3 Segmentation, Targeting, and Positioning

The STP process

Marketing strategy often follows three connected decisions: segmentation, targeting, and positioning (STP). Marketers group customers with different needs or responses, choose which groups to serve, and decide how the offering should be understood in customers’ minds relative to alternatives. Together, these decisions guide product, price, promotion, and distribution choices.

The decisions depend on one another: segmentation organizes a diverse market into meaningful groups; targeting selects the groups the firm can serve effectively and profitably; and positioning establishes how the firm wants those customers to understand its offering compared with alternatives.

Segmenting a market

Market segmentation divides a broad market into smaller groups whose members share relevant needs, characteristics, or behaviors and may respond similarly to marketing. Segmentation is useful when it helps the firm make meaningfully different decisions. Labels that do not change what the firm offers or how it reaches customers add little value.

Common bases for segmenting consumer markets include:

• Geographic: Where customers live, such as country, region, climate, or population density. A clothing retailer might emphasize rainwear in wetter regions.

• Demographic: Measurable traits such as age, income, household size, occupation, or life stage. A travel company might design different packages for families and retirees.

• Psychographic: Lifestyles, interests, values, or attitudes. An outdoor brand might focus on customers who value adventure and time in nature.

• Behavioral: Product knowledge, usage, purchase occasions, loyalty, or benefits sought. A coffee shop might distinguish daily customers from occasional visitors and offer different rewards.

These bases can be combined. For example, a firm could identify urban commuters by geography, customers who value convenience by psychographics, and frequent buyers of ready-to-drink coffee by behavior. Strong segmentation reflects meaningful customer differences, not simply the availability of demographic data.

Assessing segment usefulness

A segment is more useful when it meets five criteria, sometimes remembered as ADAMS:

• Accessible: The firm can reach the group through suitable channels at a reasonable cost.

• Differentiable: The group is distinct from other segments and can be served with a distinct marketing approach.

• Actionable: The firm can develop practical programs that influence the segment.

• Measurable: The group’s size, characteristics, and potential can be estimated.

• Substantial: The group is large or valuable enough to justify serving.

These criteria help assess whether identifying a group can support practical marketing decisions.

Choosing target markets

A target market is the segment or segments a firm chooses to serve. To evaluate possible target markets, marketers estimate each segment’s size and potential growth, assess likely profitability and competitive intensity, and consider fit with the organization’s objectives, capabilities, and resources.

A large segment is not automatically attractive. It may be difficult to reach, dominated by strong competitors, or poorly matched to the firm’s strengths.

Market-coverage strategies

Firms commonly use one of four market-coverage strategies:

• Undifferentiated (mass) marketing: Serve a broad market with one basic offer and marketing approach. This may be efficient when customers have similar needs, but it can overlook important differences.

• Differentiated marketing: Serve several segments with tailored offers or marketing programs. This can reach more varied customers but usually requires more resources.

• Concentrated (niche) marketing: Focus on one segment or a small number of segments. A specialist supplier serving professional cyclists is an example. Concentration can build expertise and loyalty, but dependence on a narrow market increases risk.

• Micromarketing: Tailor offerings to local markets or individuals. A retailer might adapt its selection to a neighborhood, while an online service might personalize recommendations. Greater customization can require more data and effort.

The appropriate approach depends on the market and the firm’s resources; serving more segments is not always better.

Developing a position

Positioning is the place a product or brand aims to occupy in target customers’ minds compared with competing options. Effective positioning gives customers a clear reason to consider the offering. It should be credible, relevant to the target market, and supported by what the firm can deliver.

A firm can use head-to-head competition by emphasizing an advantage on attributes customers use to compare direct competitors. Alternatively, it can use differentiation by highlighting a distinctive benefit or experience that attracts customers in a particular market. For example, two meal-delivery services may compete on delivery speed, while another may distinguish itself through specialized menus for a particular dietary need.

Expressing and comparing positions

A positioning statement summarizes the intended position. One useful structure is:

For [target customer], [offering] is the [category or frame of reference] that provides [distinctive benefit] because [reason to believe].

For example: “For busy commuters who want a quick breakfast, Morning Cup is the neighborhood café that serves fresh, portable meals because orders are prepared ahead for pickup.” This statement identifies the intended customer, need, benefit, and supporting capability.

A perceptual map compares how customers view competing offerings on two attributes they consider important, such as price and convenience. It may reveal crowded positions or an apparent gap. A gap is only an opportunity if customers value it and the firm can deliver a credible offer there; a chart alone does not establish demand.

Delivering and checking the position

Positioning must be reflected consistently in the marketing mix. If a brand promises convenience, its product design, ordering process, locations, and communications should reinforce that promise. Firms should check whether customers actually perceive the offering as intended and adjust the strategy when perceptions or market conditions change.

Strong STP decisions rest on meaningful customer differences, a realistic assessment of segment attractiveness and company fit, and a distinctive promise the firm can consistently deliver.