STP: Segmentation, Targeting, Positioning & Bases

4.1 Introduction to the STP Process

In a competitive market, it is impossible to appeal to everyone with a single message. The STP process (Segmentation, Targeting, and Positioning) is the strategic framework marketers use to identify, select, and serve specific customer groups.

The process follows a logical flow:

1. Segmentation: Dividing the broad market into smaller, distinct groups of buyers who have different needs, characteristics, or behaviors.
2. Targeting: Evaluating the attractiveness of each segment and selecting one or more segments to enter.
3. Positioning: Developing a unique marketing mix and brand image for the target segment to occupy a distinct place in the consumer's mind.

flowchart TD
    A["Total Market"] --> B{"Segmentation"}
    B --> C["Segment A"]
    B --> D["Segment B"]
    B --> E["Segment C"]
    C --> F{"Targeting: Evaluate Attractiveness"}
    D --> F
    E --> F
    F --> G["Selected Target Segment"]
    G --> H["Positioning: Define Unique Value Proposition"]
    H --> I["Marketing Mix (4Ps)"]

4.2 Market Segmentation

Segmentation is the process of dividing a market into subgroups of buyers who have common needs or characteristics and who might require separate products or marketing programs.

Bases of Segmentation

Marketers use four primary bases to segment markets:

1. Geographic Segmentation: Dividing the market into different geographical units such as nations, states, regions, cities, or neighborhoods.
   • Example: Ncell offering different data packages for Kathmandu Valley vs. Terai regions due to infrastructure differences.
2. Demographic Segmentation: Dividing the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, and nationality. This is the most popular basis because needs and wants are closely related to these variables.
   • Example: Banks targeting young professionals (age 25-35) with credit cards and savings accounts, while targeting retirees (age 60+) with fixed deposits.
3. Psychographic Segmentation: Dividing buyers into groups based on social class, lifestyle, or personality characteristics.
   • Example: Himalayan Java targeting customers who value "lifestyle," "community," and "premium coffee experience" rather than just caffeine.
4. Behavioral Segmentation: Dividing buyers into groups based on their knowledge, attitudes, uses, or responses to a product. This is often considered the best starting point for developing segments.
   • Variables: Occasions, benefits sought, user status, readiness stage, user rate, and loyalty status.
   • Example: Daraz segmenting users into "deal hunters" (buy only during 11.11 sales) vs. "regular shoppers" (buy weekly).

Criteria for Effective Segmentation

Not all segments are useful. A valid segment must meet the MASDA criteria:

4.3 Market Targeting

After identifying segments, the firm must decide how many segments to serve and which ones. This involves evaluating segment attractiveness and selecting the target market.

Evaluating Segment Attractiveness

Firms evaluate segments based on:

1. Segment Size and Growth: Is the market large? Is it growing?
2. Structural Attractiveness: Are there many competitors? Is there power in buyers? Are there substitutes? (Porter’s Five Forces).
3. Company Objectives and Resources: Does the segment fit the company’s long-term goals? Do we have the resources to serve it?

Targeting Strategies

There are five common strategies for targeting:

1. Undifferentiated (Mass) Marketing: Ignoring segment differences and going after the whole market with one offer.
   • Pros: Lower costs (production, distribution, promotion).
   • Cons: Ignores individual needs; risky if competitors target specific segments.
   • Example: Early Coca-Cola marketing (one taste, one price, one message).
2. Differentiated (Segmented) Marketing: Deciding to target several market segments and designing separate offers for each.
   • Pros: Higher sales; better customer satisfaction; reduces risk.
   • Cons: Higher costs (production, inventory, promotion).
   • Example: Toyota selling the Corolla (economy), Camry (mid-range), and Land Cruiser (luxury) in Nepal.
3. Concentrated (Niche) Marketing: Focusing on a large share of one or a few smaller segments (niches).
   • Pros: Can become dominant in the niche; specialized expertise.
   • Cons: Niche may shrink or be taken over by larger competitors.
   • Example: A local bakery in Lalitpur specializing only in gluten-free cakes for health-conscious customers.
4. Micromarketing: Tailoring products and marketing programs to the needs and wants of individual customers and local customer segments.
   • Custom Marketing: Tailoring to individual customers (e.g., custom-made suits).
   • Local Marketing: Tailoring to local neighborhoods (e.g., a restaurant in Thamel catering to tourists vs. a restaurant in New Road catering to locals).
5. Individual (One-to-One) Marketing: Tailoring products and marketing programs to the needs and wants of individual customers and local customer segments.
   • Example: Netflix recommending specific movies based on your viewing history.

mindmap
  root((Targeting Strategies))
    Undifferentiated
      Mass Market
      Low Cost
    Differentiated
      Multiple Segments
      Higher Cost
    Concentrated
      Niche Market
      High Share
    Micromarketing
      Custom
      Local
    Individual
      One-to-One
      Personalized

4.4 Market Positioning

Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the mind of the target market. The goal is to plant a unique position in the customer’s mind.

The Positioning Statement

A positioning statement is a concise description of the target market, the product’s unique value, and the reason to believe.

Formula: For [Target Segment], [Brand] is the [Frame of Reference] that [Point of Difference] because [Reason to Believe].

