Strategic Marketing: Segmentation, Targeting and Positioning (STP)

This essay explores the concept of Segmentation, Targeting and Positioning (STP) in strategic marketing. It evaluates various literature to understand the benefits of STP and analyses industry examples of companies like Volkswagen, Nivea and Apple Inc. that have used STP to gain a competitive advantage in their respective industries. The essay also provides recommendations for corporations to implement the principles of STP to sustain their future growth in the market.

Strategic Marketing

Table of Contents
Introduction...............................................................................................................................2
Concept of Segmentation, Targeting and Positioning (STP)......................................................3
Segmentation.........................................................................................................................4
Targeting................................................................................................................................5
Positioning..............................................................................................................................6
Industry Examples......................................................................................................................7
Volkswagen............................................................................................................................7
Nivea.......................................................................................................................................9
Apple Inc...............................................................................................................................10
Recommendations...................................................................................................................11
Conclusion................................................................................................................................13
References................................................................................................................................14
List of Figures
Figure 1: STP Model...................................................................................................................3
Figure 2: STP Process..................................................................................................................4
Figure 3: Segmentation Strategies.............................................................................................5
Figure 4: A Positioning Map of Automakers..............................................................................7
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Introduction
In today’s competitive business world, organisations rely on effective marketing techniques
to attract customers and increase their sales. The corporations use marketing tactics to
identify potential customer bases to target and promote their products to them.
Segmentation, targeting and positioning (STP) are referred as three key elements of a
company’s strategic marketing efforts. In order to stay relevant in the market and sustain
their future growth, organisations are required to create revolutionary products and
services; however, it is not enough to capture the market. Organisations also required
identifying who, among the population, would be interested in purchasing their products. In
order to find this information, corporations use STP strategy which provides relevant
information to the company to target its products to a specific customer base (Wood, 2013).
This essay will focus on evaluating various literature to explore and understand the concept
of Segmentation, Targeting and Positioning (STP). This essay will also analyse various
appropriate industry examples which prove how companies could apply the concept of STP
to expand their customer based and sustain their future growth. Furthermore,
recommendations will be given in essay for corporations to implement the principles of STP
to sustain their future growth in the market.
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Concept of Segmentation, Targeting and Positioning (STP)
Segmentation, Targeting and Positioning (STP) is referred to a broad marketing framework
which is used by marketers while performing the process of market segmentation by
summarising and simplifying the same (Khan, 2013). It is used by organisations to
understand economic, psychological and socio-cultural attributes of customers along with
their perceptions, cognition, motivations, personalities and attitudes.
Figure 1: STP Model
(Source: Hanlon, 2018)
Following are a number of benefits of STP model.
 Collection of relevant information regarding effective positioning of the product
 Avoiding competition with other organisations which are focused towards capturing
the same target market
 Easy identification of early adopters of products
 Exposure to less profitable brands
 Opportunities to develop new products and successful expansion of product line
 Easy planning of reinvestment and sales efforts which are focused towards most
profitable targets (Khan, 2013)
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Figure 2: STP Process
(Source: Hanlon, 2018)
Segmentation
Segmentation is the first step of strategic marketing planning in which marketers slice the
entire market into a number of groups which are based on pre-determined set of criteria. In
simple words, it involves finding different kinds of customer bases in the market who have
different needs. Philip Kotler provided that by segmentation of the market, companies
divide market into homogeneous sub-sects of customers which can be targeted by the
company with a distinct marketing mix. According to Wedel and Kamakura (2012),
segmentation is the act of dividing the broad market into smaller segments which comprise
different individuals having similar interests, requirements and needs. Moreover, customers
who belong to a specific market respond to fluctuations in the particular market, and they
required identical products. Therefore, segmentation can be called as grouping. As per
Weinstein (2013), the key qualities of a good segmentation include availability of
considerable number of customers, profit potential and business opportunity. Some
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common ways of market segmentation include demographic, geographic, psychographic,
behavioural, lifestyle, and beliefs.
