The STP model refers to segmentation, targeting, and positioning. The use of STP is central to the marketing function and is used to divide markets before developing strategies and allocating resources to reach individuals in those markets. This process has become more necessary because of the increasing diversity of customer preferences and the ability to reach niche segments through technology.
At its core, market segmentation, targeting, and positioning refer to the process of identifying all potential consumers, choosing a sub-set of those the consumers to pursue, and communicating the product and/or service’s value proposition to those consumers. The goal is to increase the likelihood that a group of consumers will respond favorably to the product/service and communications of your company. There is a considerable amount of decision making that goes into this process, so what is presented here is an overview discussion.
The first step of the STP process is market segmentation which entail dividing a market into smaller sub-groups with similar needs and wants. This is imperative in todays cluttered marketplace where there are thousands of products and services all vying for the consumers attention and financial resources. There is no company with the human capital and monetary resources to sell to an entire market. Thus, companies segment the market to concentrate their resources, money, time and effort on a sub-group that they feel will be profitable to them.
The goals of the segmentation process are to maximize the likelihood that all members of a sub-group are very similar (i.e., homogeneity) and to maximize the likelihood that members of different sub-groups are very dissimilar (i.e., heterogeneity) on specific criteria and/or traits. Market segmentation is not an exact science. In fact, there may be situations where certain segmentation structures do not result in actionable segments. If this is the case, it may be necessary to rethink the criteria you used for segmentation. In some situation it may be necessary to add or remove certain criteria in an iterative manner to find the best fit for the market under consideration.
To begin the segmentation process, it is useful to ask the following questions:
Who?
Who needs the product or service? Are men, women, or both likely to benefit from my product or service? What age category is my product or service most appropriate for? Who can afford to buy my product or service?
What?
What do they do with the product or service? Is it for public or private consumption?
When?
When do they need the product or service? When do they use the product or service? Is the product or service used in the morning, afternoon, or night?
Where?
Where do they use the product or service? Is the product or service for home or office use? Is there a specific area of the home or office that the product or service is used?
Why?
Why do they want the product or service? Do they only need the benefit from the product or service? Does the product or service convey status?
How?
How do they use the product/service? Is the product or service used by itself or is it used in conjunction with other products or services?
Although this is not an exhaustive set of probing questions, answers to these questions can help you deciding the most useful way to segment your market.