The STP process is an important concept in the study and application of marketing. The STP process demonstrates the links between an overall market and how a company chooses to compete in that market.
STP stands for the 3 main steps: segmentation, targeting, and positioning.
Step 1: Segment your market
Your organization, product or brand can’t be all things to all people. This is why you need to use market segmentation to divide your customers into groups of people with common characteristics and needs. This allows you to tailor your approach to meet each group’s needs cost-effectively, and this gives you a huge advantage over competitors who use a “one size fits all” approach. There are many different ways to segment your target markets. For example, you can use the following approaches:
Demographic Segmentation – By personal attributes such as age, marital status, gender, ethnicity, sexuality, education, or occupation.
Geographic Segmentation – By country, region, state, city, or neighborhood.
Psychographic Segmentation – By personality, risk aversion, values, or lifestyle.
Behavioral Segmentation – By how people use the product, how loyal they are, or the benefits that they are looking for.
Market segmentation is the process of dividing a broad market into sub-groups of consumers (known as segments) based on some type of shared characteristics.
Step 2: Target your best customers
Next, you decide which segments to target by finding the most attractive ones. It can take a lot of effort to target a segment effectively. Choose only one segment to focus on at any one time. There are several factors to consider here.
First, look at the profitability of each segment. Which customer groups contribute most to your bottom line?
Next, analyze the size and potential growth of each customer group. Is it large enough to be worth addressing? Is steady growth possible? And how does it compare with the other segments? (Make sure that you won’t be reducing revenue by shifting your focus to a niche market that’s too small.)
Last, think carefully about how well your organization can service this market. For example, are there any legal, technological or social barriers that could have an impact? Conduct an environmental analysis to understand the opportunities and threats that might affect each segment.
Targeting involves concentrating your marketing efforts on one or a few key segments.
Step 3: Position your offering
In this last step, your goal is to identify how you want to position your product to target the most valuable customer segments. Then, you can select the marketing mix that will be most effective for each of them. According to Michael Treacy and Fred Wiersema, two famous marketing experts, most successful firms fall into one of three categories:
Operationally excellent firms, which maintain a strong competitive advantage by maintaining exceptional efficiency, thus enabling the firm to provide reliable service to the customer at relatively low costs.
Customer intimate firms, which excel in serving the specific needs of the individual customer well. There is less emphasis on efficiency, which is sacrificed for providing more precisely what is wanted by the customer.
Technologically excellent firms, which produce the most advanced products currently available with the latest technology, constantly maintaining leadership in innovation.
Positioning refers to the place that a brand occupies in the mind of the customers and how it is distinguished from products from competitors.