Figure 3: Segmentation Strategies
(Source: Elmansy, 2014)
Targeting
Targeting is referred to a process in which marketers essentially pick up one or more
segments after completing the segmentation process. There could be a number of criteria
for selection of specific segments which are based on the analysing of the marketers.
Kuppannagari et al. (2016) provided that many organisations treat the entire market as a
segment because they offerings are not differentiated based on segmentation composition
such as Coca-Cola. On the other hand, various companies carefully select one, two or more
market segments based on their products or services’ characteristics to best carter the
needs of a specific class of customers. While forming a targeting strategy, there are a
number of features which are required to be present in the segment of customers which fall
within a particular target consideration set. As per Surendiran, Rajan and Kumar (2010), the
first feature is market and segment size which provides that both the segment and the
market as a whole must be of considerable size.
Generally, smaller segments are yield by a smaller market which could be beneficial for the
company if the segment is highly profitable. However, if the segment is too small, then the
volume of sales generated in the market would be relatively small which will adversely
affect the profitability of the company (Taken, 2012). Another key factor of targeting is that
the segment must be clear-cut different from each other. It is necessary that segments are
heterogeneous in terms of their composition. Profitability is another key factor which is
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required to be evaluated by marketers while selecting a segment. The expected or
anticipated revenue generation ability must exceed the overall cost of marketing.
Furthermore, the target segment selected by the company required adequate accessibility
to the company’s services and products and marketing communication. Finally, the main
purpose of segmentation is to tailor products and services of the company that suit the
requirements of each segment. Thus, it is necessary that different segments need to be
offered different benefits which are catered to their needs (Pyo, 2015).
Positioning
Positioning is the final step of STP model which is referred to the process of occupying a
certain place in the minds of target customers. In this process, companies focus on
positioning their product in the market based on the demand of customers. During
positioning of product, integrated marketing communication is a key part because
companies are required to customise their message while focusing on different factors such
as benefit of the product and service, cost of marketing, popular medium of choice, image
of the firm and other factors (Gonzalez-Benito and Martos-Partal, 2012). The sole goal of
positioning is to offer something in the market which prevails over other existing products
and services. During the positioning stage, companies set their image in the market. In the
targeting stage, companies are required to tailor their products and pricing strategy as per
the target segment, on the other hand, in positioning, companies have to ensure that they
give right message to the selected target segment and the products are present at right
place (Fuchs and Diamantopoulos, 2010).
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Figure 4: A Positioning Map of Automakers
(Source: Hanlon, 2018)
Industry Examples
As per Hooley et al. (2012), STP model is a potent tool which can be used by enterprises to
carefully assess potential markets which will provide them higher returns by satisfying
customers’ demands which provides them a competitive advantage in the industry.
Following are a number of examples of successful companies which used STP model to gain
a competitive advantage in their respective industry.
Volkswagen
Volkswagen is a German automaker which was founded in 1937; the company operates in
automotive industry. The company offers a wide range of cars from low budgets such as
golf, Ameo to high ends such as Lamborghini, Audi along with commercial vehicles such as
trucks and buses (Volkswagen, 2018). Due to its high-quality products and effective
marketing strategy, the company is the second largest car company in terms of revenue and
place, right behind Toyota.
Segmentation
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Volkswagen makes different cars to cater the needs of a wide range of customers. Each car
model of Volkswagen is focused towards a specific type of customer. The company is
producing small cars such as golf, polo and famous beetle to luxury and high-end cars such
as Bugatti, Bentley and Lamborghini. Furthermore, the company has established its own
assembly plants in most countries in which the company offers its products. The corporation
has made some of its cars such as polo and gold available only in specific areas to meet
requirements of its customers. The oldest producing car of Volkswagen is Beetle, and the
company is still producing it in some of its plants due to its popularity (Schlegelmilch, 2016).
Targeting
Unlike most car manufacturers, Volkswagen didn’t focus on single segment strategy while
targeting its customers; instead, the company has selected multi-segment strategy.
