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Market Segmentation, Targeting, and Positioning (STP) for Competitive Advantage

1. Steps in Segmentation, Targeting, and Positioning (STP)

  1. Identify Bases for Segmenting the Market – Choose criteria for dividing the market.
  2. Develop Profiles of Resulting Segments – Describe different consumer groups.
  3. Develop Measures of Segment Attractiveness – Evaluate market potential.
  4. Select Target Segment(s) – Choose which segment(s) to serve.
  5. Develop Positioning for Each Target Segment – Define brand perception.
  6. Develop Marketing Mix for Each Target Segment – Create tailored strategies.

2. Market Segmentation

Segmentation involves dividing the market into distinct groups of buyers.

Levels of Market Segmentation

  • Mass Marketing – One product for all consumers (e.g., Colgate toothpaste).
  • Segment Marketing – Different products for different segments (e.g., Horlicks for kids & women).
  • Niche Marketing – Focus on a specialized market (e.g., Sensodyne for sensitive teeth).
  • Micromarketing – Individualized marketing (e.g., customized T-shirts).

Bases for Segmenting Consumer Markets

  1. Geographic – Nation, state, city.
  2. Demographic – Age, gender, income, family size.
  3. Psychographic – Lifestyle, personality, social class.
  4. Behavioral – Purchase occasions, benefits sought, usage rate.

3. Segmenting Business Markets

  • Demographics – Industry size, customer type.
  • Operating Characteristics – Technology used, production process.
  • Purchasing Approaches – Decision-making structure.
  • Situational Factors – Urgency of orders, order size.
  • Personal Characteristics – Buyer-seller relationships.

4. Segmenting International Markets

  • Geographic – Regional segmentation.
  • Economic – Income levels, economic stability.
  • Political/Legal – Government regulations.
  • Cultural – Language, values, traditions.
  • Intermarket – Grouping consumers across different countries with similar needs.

5. Effective Segmentation Criteria

  • Measurable – Size and purchasing power can be quantified.
  • Accessible – Can be reached through marketing efforts.
  • Substantial – Large enough to be profitable.
  • Differentiable – Responds uniquely to different marketing strategies.
  • Actionable – Company can serve the segment effectively.

6. Market Targeting

Evaluating Market Segments

  1. Segment Size & Growth – Sales potential, growth rate.
  2. Segment Structural Attractiveness – Competitive landscape, substitutes, power of buyers/suppliers.
  3. Company Objectives & Resources – Fit with firm’s goals and capabilities.

Market Coverage Strategies

  1. Undifferentiated Marketing – Single strategy for the entire market.
  2. Differentiated Marketing – Separate strategies for different segments.
  3. Concentrated Marketing – Focus on one specific niche.

7. Positioning for Competitive Advantage

  • Positioning: How a product is perceived relative to competitors.
  • Example: Volvo positions itself as the “safest car.”

Positioning Strategies

  • Against a Competitor – Directly comparing with competitors.
  • Away from Competitors – Creating a unique market space.
  • Product Attributes – Focusing on key features (e.g., durability).
  • Product Class – Competing with substitutes.
  • Usage Occasions – Promoting specific use cases.
  • Benefits Offered – Emphasizing unique benefits.
  • Target Users – Aligning with consumer identity.

Steps to Effective Positioning

  1. Identify competitive advantages (product, service, personnel, image).
  2. Select the most relevant advantage.
  3. Communicate the chosen position effectively.

Criteria for Selecting Competitive Advantages

  • Important – Provides high value.
  • Distinctive – Unique compared to competitors.
  • Superior – Better than alternatives.
  • Communicable – Easily conveyed to consumers.
  • Preemptive – Difficult to copy.
  • Affordable – Customers are willing to pay.
  • Profitable – Generates sufficient returns.

8. Brand Personality & Consumer Behavior

EXTERNAL FACTORSBLACK BOX (BUYER’S MIND) INTERNAL FACTORSRESPONSES
Marketing MixConsumer CharacteristicsPurchase
ProductBeliefs/AttitudesProduct
PriceValuesBrand
PlaceKnowledgeSource
PromotionMotivesAmount
EnvironmentalPerceptionsMethod of Payment
EconomicLifestyleNo Purchase
TechnologicalDecision-Making Process
PoliticalProblem solving
CulturalInformation search
DemographicAlternate evaluation
SituationalPurchase
Post purchase
Evaluation

1. Brand Personality Dimensions

  • Excitement – Youthful, trendy, playful (e.g., Apple).
  • Sincerity – Thoughtful, family-oriented (e.g., TOMS Shoes).
  • Ruggedness – Outdoorsy, tough (e.g., Harley-Davidson).
  • Competence – Reliable, influential (e.g., Tesla).
  • Sophistication – Luxury, prestige (e.g., Rolex).

