Framework library · Marketing strategy
STP: segmentation, targeting and positioning
STP is the sequence behind most marketing strategy. It divides the market into segments whose needs and buying behaviour differ, chooses the few where the business can win something worth having, then positions the offer for those segments against the alternative they would otherwise choose. Each step narrows the one before, so a weak segmentation cannot be rescued by clever positioning.
Use it when
- You are entering a market and need to decide which customers to serve first.
- Growth has stalled because the offer is aimed at everyone and wins nobody in particular.
- Sales, marketing and product describe the customer differently and need one shared definition.
- You are about to write a positioning statement or a campaign brief and the target has not been agreed.
Avoid it when
- The market is small or uniform. Serving it as one segment is a legitimate choice, and splitting it adds cost without insight.
- You have no data on how customers differ. Run interviews or a jobs-to-be-done study first. Segments invented in a workshop tend to be labels that do not predict buying.
- The decision is which products to fund across a portfolio. Use the GE-McKinsey nine-box matrix or the BCG matrix for that.
How to run it
Segment by what drives buying
Group customers by need, use and how they choose, not only by size or sector. A good segment buys differently from its neighbours and can be found and reached as a group.
Size each segment
Estimate the annual revenue pool you could address in each, from data where it exists. Note the source in the needs column.
Score the market and your ability to win
Size and growth describe the segment; fit and reach describe you. Attractiveness multiplies the two averages, so a large segment you cannot reach scores low.
Choose one or two primary targets
Targeting is mostly deciding what not to serve. More than two primary targets usually means no choice has been made.
Write the positioning for the first target
Name the customer, their need, the category they will compare you in, the main benefit, the alternative they would otherwise choose, and the reasons to believe it.
Test the positioning with customers
Show the statement, or a draft offer built on it, to people in the segment. If they cannot repeat the benefit back, rewrite it.
Work through it
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Mistakes to avoid
- Segmenting by sector or company size alone. Two hospitals can buy as differently as a hospital and a hotel.
- Choosing segments for their size and ignoring whether you can reach them. The largest segment is usually the most contested.
- Positioning against your own view of the competition rather than the alternative the customer would actually choose, which is often doing nothing.
- Writing a positioning statement that any competitor could sign. If a rival could use it unchanged, it is not a position.
Where it comes from
Wendell R. Smith introduced market segmentation as a strategy in "Product Differentiation and Market Segmentation as Alternative Marketing Strategies", Journal of Marketing 21(1), July 1956. The sequence of segmentation, targeting and positioning was popularised by successive editions of Philip Kotler's Marketing Management, first published in 1967, and Al Ries and Jack Trout made positioning a common term with "The Positioning Era Cometh", Advertising Age, 1972. Source.
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