"STP strategy" is a business strategy that is comprised of segmentation, targeting, and positioning, according to Michael Lynn of Cornell University . Segmentation comprises identifying specific commonalities between individual consumers that group them together into market segments (subgroups of consumers who have similar strong consumption drivers in place: geography, lifestyle,...
etc). Targeting comprises marketing that is aimed at the segment and the commonalities of the segment. Positioning comprises presenting the product to appeal to the segment.
Market segmentation is based on the theory that the consumer market is made up of homogenous groups of people with like needs and wants. STP strategy identifies these groups and how these groups have relevancy to the product or service being offered. Within the segments, some are selected while some are ignored since not all consumer needs are met by all products or services though others are met and since conflict exists between needs in different segments. The critical factor in segmentation is selecting which segments to ignore and which segments to focus on--or--which segments to target advertising toward. This is called segmentation commitment. At the brand level, segmentation differentiation and commitment is critical though at the corporate level many segments can be captured through a broad range of products and services, each with its own segmentation commitment: commitment to the selection of segments to target.
- demographic variables: e.g., age, gender, income, education
- geographic variables: e.g., nation, state, region, locality
- psychographic variables: e.g., attitudes, interests, values, opinions
- behavior variables: e.g., brand loyalty, purchase frequency, media habits
Identifying segments leads to discovering sub-segments. For example, geographic region variables give rise to sports-related lifestyle variables, which give rise to cold weather and warm weather sports variables. Segmentation and sub-segmentation allows business to narrow their segmentation commitment to clearly focused segments that contain consumers who are significantly similar while being distinct from other segments. For example, cold weather sport for the over-60 age variable might be walking, while the sport for the under-30 age variable might be snowboarding, making the over-60 and under-30 segments distinct from each other while containing individuals within each that are similar.
According to Lynn, most STP market strategists agree that targeted markets are attractive for market targeting if they:
- have strong sales and growth potential
- can be reached with relatively inexpensive marketing efforts
- are served currently by few or by weak competitors
- have needs and desires well met by your products and/or services
Targeting is the selection of market segments to commit marketing efforts to and it is the converse selection of market segments to ignore. According to MIT's Sloan School of Management, targeted segments meet these criteria:
- heterogenity (difference) in preferences from other segments
- identifiability of segment (the segment must be identifiable so marketing approaches can be delivered)
- ample size of segment
- competitiveness within the market (same as above: the presence of few or of weak competitors)
Positioning a product or service in a market requires the selection of a mix of marketing approaches that will solicit the desired reaction/action from the targeted market segment within which individuals who have specific similarities in common will respond in like manners that will be significantly different from responses of individuals in ignored market segments. Market positioning takes advantage of the common similarities between individuals to make a product or service attractive to the commonalities that drive their purchasing decisions. Positioning is developed by selecting an appropriate and effective, inexpensive, deliverable mix of advertising/marketing approaches through which to present your product or service to the segments you have committed to.
According to Sloan, positioning a product within selected market segment or segments can occur along various dimensions:
- product attributes: product has some distinctive attribute competitors do not have
- product effects: product causes or results in some desirable effect that competitors do not effect
- product price: price that meets segment's needs or desires, e.g., budget or luxury
- product users: defines product by end-user, e.g., baby shampoo
- product usage: a distinctive usage characteristic, e.g., Dr. Pepper at 10-2-4
- product relation to other products: what the product is or is not compared to competitors, e.g., un-cola
- product attributes, etc, that are arbitrarily selected, e.g., Rice-a-Roni, the San Fransisco treat