The concepts of Segmentation, Targeting, and Positioning

Introduction 

The concepts of Segmentation, Targeting, and Positioning (STP) are essential aspects of a marketing strategy. Different industries uses STP strategy to achieve their marketing and organizational goals. STP applications differ in service, public, and manufacturing industries, but it is beneficial to all the sectors. Organizations should experiment with different strategies to segmentation, targeting, and positioning to achieve to achieve the desired marketing and organizational goals. 

Marketing professionals use different strategies to convince the target market of the value of the product/ service. Elaborate strategies such as the 4Ps of marketing focus on multidisciplinary concepts of price, place, product, and promotion, and this shows that consumers respond to a compelling mix of different marketing strategies. Aroean & Michaelidou (2013, 74) state that Segmentation, Targeting, and Positioning (STP) are crucial factors in modern marketing. STP has become quite popular such that it is ranked after the infamous SWOT analysis. The popularity of STP is attributed to the changing approaches in marketing whereby the focus has shifted from the product to the customers. STP approach is consistent with the 21st-century philosophy that consumer patterns, including demographics, lifestyle, social and cultural factors influence purchasing decisions. The STP model plays a crucial role in the creation of an effective marketing plan. Marketers who utilize the STP model can deliver personalized and relevant messages for the target audience. 

Theoretical and Conceptual Perspective 

The three concepts of the STP model have different meanings and implications to the marketing plan. The STP model operates in three stages with segmentation as the first step as shown in the conceptual framework below: 

Fig 1: STP Model 

Market segmentation is necessary because the market is made up of diverse customers with different needs and desires. Madeira et al., (2015, 72) describe the segmentation process as the division of markets into groups of potential customers with similar needs or characteristics. Al-Khaled (2014, 1) agrees with the definition given by Madeira et al. According to Al-Khaled (2014) organizations have to identify the segment clearly and means of measuring the size of the segment. The market segment also determines how the market will be accessed through promotion as well as the appropriateness of the segment to the organizational policies and resources. 

The four general bases of market segmentation include: geographic, demographic, psychographic and behavioral. Geographic segmentation is done on the basis of geographical locations. Some businesses meet the needs of customers located in a particular neighborhood, city, or even across the globe. Demographic segmentation involves dividing the target market into various groups by variables such as gender, age, sexual orientation, income, education, marital status, family size, status among other social factors (Madeira et al., 2015, 73). Demographic segmentation is commonly used with different bases of segmentation as it divides the target market into smaller groups. 

Psychographic segmentation entails variables such as personality, lifestyle, and attitude of the target market. A consumer’s lifestyle and personality also affect purchasing decisions. Personality traits such as extroversion, introversion, and aggressiveness can determine the kind of products and services that a consumer will be interested in (Andrews & Shimp, 2017, 18). Lastly, behavioral segmentation is based on individual knowledge about the product and attitude towards the usage of the product. Variables such as the benefits of the product, user status, usage rate, loyalty status, and buyer readiness stage are evaluated using behavioral segmentation. 

The second concept in the STP model is targeting. Targeting is concentrating on one or more target markets for the organization and coming up with strategies for each target market (Klein, 2016, 114). Targeting exploits the opportunities in a particular target market that can be beneficial to the organization. According to Klein (2016, 114), marketers adopted targeting to counter the shortcomings of mass marketing. With the rise of consumerism in the post-World War era, consumers wanted to increase sales by meeting the unique needs of each target market unlike in the past when they utilize homogenous strategies. The three approaches to targeting include differentiated, concentrated and orchestrated targeting. In differentiated targeting, the organization choose two or more market segments and creates specific marketing campaigns that appeal to the different market segments. For example, a Coca-Cola advert used for the US market is different from a Coca-Cola advert for the Asian market. In undifferentiated targeting, the organization adopts a mass marketing approach by using the same promotional message for the different target markets. Undifferentiated targeting works when the organization produces readily available products that are readily available and have value to all consumers. Concentrated targeting requires a high degree of focus as the organization will create marketing campaigns for a particular target market. For example, an apparel manufacturer can market a certain product to teenage girls by creating a marketing campaign targeting teenagers. 

Positioning is the last concept for the STP model. The positioning strategy will only be successful once the organization has successfully implemented the market segmentation and targeting stages (Kotler & Armstrong, 2008, p. 268). Positioning is a term used to define the placement of the product in a target market in comparison to competing products. Product positioning is not about the quality or features of the product; rather it is how the target market perceives the product. 

Application of the STP Model across Different Industries 

As from the definition of the three components of the STP model, it is apparent that organizations apply STP when marketing their products. The organization plans for the three elements of the STP model independently and in unison since the three factors affect each other. Through segmentation, the organization identifies niches with specific needs (Pyo, 2015. 257). In the targeting stage, marketers focus on the requirements of the particular target market/s, and lastly, in the positioning phase, the marketers attempt to give the product a unique selling proposition by differentiating it from the competition. 

