Have you ever wondered why different supermarket chains have different ranges or why the same food manufacturer sells its products under different brands?
The associated differences in price and quality do not exist by chance. They are the result of a marketing mix that takes into account the respective target group and their individual needs.
The reason for this is the heterogeneous composition of a society. This inevitably consists of different segments. Each segment is characterized by different needs, expectations and income levels.
Marketers can identify these characteristics and specifically address them with a tailored marketing mix. A well thought-out procedure has existed for this for many years: the so-called STP strategy process.
STP stands for the segmentation of the market ( S egmentation), selecting the right target segments ( T arge ting) and build upon positioning ( P ositioning) a brand or a company.
With the help of this step-by-step analysis tactic, marketing activities can be effectively and efficiently aligned to desired customer segments with intelligent implementation. Every marketer’s dream!
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Classification and definition
Regardless of whether in a startup or a large corporation – in companies there is almost always the same question in the room at regular intervals: How do I reach interested and well-funded customers and how can I present myself to them as particularly attractive so that they can purchase my goods again and again?
At the time of this question, there is often not even a finished product. After all, companies should know the needs of their target group and ideally base their product portfolio on this knowledge.
The first step in the STP process is therefore to understand how a market is made up and which parts of this market are of interest to your own interests. If you have this knowledge, these identified segments should be specifically addressed. The product and the communication through to the holistic marketing concept should therefore be geared towards the needs of the selected target segment.
But let’s take a step-by-step look at the STP process below:
Step 1: segmenting the market (segmentation)
It is highly unlikely that any company will offer products and services to the entirety of a market. However, this assumption is widespread among inexperienced marketers. As good as your own product or idea may be, it usually serves a specific target group to whom the marketing mix should be tailored. The STP planning and strategy process therefore begins with the segmentation (subdivision) of the market and thus represents the subdivision of a heterogeneous market into smaller and much more specific sub-and niche markets.
Decision-makers need to get as detailed an overview as possible of the existing market in order to be able to identify attractive target segments. In this step of the STP process, suitable variables must therefore be found that can be used to classify different characteristics of customer groups (segments).
The division of consumers into groups
Marketers can avoid costly wastage in their marketing activities if they can identify customer segments with the same or at least similar needs and demands.
Demographic characteristics such as gender, age or place of residence can supplement socio-economic characteristics such as income level, level of education or type of residence for a better assessment of the needs of different customer segments.
In addition to these objective measurement options, there are also psychographic properties that are ultimately assessed subjectively. Analysis of different lifestyles, for example, provide insight into the different expectations and needs of consumers. A closer look at associated values helps to identify customer segments who would react positively to certain types of product (e.g. sustainable organic products).
Frameworks as a tool for segmentation
But before every small startup invests its entire time in market research; There are numerous frameworks to shorten this market research process or to provide even deeper insights into the needs of consumer groups:
1. The VALS Framework
The VALS framework assumes that consumption is not only dependent on demographic factors, but is primarily controlled by personal characteristics such as willingness to innovate or self-confidence.
It helps marketers to gain a deeper understanding of the psychology of different customer groups.
For example, if a startup tries to market an innovative product, it should focus all efforts on innovation-ready customer segments instead of applying marketing budgets to less innovative consumers.
2. The Sinus Milieus
The Sinus Milieus take up this topic and provide insights into the socio-cultural structures of a society. The Sinus Institute behind it annually measures the sensitivities, values and lifestyles of people with different social backgrounds and assigns them to several defined consumer groups.
3. The family life cycle
The family life cycle in this regard clusters segments according to a person’s marital status and the resulting financial situation, which in turn has a direct impact on consumer behavior.
The following groupings were defined with this framework:
- Young unmarried people
(financially strong, adventure-oriented)
- Young married people or couples without children
(double income, long-term purchase decisions)
- Young families
(increased financial obligations, often only one income)
- Families with older children
(finances stabilize, more repeat purchases)
- Adult households
(increased financial strength, purchase of luxury items)
- Older unmarried people
(depending on the situation, financially strong / weak, increased expenditure on health)
Segments define relevance and distinction
In addition to the above, there are numerous other frameworks for segmenting consumers in a market. Regardless of which framework is used to classify segments – the criteria chosen should be relevant and measurable. Defined segments should be clearly different from each other and should be stable over time so that long-term marketing strategies can be reliably planned.
By identifying segments through varying characteristics and behavioral patterns, marketers get a clear picture of the composition of a market. This enables them to better assess which media channels individual customer segments mainly use and how they would react to any marketing activities.
Step 2: Selecting the target segments (targeting)
After identifying the different segments of a market in the first step, decision-makers must now evaluate the attractiveness of these segments based on the degree of conformity with the goals, competencies and resources of their company.
The attractiveness of a segment can be assessed using auxiliary variables such as its purchasing power, influence and size.
The better the “fit” between the attractiveness of a segment and the company’s resources, the more efficiently the developed marketing mix will be able to encourage this target group to buy.
Which segment suits the company?
Ideally, attractive market and customer segments can be addressed with the company’s available resources. This means that existing budgets, established marketing channels or the existing expertise of employees are sufficient to serve the defined target segment.
At the same time, less attractive clusters should only be targeted if there are valid reasons for doing so. For example, the short-term acquisition of market shares in already saturated markets in order to gain long-term negotiating power with suppliers.
The consumer-product matrix
With a so-called consumer-product matrix, decision-makers can ultimately assign their products or services to the selected target segments. Especially in large companies, this creates an overview of which brands (should) serve which target groups.
Opening up new markets through new segments
Depending on how a company is set up, the choice of the target segment may require entry into a new market. Managers then need to evaluate whether they want to take this step and the commitments that come with it. The following criteria help in this decision-making:
- Growth rate
- Market life cycle
- Price elasticity
- Bargaining power of buyers
Economic and technological factors
- Market entry and exit barriers
- Bargaining power of suppliers
- Barriers to investment
- Amount and attractiveness of assumed margins
- Risk of substitution
- Degree of differentiation possibilities
Macro- environmental factors
- Political and legal environment
- Economic environment
- Technological environment
- Social environment
- Ecological environment
The next step can only take place after a holistic assessment of these factors: the actual positioning of the company, its brands and the associated products and services.
Step 3: Positioning
With the market segmentation, attractive customer groups could be defined and then targeted. As the last step in the STP strategy process, the positioning defines the alignment of all marketing measures for the targeted emotional and factual addressing of needs of the previously defined customer segments.
Depending on the competitive situation, market participants have to communicate their unique selling proposition more or less intensively. Apple did this in the late 1990s with its famous, rebelliously tinged commercial. This should appeal to ambitious consumers with a desire for change in their generation. The group still benefits today from the company’s innovative positioning at the time, even if the brand and product positioning strategy has developed significantly since then.
Conclusion – The STP strategy process as a basis for success for marketing activities
With the STP process, managers can identify attractive customer and market segments and address them specifically with the information collected.
Even if the effort may seem enormous at first – once properly set up, the positioning of a company, its brands, products and services represents the core of all marketing activities.
If the positioning is not properly worked out, this leads to irritation and loss of trust among customers, caused by inconsistent communication content / messages internally and externally. Those who follow the process described above can avoid this relatively easily.
How do you address relevant markets?
How did you like this article? I am interested in your experiences, questions and opinions on the STP process! Just leave a comment for this. I’m looking forward to an exciting exchange!