THE fashion destination on the UK high street. With more than 300 stores across the UK, the brand has become a fashion phenomenon. Attracting awards and headlines alike, Topshop has become synonymous with cutting edge fashion at affordable prices. The brand has formed partnerships with many of the major names in UK fashion, the most recent being the Kate Moss range that launched in summer 2007.
http://www.arcadiagroup.co.uk/about/topshop.html


Focussed strategy:

Diamond car insurance 
An example of focussed strategy is Diamond car insurance. Who offer car insurance exclusively to women drivers, and as traditionally women have less accidents and make less expensive claims they are able to offer a reduced rate of insurance. Due to their focussed strategy both their customers and the company profit, they are also able to offer sales promotions that are attractive to their market segment: such as free handbag insurance cover. http://www.diamond.co.uk/



Through the segmentation, targeting and positioning of brands a profile of a typical customer can be built. For example, a typical Miss Selfridge customer would be a 20 year old female, who is a hair dresser, earning £17,000 per year who has just moved into her first home with a friend. She would buy for herself or a female friend and could live in any part of the country. Her style is feminine and stylish, she follows fashion trends and celebrity fashion but experiments with her own unique style. She is happy to spend money on fashionable clothes but wants value for money. She is brand loyal to a point - checking the shop every 3 weeks, but if she sees something she wants somewhere else she would buy it without hesitation.