Businesses use segmentation and targeting because they are not in a position to meet the needs of all customers all the time. Customers do not have identical tastes and preferences, and small differences among products and services can make a difference. For example, fast-food restaurants serve almost the same food and yet consumers prefer specific fast-food chain over the others because of the small differences in products and service delivery. 

Using the example of the fast food sector which is a part of the food industry. The food industry is a highly profitable sector that employs the four bases of segmentation to appeal to different customers. Full-service restaurants such as Landry’s target a different target market in comparison to quick service restaurants such as McDonald’s and Subway. According to Calvo-Porral (2018, 276), the standard bases for segmentation in the restaurant industry is location, price, cuisine and product line. A full-service restaurant like Landry’s offers many products in comparison to quick service restaurants or cuisine restaurants. Fast food chains such as McDonald's tend to have branches across the US and around the world because it does not limit its target market by location. Price variable that influences demographic segmentation in the food industry. Fast-food chains that have many branches in the US and across the world tend to charge less in comparison to full-service restaurants that target specific target market. 

The U.S. food industry is highly segmented, and yet each restaurant also uses STP model to identify the characteristics of its target market. McDonald’s uses geographical, demographic, behavioral and psychographic segmentation (Dudoskiy, 2016). McDonald’s uses geographic segmentation to identify regions to open new branches and the density based on the attractiveness of the location. Demographic factors such as age, gender, income, and occupation also affect segmentation. McDonald’s target both genders and a broad age group of 4-45. Most McDonald’s customers are from low and middle income. Behavioral segmentation focuses on the degree of loyalty of the target market and the benefits they seek from the organization. Most McDonald’s customers are loyal because of the variety and affordable meals. Psychographic factors entail social class and lifestyle of the target market. Other marketing researchers do not agree with Dudoskiy (2016) with Balaji et al. (2016) claiming that McDonald's only uses demographic segmentation strategy with age as the main criteria. 

Targeting is a more focused approach to segmentation. McDonald’s plan to targeting focuses on meeting the needs of the target markets established in the segmentation stage. Below is a diagram on McDonald’s targeting strategy based on Dudovskiy’s (2016) segmentation model: 

Fig 2: McDonald’s Targeting Strategy 

McDonald’s manipulate the different aspects of the marketing mix to create a desirable position in the market. McDonald’s uses strategic prices in convenient places and different promotional strategies to appeal to the target market. According to Dudoskiy (2016), McDonald’s uses an adaptive type of product positioning where it is continually adjusting products, prices and promotional strategies as per the needs of the target market. 

Two suppliers- Apple and Samsung dominate the smartphone industry. Apple is a U.S. company whereas Samsung is a Chinese smartphone manufacturer, both of them are competing for the global market (Samuelson, 2017, 27). Apple segmentation is based on variables of geography, behavior, and demographics and psychographics. Apple products can be accessed across the world just like Samsung products. Apple enjoys a market dominance in the U.S., and it is in the process of expanding its global market share. According to Reisinger (2018) by the end of 2017, Samsung had a 21.9% market share; it shipped over 310 million units in that period while Apple secured 15.2% of the global market share. 

Apple and Samsung target the same market; thus they use the STP model to create a competitive advantage. Apple targets a global market, both men and women within the age groups of 13 to 60 as long as they can afford Apple products. The difference between Apple and Samsung lies in the demographic bases of segmentation. Apple targets modern consumers with high and middle income who do not mind spending a lot of money on the latest brands. Given the way Apple has positioned itself in the market, the typical Apple customer is a hardcore loyalist (once an Apple user, always an Apple user). On the other hand, Samsung manufacturers variety of gadgets spanning all budget levels. High-end Samsung products such as Galaxy S8 cost approximately $750 making it a notable competitor for iPhone (Reisinger, 2018). Low-end Galaxy J series go for as low as $150 making Samsung attractive to a broader customer base. Brand loyalty is not high among Samsung users which is why Samsung creates a variety of products to attract customers. Samsung and Apple use different positioning strategies. Apple has positioned itself as an innovative smartphone manufacturer with distinctive and superior products. Apple uses emotional appeal by branding its products as unique. On the other hand, Samsung has positioned itself as an adaptive manufacturer; it produces a wide range of smartphones to meet the diverse needs of the market. 

The STP model is not only used in the private sector. Nichols (2014, 3) states that the STP model is also used in the public sector. Public sector organizations are differentiated according to size, complexity, and purpose. For example, a labor union is a public organization representing a group of workers. The labor union is often segmented according to by location and a host of demographic factors such as age, occupation, and education. For example, the American Federation of Teachers is an affiliate of the AFL-CIO representing more than 1.7 million members across the US. This is a national labor union, but there are other unions such as New York Iron Workers Union targeting ironworkers within New York. 

