Marketing 004: STP Framework

The STP Framework stands for Segmentation, Targeting and Positioning. Each subsequent activity will build on the foundation laid by the previous activity.

The first step is to perform market segmentation. As highlighted in Market Leadership, a business which only delivers fair value in all aspect will eventually be eliminated in a competitive market. Therefore, segmentation is important to help businesses understand what different customers truly want, so that businesses will deliver genuine value through their products and services with a unique Market Mix (the 4 P’s).


Segmentation

Divides the market into distinct subsets, so that a particular segment can be targeted. There are many ways to divide the market, for example using:

  • Characteristics of the customers – this includes demographics, gender, income level, etc.
  • Preferences of the customers – this is a more product oriented approach, by looking at the different benefits that customers look out for in a product, and segment the customers accordingly.
  • Method of purchase – the way customers like to purchase divides the market into different groups.

There can also be a combination of all the above, such as cohort analysis, to divide the market into Baby Boomers, Gen Y and Millennials, each with some distinct product preferences. Segmentation by geography may also reveal distinct preferences in methods of purchase.


Targeting

After the market has been divided into segments, target the specific segment(s) that is the most attractive to the business. Points to consider when targeting a segment includes:

  • Potential of segment – the size of the market, future growth, spending patterns and stability.
  • Business capabilities – how well the business is currently able to meet the needs of the segment, what needs to be improved, and how easy to achieve.
  • Market competition – number of competitors targeting the same segment, potential new competitors, strength of competitors. Businesses will want to pick the segment which allows them to have the most differential advantage over the competition.

Eventually, a business will be able to rank all segments according to attractiveness, and pick a few of the most attractive segments to target.


Positioning

Positioning your product to meet the needs of the target segment. This course focused on positioning the brand to deliver what the customer wants.

A brand is essentially what the customer perceives of the brand, therefore a company can work very hard to shape a brand, but ultimately it is what the customer thinks that determines the brand.

Every brand has a positioning statement that ideally indicates the position clearly. It should contain 3 components,

  1. Target segment – who are the customers?
  2. Point of difference – what is the unique value that the business is delivering to the customers?
  3. Frame of reference – who are the competitors that the business is trying to differentiate from?

Take for example one of the game company that rise to success over the past 6 years, Riot Games. The first line from their website states:

“We aspire to be the most player-focused game company in the world.”Riot Games

We can see that game players are the target segment, the point of difference is to be the most player-focused company, that focus on experience, and lastly, the frame of reference is the other game companies in the world.

A noteworthy point to make: every brand should focus on only one or a few unique selling point, as trying to be good at everything will end up with nothing due to the lack of focus, and it is also difficult for customers to associate strong and unique characteristic with your brand. A point of difference must be the most important aspect of your business and what the customers truly want.

Frame of references are defined by points of parity. These points are common characteristics that associate with all competitors and defines the business or industry. One strategy that companies can adopt is to negate other companies’ points of difference by adopting them and making it the point of parity.

Just like how touchscreen technology had revolutionised the mobile phone market, it eventually became a point of parity that defines smartphones and are common among all competing producers.

(Reference: Coursera Wharton Online Introduction to Marketing)

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