 Single-segment strategy: In this strategy, companies concentrate on a single
segment of the market with their product or services. This strategy is relatively
cheap, but with high risk, for example, Ferrari targets a single segment, however, its
sales may be affected during recession.
 Multi-segment strategy: In this strategy, companies target a different concept or
product at different segments of the market while developing a marketing mix
strategy for each of the selected segments. This approach is extremely resource
demanding, however, it protects from the vulnerability of over-commitment to one
area.
Volkswagen is dedicated to customer between the age group of 18-49 years. Most of the
cars offered by Volkswagen are categorised as more affordable and efficient which are
purchased by corporate people (Penghui, 2011). Furthermore, the company divides its cars
based on the fuel consumption of petrol and diesel. On the other hand, Volkswagen target
high-income individuals who purchase high-end luxury and sports cars from companies such
as Bentley, Audi and Lamborghini.
Positioning
Volkswagen focuses on its customer values and in order to achieve them, the company has
implemented various value delivery programs. These programs are given over cars
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produced in countries such as Russia, China, India, North America, Spain, Poland, Mexico,
Argentina, Brazil, Germany, South Africa and many others (Penghui, 2011). The company
has established a production facility in each state where the demand for cars is high.
Furthermore, the corporation carefully positions its products and plants to meet the
demands of targeted customers. For example, it offers smaller cars in crowded cities, SUV’s
in states with bad condition roads, sedans in high profile business districts and pick up cars
in Asia and South America. Volkswagen is able to gain substantial success in the market by
using STP model effectively.
Nivea
Nivea is a German personal care brand which is owned by Beiersdorf Global AG; it was
founded in 1911. The company has specialised in body care, and its products are popular
across the globe (Beiersdorf, 2018). The corporation relies on STP model to identify the
needs of customers and develop products to sustain its future growth in skin and body care
industry.
Segmentation
Nivea has divided its market into four basic segments which include geographic,
behavioural, demographic and psychographic. The geographic segmentation of Nivea
focuses on urban cities. The company is popular for its urban skin care products, and they
are mostly used by customers living in urban cities. The behavioural segmentation of Nivea
focuses on brand image. The corporation has a positive brand image in the skin care market,
and it is considered as one of the top skin care company. The demographic segmentation of
Nivea includes customers of all age because its products are used by children to adults to
old people (Ketter, 2017). Furthermore, the psychographic segmentation of Nivea is focused
towards lifestyle of its customers because they look and feel good by using the products of
the company.
Targeting
The target market for Nivea includes people residing in urban cities. The corporation offers
its products for customers that include children, adults and old people (Ketter, 2017). Thus,
the target market of Nivea is vast.
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Positioning
The corporation has carefully positioned its products in the market in order to create a
positive market image to target a large number of customers. Nivea offers high-quality
products at relatively lower prices. Its competitors such as Dove and L’Oreal operates in the
same market as well, however, the quality of Nivea’s products is high (Schlegelmilch, 2016).
Furthermore, its products are less expensive which makes them more affordable for low-
income customers as well. On the other hand, competitors such as Fair and Lovely and
Rexona offer low-quality products and affordable prices and companies such as Olay and
Chanel offer relatively expensive products. Thus, effective position in the market provides a
competitive advantage to Nivea which result in sustaining its future growth.
Apple Inc.
Apple was founded in 1976, and the company operates in computer hardware, software,
consumer electronics and technology industry. It is a multinational technology company,
and currently, it is the most valued corporation in the world with a market value of $923
billion (Divine, 2018). The success of the company is based on its effective STP strategy.
Segmentation
 Characteristics of customers
For business professionals, the company offers products such as iMac, iPad, MacBook Pro,
Apple Pencil, iCloud and others. For other customers such as teenagers and students, the
firm offers iPod, MacBook Air, iPhone and others (Katie, 2013).
 Systematic product availability based on customer behaviour
The corporation offers its products through both online and offline mediums to target wider
range of customers.