The public sector is highly segmented as seen in the three branches of the government, ministries and the many government agencies that meet specific needs. The federal government works for hand in hand with the state governments that provide services to U.S. citizens within particular locations. The state governments have many departments such as the department of labor, finance, and social services that meet specific needs for the public sector. 

Analysis 

The previous section shows that many organizations across different sectors utilize STP. Organizations use the STP model to guide the planning and implementation of the marketing mix. STP model demonstrates the effects of the market on organizational activities. The organization cannot produce products/ services without an idea of the market segment, specific target markets, and how to appeal to the target markets. According to Diamantopoulos et al. (2014, 41), a market worth targeting should be sizeable enough to enable the organization to make a profit. The target market should be a growing market; which explains why most businesses are now targeting the global market. The market should not be swamped with competition, and if it is highly competitive, the organization has to find a way to differentiate itself from the competitors. 

Benefits to Organization and Consumers 

STP model is beneficial to both the organization and customers. By segmenting the market, the organization can have a better understanding of the customer needs. The organization will then customize their products/ services and marketing activities to respond to customer needs (Schlegelmich, 2016, 71). Segmentation makes it easy to plan marketing activities and protect the organization from making costly marketing campaigns that will not resonate with their customers. 

Secondly, STP enables the organization to evaluate competitors. Segmentation and targeting make it possible to identify all the competitors in each segment so that the organization can strategize how to gain a competitive advantage. The organization will analyze the strengths and weaknesses of the competitor in a particular segment and use it to generate business opportunities. 

Lastly, STP enables the marketers in creating a systematic marketing plan. The STP model begins with segmentation and targeting of the market leading to efficient utilization of marketing resources (Robson et al., 2013, 219). Marketers use STP to fine-tune their marketing strategies and promotional activities to appeal to the target market. STP model is also beneficial to customers. STP enable organizations to establish life-long relationships with customers through the way they position themselves in the market. Using the example of Apple, the organization enjoys loyalty from customers because it continues to deliver innovative and unique products in comparison to the competition. Segmentation and targeting put organizations in a better position to meet customer needs; thus both the organization and consumers will benefit. Segmenting, targeting and positioning implies that organizations will not communicate the same message to consumers, even when they are offering the same product/ service (Hooley et al., 2012 p183). Customers have the option to choose a product or a service that is better positioned to meet their needs, and if it fails, customers will move on to the next best alternative. 

Despite the many benefits of segmentation and targeting, organizations have to be aware of the shortcomings of STP. Market segmentation can limit the organization’s approach of interacting with the target consumers and sometimes it can make businesses miss out on potential customers because they do not fit to the identified segments. Critics of the STP model have raised concerns concerning the objectivity of the quantitative survey and analysis used for market segmentation. While quantitative studies are objective, they might not reflect on the needs of the entire market segment. 

Recommendations 

Given the benefits of STP, organizations have to adopt the best strategies when using the STP model. Organizations should take advantage of modern technology and big data to have a more definite look of the market. Organizations should not rely on inadequate or secondary data to access relevant information about a market segment. Modern technologies such as social media and superior forms of CRM can help businesses understand customers better (Smadescu, 2013, 4). Additionally, technology provides a two-way flow of information between customers and organization, enabling the organizations to access new sets of customer behaviors and expectations so that organizations can meet the specific needs of customers as suggested by the customers. 

From the different examples of market segmentation and targeting, the markets are broadly segmented, but it is not segmented to support all the narrow differences. Using the case of the hotel industry, the market is segmented into luxurious and economy brands, but the luxurious and economic segments can be segmented further. Organizations should not be afraid to enter certain markets because there are enough players; instead, the organization should create a product subtype that will appeal to customers within a particular segment. The success of modern companies such as Uber and AirBnB show how creative organizations have entered competitive markets by segmenting them further to identify opportunities for growth. Research shows that most markets are mature and stable, but businesses should not assume that there are no opportunities for further segmenting and targeting. 

Lastly, organizations should evaluate their STP process. While market segmentation is beneficial to the organization, most businesses do not take the next step to determine whether the chosen segment and target markets are helping the organizations achieve its marketing goals (Tanner & Raymond, 2015, 98). Organizations should engage in continuous segment market evaluation to evaluate its ability to meet consumer needs if not, the organization has the choice to change its positioning strategy or its approach to targeting. 

Conclusion 

It is impossible to meet the needs of all customers; thus organizations use target marketing to select a specific part of the market which they can serve best. Businesses use segmentation to classify the market by location, demographic, behavioral and psychographic factors. Segmentation identifies customer groups with similar characteristics while targeting unearths the features of each market segment. Segmenting and targeting enable the organization to come up with the most appealing positioning strategy that will be attractive to the target market. The STP model is beneficial to the organization and customers. The model divides the market into smaller groups of individuals with similar needs enabling the firm to concentrate on meeting the needs of the specific group. The firm benefits from customer loyalty and profitability, while consumers enjoy products/ services that meet their unique needs and desires. 

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