How to use Segmentation, Targeting and Positioning (STP) to develop marketing strategies for marketing plan
Step 1: Segment Your Market
Your organization, product or brand can’t be all things to all people. This is why you need to use market segmentation to divide your customers into groups of people with common characteristics and needs. This allows you to tailor your approach to meet each group’s needs cost-effectively, and this gives you a huge advantage over competitors who use a “one size fits all” approach.
There are many different ways to segment your target markets. For example, you can use the following approaches:
1) Demographic –
By personal attributes such as age, marital status, gender, ethnicity, sexuality, education, or occupation.
2) Geographic –
By country, region, state, city, or neighborhood.
3) Psychographic –
By personality, risk aversion, values, or lifestyle.
4) Behavioral –
By how people use the product, how loyal they are, or the benefits that they are looking for.
The Adventure Travel Company is an online travel agency that organizes worldwide adventure vacations. It has split its customers into three segments, because it’s too costly to create different packages for more groups than this.
Segment A is made up of young married couples, who are primarily interested in affordable, eco-friendly vacations in exotic locations. Segment B consists of middle-class families, who want safe, family-friendly vacation packages that make it easy and fun to travel with children. Segment C comprises upscale retirees, who are looking for stylish and luxurious vacations in well-known locations such as Paris and Rome.
Step 2: Target Your Best Customers
Next, you decide which segments to target by finding the most attractive ones. There are several factors to consider here.
First, look at the profitability of each segment. Which customer groups contribute most to your bottom line?
Next, analyze the size and potential growth of each customer group. Is it large enough to be worth addressing? Is steady growth possible? And how does it compare with the other segments? (Make sure that you won’t be reducing revenue by shifting your focus to a niche market that’s too small.)
Last, think carefully about how well your organization can service this market. For example, are there any legal, technological or social barriers that could have an impact? Conduct a PEST Analysis to understand the opportunities and threats that might affect each segment
The Adventure Travel Company analyzes the profits, revenue and market size of each of its segments. Segment A has profits of $8,220,000, Segment B has profits of $4,360,000, and Segment C has profits of $3,430,000. So, it decides to focus on Segment A, after confirming that the segment size is big enough (it’s estimated to be worth $220,000,000/year.)
Step 3: Position Your Offering
In this last step, your goal is to identify how you want to position your product to target the most valuable customer segments. Then, you can select the marketing mix that will be most effective for each of them.
First, consider why customers should purchase your product rather than those of your competitors. Do this by identifying your unique selling proposition , and draw a positioning map to understand how each segment perceives your product, brand or service. This will help you determine how best to position your offering.
Next, look at the wants and needs of each segment, or the problem that your product solves for these people. Create a value proposition that clearly explains how your offering will meet this requirement better than any of your competitors’ products, and then develop a marketing campaign that presents this value proposition in a way that your audience will appreciate.
The Adventure Travel Company markets itself as the “best eco-vacation service for young married couples” (Segment A).
It hosts a competition on Instagram® and Pinterest® to reach its desired market, because these are the channels that these people favor. It asks customers to send in interesting pictures of past eco-vacations, and the best one wins an all-inclusive trip.
The campaign goes viral and thousands of people send in their photos, which helps build the Adventure Travel Company mailing list. The company then creates a monthly e-newsletter full of eco-vacation destination profiles.