2. Learning & Consumer Behavior

Key Components of Learning

  • Drive – Basic needs (e.g., hunger).
  • Stimuli – Marketing elements (e.g., bright advertisements).
  • Cues – Product packaging, design (e.g., sustainable packaging).
  • Reinforcement – Rewards for loyalty (e.g., Starbucks rewards).

9. Five Adopter Categories

Defines how consumers adopt new products over time:

  1. Innovators (2.5%) – First to try new technologies (e.g., self-driving cars).
  2. Early Adopters (13.5%) – Opinion leaders, adopt after initial success.
  3. Early Majority (34%) – Wait for reviews and wider acceptance.
  4. Late Majority (34%) – Adopt only after a product becomes mainstream.
  5. Laggards (16%) – Last to adopt; resistant to change.

Examples:

  • Innovators: Early buyers of Tesla, 3D printers.
  • Early Adopters: People who got Netflix when it was DVD-based.
  • Early Majority: Customers who bought 4K TVs after good reviews.
  • Late Majority: Users who switched to smartphones late.
  • Laggards: People still using feature phones instead of smartphones.

10. Characteristics Affecting Consumer Behavior

1. Cultural Factors

  • Culture: Shared values, beliefs, and traditions influencing purchasing decisions.
  • Subculture: Distinct groups within a culture (e.g., ethnic groups, religious communities).
  • Social Class: Divisions based on income, occupation, education, and wealth.

2. Social Factors

  • Reference Groups: Groups that influence attitudes and behaviors (e.g., friends, celebrities).
  • Family: Family roles and relationships shape buying decisions.
  • Roles & Status: A person’s position in society affects preferences (e.g., executives buying luxury cars).

3. Personal Factors

  • Age & Life Cycle: Different needs at different life stages (e.g., students buying budget products vs. professionals buying premium goods).
  • Occupation: Work-related purchases (e.g., doctors buying medical equipment).
  • Lifestyle: How a person lives (e.g., fitness enthusiasts buy protein supplements).
  • Personality & Self-Concept: Choices reflecting personal identity (e.g., rugged individuals prefer off-road vehicles).

4. Psychological Factors

  • Motivation – Needs driving behavior (Maslow’s hierarchy of needs).
  • Perception – How people interpret information.
  • Learning – Past experiences shaping buying decisions.
  • Beliefs & Attitudes – Formed through experience and influence future purchases.

11. Psychological Factors of Consumer Behavior

1. Motivation (Maslow’s Hierarchy of Needs)

  • Physiological Needs – Basic survival (food, water, shelter).
  • Safety Needs – Security, stability (insurance, healthcare).
  • Social Needs – Love, belonging (social media, fashion).
  • Esteem Needs – Status, recognition (luxury cars, branded clothing).
  • Self-Actualization Needs – Personal growth, fulfillment (travel, education).

2. Perception

How consumers process and interpret information:

  • Selective Attention: Focus only on relevant messages.
  • Selective Distortion: Interpret information to fit preconceptions.
  • Selective Retention: Remember only what aligns with existing beliefs.

12. Types of Buyer Decisions

  1. Contextual Decision Making

    • Purchase is influenced by external factors (e.g., urgency, situational needs).
    • Example: Buying an umbrella during unexpected rain.

  2. Habitual Buying Behavior

    • Low involvement, frequent purchases, minimal research.
    • Example: Buying the same toothpaste regularly.

  3. Dissonance-Reducing Buying Behavior

    • High involvement but few differences between brands.
    • Example: Buying an expensive carpet; buyer worries about making the wrong choice.

  4. Variety-Seeking Buying Behavior

    • Low involvement but significant brand differences.
    • Example: Trying different brands of chips for variety.

13. Buyer Decision Process

  1. Problem Recognition – Realizing a need or want.
  2. Information Search – Gathering options (e.g., online reviews, word-of-mouth).
  3. Evaluation of Alternatives – Comparing features, price, quality.
  4. Purchase Decision – Selecting the best choice.
  5. Post-Purchase Behavior – Satisfaction or regret leading to future loyalty or brand switching.

14. Product Characteristics Affecting Adoption

  1. Relative Advantage – How much better it is than alternatives.
  2. Compatibility – Fit with consumer lifestyle.
  3. Complexity – Ease of use.
  4. Trialability – Ability to test before buying.
  5. Observability – How visible the benefits are.