• Example: For health-conscious young professionals in Kathmandu, Himalayan Java is the premium coffee shop that offers locally sourced, ethically traded coffee because we partner directly with Nepali farmers.

Perceptual Mapping

Perceptual maps (or positioning maps) are visual tools that show how consumers perceive different brands relative to each other on two key attributes.

Worked Example: Smartphone Market in Nepal

Let’s map smartphones based on Price (Low to High) and Brand Prestige (Low to High).

• Interpretation:
  • Apple is positioned in the top-right: High Price, High Prestige.
  • Xiaomi is positioned in the center-left: Moderate Price, Moderate Prestige (Value for Money).
  • Local Unbranded is in the bottom-left: Low Price, Low Prestige.
  • Strategy: If a new brand enters, it should find an "empty space." For example, a brand could position itself as "High Prestige, Moderate Price" (top-center), which is currently less crowded.

Steps in Positioning

1. Identify Potential Competitive Advantages: What can we do better than competitors? (e.g., better service, lower price, unique feature).
2. Choose the Right Competitive Advantage: Select the one that is most important to the target segment.
3. Decide on the Overall Position: Define the unique value proposition.
4. Communicate and Maintain the Desired Position: Ensure all marketing mix elements (product, price, place, promotion) support this position.

In the real world

1. Daraz (E-commerce in Nepal): Daraz uses Behavioral Segmentation and Differentiated Targeting. They segment users into "New Users," "Loyal Buyers," and "Lapsed Users."
   • How it works: New users get a "First Order Discount" (Targeting: Acquisition). Loyal users get "Daraz Gold" status with free shipping (Targeting: Retention). This is a clear example of differentiated marketing where the offer changes based on the segment.
2. Nabil Bank (Banking in Nepal): Nabil Bank uses Psychographic and Demographic Segmentation for its "Nabil One" account.
   • How it works: They target young, tech-savvy professionals (Demographic: Age 20-35; Psychographic: Digital-first lifestyle). The positioning is "The Bank for the Digital Age." They offer a mobile-first app, zero maintenance fees for digital transactions, and cashback on online purchases. This positions them distinctly from traditional banks that focus on branch-based service.
3. Toyota (Global/Local Auto): Toyota uses Differentiated Targeting in Nepal.
   • How it works: They do not just sell "cars." They segment the market into:
     • Economy/Utility: Toyota Vitz (Target: First-time buyers, families).
     • SUV/Off-Road: Toyota Fortuner (Target: Business owners, rugged terrain users).
     • Luxury: Toyota Land Cruiser (Target: High-net-worth individuals, status seekers).
   • Each segment has a different price point, marketing message, and dealer experience.

Case Study: Himalayan Java’s STP Strategy

Company: Himalayan Java (Coffee Chain in Nepal)

1. Segmentation:

• Geographic: Urban centers (Kathmandu, Pokhara, Chitwan) where disposable income is higher.
• Demographic: Age 18-40, middle to upper-middle class, students and young professionals.
• Psychographic: Values "experience," "community," "social media presence," and "premium quality." They are not just buying coffee; they are buying a "third place" (not home, not office).

2. Targeting:

• Strategy: Concentrated (Niche) Marketing initially, expanding to Differentiated.
• Target: The "Urban Hipster" and "Young Professional" segments. They are willing to pay a premium for ambiance and brand identity.

3. Positioning:

• Positioning Statement: For urban young professionals and students in Nepal, Himalayan Java is the premium coffee experience that offers a vibrant community space and ethically sourced local coffee because we combine global coffee standards with Nepali hospitality and sustainability.
• Visual Positioning: On a Perceptual Map of "Coffee Price" vs. "Ambiance/Experience," Himalayan Java is positioned in the High Price, High Experience quadrant, distinct from local tea shops (Low Price, Low Experience) and fast-food chains (Medium Price, Medium Experience).

flowchart LR
    A["Himalayan Java"] --> B["Segmentation: Urban, Young, Psychographic"]
    B --> C["Targeting: Niche 'Urban Hipster'"]
    C --> D["Positioning: Premium Experience + Local Ethics"]
    D --> E["Marketing Mix: High Price, Premium Stores, Social Media"]

Comparison: Undifferentiated vs. Differentiated vs. Concentrated

Exam tip

• Definition Precision: In TU exams, clearly distinguish between Segmentation (dividing the market) and Targeting (selecting the segment). Do not confuse them.
• MASDA Criteria: Always list the 5 criteria (Measurable, Accessible, Substantial, Differentiable, Actionable) when asked about "effective segmentation."
• Perceptual Maps: Be prepared to draw a simple 2-axis graph. Label the axes (e.g., Price vs. Quality) and place 3-4 brands. Explain what the position implies.
• Real-World Examples: Examiners love local examples. Use Ncell, Daraz, or Himalayan Java to illustrate STP. For example, "Daraz uses behavioral segmentation to target deal hunters during 11.11 sales."
• Positioning Statement: Practice writing a positioning statement using the formula: For [Target], [Brand] is the [Frame] that [Difference] because [Reason].
• Common Mistake: Do not say "Segmentation is choosing the best market." That is Targeting. Segmentation is identifying the markets.