The Segmentation, Targeting and Positioning Approach - Paper Example

Introduction

In recent times, Segmentation, Targeting, and Positioning (STP) have gained a lot of popularity in marketing. It is among the most commonly used marketing model. It has been placed second most liked model of marketing after the venerable SWOT/TWOS matrix. The model tries to change the notion of marking approaches being based on products instead of customers, as in the ancient strategies of marketing such as product differentiation (Cravens & Piercy 2006). This model is essential in the creation of plans for marketing communications as it makes propositions a priority and then helps in the development and delivery of messages that are personalized and relevant to different kinds of audience. The fact that STP focuses more on the audience as compared to the product makes it deliver messages that are more relevant to the appealing customers. STP involves three processes, which includes determination of the existing customers, selection of the specific customers worth serving and finally the implementation of the segmentation through optimization of products and services for the particular segment and communication to all the stakeholders of the stand of the business. This paper evaluates the effectiveness of the approach of STP in practice.

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Segmentation

Segmentation is the first step of the STP approach. It involves identifying the existence of different kinds of customers with their different needs (University of Southern California). For example, in the field of automotive, some customers are concerned about safety and space while others are concerned about performance and speed. Volkswagen, for example, offers a wide range or cars depending on the customers' budget. There are low budget cars such as golf and Ameo, as well as high-end vehicles such as Lamborghini, Bentley, Porsche and commercial vehicles like Scania. Volkswagen is well aware of their target customers, and they have segmented with a dedication to the target customers, and because of these, the company has risen over the years to the top regarding revenues. The company uses different subsidiaries to ensure each group of customers is served according to their needs and capabilities.

It is important to note that there are various variables or approaches in the segmentation of the target markets. There are three main variables, which are essential in the differentiation of customers. These include demographic, lifestyle and behaviors. Demographic variables involve customers' characteristics like gender, income, ethnicity, level of education and their locations, that is, whether they are in rural or urban areas. Behavioral variable involves brand loyalty. Some customers prefer to stick to a particular brand despite the availability of options. Customers can also be categorized as either heavy or light users of the products. Lifestyle involves the hobbies, entertainment as well as recreational pursuits of the customers. For instance, on and the off-line magazine may target customers with specific hobbies, that is, FourFourTwo for the soccer fans. Such hobbies as football are large and well established making them easy to target.

Targeting

Targeting is the second step after the segmentation process. This is where the business decides to target one or more segments. The choices made at this level depends on various factors. The business needs to consider the level of service for the existing segments by other manufacturers or competitors. It may prove futile appealing to already well-served segment as compared to that which has gaps. The size of the segment and the expectations of growth are also important factors to consider. Also, it is important to evaluate the strength that the business processes that will help its appeal to a particular group of customers (Ulwick 2005). Some companies have great strengths in their reputation and image. McDonald's, for example, has built a reputation to their target customers for quality, fast and family friendly meals. It is quite difficult, though, to convince customers that McDonald's is now offering gastronome food. Therefore, the company would better maintain their target for families who need some consistency in quality food in a tidy, good looking restaurants.

A good example for targeting in the STP model is where Company Z, which is a travel company analyzes the revenue, profits as well as the size of the market of different segments that they have. Segment 1 have profits of $5.5M, segment 2 has profits of $4.2M while segment three has a profit of $2.8M. The company then decides to focus on segment 1. This is after the company confirms the size of the segment and realizes that the segment of choice is big enough and will earn it more revenue as compared to the other alternative segments.

Positioning

According to the STP model, the final step is to position the offering. This is aimed at finding out ways of positioning the product towards targeting the most valuable customer segments. A successful company must be customer intimate, operate excellently and be technologically oriented (Treacy & Wiersema 1993). Operationally excellent firms have a competitive advantage through maintenance of exceptional efficiency making it able to provide services with reliability and at relatively lower costs keeping it ahead of its competitors. Intimacy with customers ensures that the customers' specific needs are well served. Besides, technological advancement ensures that a company provides products with the latest technology and leads regarding innovation.

A good example can be seen in the Cola wars of the 1980s between Pepsi Cola and Coca-Cola. It made coca cola resolve to the reformulation of their flagship Coca-Cola withdrawing it from the market to replace it with the then new Coke. Pepsi had high aggression with marketing and came up with a challenge taste test as well as the positioning of the "choice of a new generation." Pepsi segmented the market through the use of segmentation of attitude and loyalty approach. The combined budgets for promotions targeted the 50% of cola drinkers who would make a switch of the two brands. The expenditure was not much considering the marketing return to investment was less on the focus of the loyal brand customers who seemed not to switch their preference on the purchase. Pepsi then decided to modify their target market selection after the New Coke was launched. Pepsi took advantage of the gap that the classic coke drinkers' no longer had the Coca-Cola product. Pepsi positioned their product to make it seem as though they are the reason for the replacement of Coca-Cola with the New Coke. The changes in marketing strategies vividly explain the three steps in the STP model as Pepsi changed their view on the segment and selected a new target to come up with a modification of a market position.

Conclusion

It can be concluded, therefore, that the model of STP has gained its popularity due to the effectiveness that it has portrayed in the market. The model tends to focus more on customers rather than the products and takes into consideration that "You cannot be everything to everyone." It is important to identify the kind of customers that best suits the business and serve them to the full potential of the business to ensure the success of the business.

References

Cravens, D. W., & Piercy, N. (2006). Strategic marketing (Vol. 7). New York, NY: McGraw Hill.

Treacy, M., & Wiersema, F. D. (1997). The discipline of market leaders: Choose your customers, narrow your focus, dominate your market. Reading, Mass.: Addison-Wesley Publishers. University of Southern California. Segmentation, Targeting, and Positioning. Retrieved at http://www.consumerpsychologist.com/cb_Segmentation.html

Ulwick, A. (2005). What customers want. McGraw-Hill Professional Publishing.