 Benefits sought
Customers receive many benefits if they purchase Apple products such as innovative design,
smooth performing software, stylish hardware, and other features of “Apple ecosystem”
such as music, cloud storage, videos, and others.
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 Geographic segment
The company has opened its stores in every major city of the world in highly populated
areas as well which assist it in attracting more customers (Katie, 2013).
Targeting
Apple’s products are for everyone, however, the company specifically target specific
customer base such as students and professional with its products such as MacBook Air and
iMac Pro respectively. Moreover, it invests in eco-friendly manufacturing process and
creates products to benefit society as a whole which assists it in targeting mid to high-
income level individuals (Kulkarni, 2016).
Positioning
Apple products are high priced, however, due to position brand image of the company, it
customers base include customers from low to high-income level. The corporation focuses
on the needs of customers by offering products such as MacBook Air and iPad Mini which
enables it to expand its sales (Kulkarni, 2016). Thus, the company has carefully segmented
its market, and it targets its customer base through effective marketing strategy which
enables it to position itself as the biggest technology company in the world.
Recommendations
Following are a number of suggestions which should be used by corporations while using
STP model to target customers and sustain their future growth effectively.
 Brainstorming Marketing Segments
During the process of segmentation, the top-level management is required to perform
general brainstorming to identify different types of customers that the company could
target. Furthermore, evaluation of the products offered by the company is also necessary to
determine how those products fulfil the demand of customers. During the segmentation
phase, the company can choose from various methods of segmentation such as
demographic, lifestyle, psychographic, geographic, beliefs, or usage rate factors (Wood,
2013). For example, a local business which offers a universal product is more likely to target
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a local demographic market, whereas, a multinational corporation which unique products
are likely to target international audience. The segments of customers are not just
categorised based on geographic factors, for instance, a trendy technology company might
target tech-savvy and younger customers. The main goal for companies is to identify as
many substantial market segments as they could; however, they have to ensure that each
market segment is distinct from one another.
 Methods of segmentation
There are a number of procedures which companies can follow to segment their market
effectively. For example, interview with customers, market surveys, and collection of
customer data are some of the sources from which corporations can segment their market.
Careful selection of these procedures leads to profitable results (Boejgaard and Ellegaard,
2010).
 Role of Top-level Management
The top-level management should use market STP model which is developed based on
target customer behaviour. STP model is an effective tool which is designed to focus on
mutual needs and demands of a wide target market which include consumers, businesses
and countries. It is necessary that senior-level executives are involved in this process since
they have knowledge regarding the overall performance and future plans of the
organisation (Yang and Sung, 2010).
 Targeting based on future profits
While targeting customers, there could be a number of segments which companies could
target that provides them substantial profits. However, corporations should select such
segments which have long time future possibility rather than short term. Long-term profit
potential will provide more growth opportunities to companies which benefits them in the
long run (Pyo, 2015).
 Use of STP model for effective marketing strategy
A well-executed and implemented STP program established by a corporation helps in
devising a proper marketing mix strategy which contributes to the overall success of the
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company. The STP model is useful for organisations while developing marketing
communication plans because it assists marketers in prioritising specific propositions while
at the same time delivering relevant and personalised messages which enables the
enterprise to engage with its customers (Janiszewska and Insch, 2012). The STP model is an
audience-focused approach rather than a product-focused approach which assists the
companies in delivering more relevant message to commercially appealing audiences.
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Conclusion
In conclusion, STP model is an effective tool which is used by corporations to divide their
market into specific customer sections, and companies can position their products to target
such customer bases to generate high profits. The senior level executives in a company
focused on implementing effective marketing strategies to generate a competitive
advantage in the industry by using STP model. Various examples of corporations which
successful use STP model are given in the report. These companies receive success in their
respective industries by effectively using STP model. Various recommendations are given in
the report as well which should be used by companies while using STP model such as
contribution of top-level management, careful selection of method of segmentation,
brainstorming, focus on future profits and use of information in marketing strategy. Based
on these principles, corporations can expand their customer base and sustain their future
growth.
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