Use the example to applying the STP Model

Step 1: Segment Market

The company’s organization, product or brand can’t be all things to satisfy all people. This is why you need to use market segmentation to divide your customers into groups of people with common characteristics and needs.
There are many different ways to segment the target markets. For example, we can use the following approaches:

Demographic – By personal attributes such as age, marital status, gender, ethnicity, sexuality, education, or occupation.
Geographic – By country, region, state, city, or neighborhood.
Psycho-graphic – By personality, risk aversion, values, or lifestyle.
Behavioral – By how people use the product, how loyal they are, or the benefits that they are looking for.

Example

The Adventure Travel Company is an online travel agency that organizes worldwide adventure vacations. It has split its customers into three segments.
Segment A is made up of young married couples, who are primarily interested in affordable, Eco-friendly vacations in exotic locations. Segment B consists of middle-class families, who want safe, family-friendly vacation packages, it makes easy and fun to travel with children. Segment C comprises upscale retirees, who are looking for stylish and luxurious vacations in well-known locations such as Paris and Rome.

Step 2: Target The Best Customers

Next, you decide which segments to target by finding the most attractive ones. There are several factors to consider here.

First, look at the profitability of each segment. Which customer groups contribute most profit to the company.
Next, analyze the size and potential growth of each customer group.
Last, think carefully about how well your organization can service this market.

Example

The Adventure Travel Company analyzes the profits, revenue and market size of each of its segments. Segment A has profits of $8,220,000, Segment B has profits of $4,360,000, and Segment C has profits of $3,430,000. So, it decides to focus on Segment A, after confirming that the segment size is big enough (it’s estimated to be worth $220,000,000/year.)

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.
First, consider why customers should purchase the product rather than those of the competitors. Do this by identifying your unique selling proposition to understand how each segment perceives your product, brand or service. This will help you determine how best to position your offering.

Next, Create a value proposition that clearly explains how your offering will meet this requirement better than any of the competitors’ products, and then develop a marketing campaign that presents this value proposition in a way that your audience will appreciate.

 

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7 thoughts on “Use the example to applying the STP Model

  1. After analysing the segments is it necessary to go only after the most profitable segment and how shoulld we assess the profitability, what if a segment is profitable but it is already being served better by some other competitor should we still go for the same segment or shoulld we change our focus? with respect to positioning how will a travel agency position its offering or its brand image with its customers?

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  2. Adventure travel agency (ATA) would look at its internal resources and experiences to consider which segment they could serve best, and what initiatives could be directed in achieving a unique selling proposition. If ATA decides to focus on segment A, and there is already a competitor in the market, ATA would need assess the competitor’s branding strategy, identify a strategy unique to the competitor and decide if segment A was worth entering. ATA would compare the likelihood of profitability to the other segments.

    Reference:
    http://www.cultbranding.com/create-strong-brand-positioning-strategy/

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  3. Agree with the two posters above – it’s definitely not as simple as going after the most profitable segment. As well as the considerations outlined above, it’s also important to understand what product or service attributes can be effectively differentiated against competitors, what are hygiene factors and what marketing activity will provide the greatest return on marketing investment; and if targeting more than one of these segment, to be wary of spreading marketing investment too thin, or being so niche in the targeting that you overlook other broader positioning opportunities that may appeal across segment.

    Noting that some segment are more profitable than others may mean that there costs of acquisition are relatively higher, my require more relationship driven selling than mass market activity.

    With reference to @davin306, in the case of service organisations such as travel agents, it is also important to consider the customer service model and ensure that it fits with the positioning strategy (and lines up with the pricing and customer engagement approach). For example, a high touch, high service, customised travel itinerary and 24/7 travel hotline style service with end to end management might be what’s required to tackle the most profitable segment, whereas ATA may be better placed to pursue a low-cost, high-volume model through increased use of online tools. It all depends where the profit is coming from – high margin / high service/ high price or high volume / low margin or somewhere on the spectrum.. and then delivering a point of difference which in itself is enough to disrupt the incumbent (initial promotion, fuelled by word of mouth to grow), or entering the market with a like proposition and being prepared to acquire customers at a premium initially and have deep enough pockets to continue to grow share and retain them.

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  4. A successful organization is aware of the fact that it can sustain in the dynamic marketplace, if it creates value for the customer and for the same they have to follow a customer-driven strategy. Segmentation, Targeting and Positioning is the foundation stone for doing so. Adventure travel understood the idea of customer-centric strategy and tried to follow the strategy but few questions that have also been raised earlier by others, like only the profitability of segment A does not make it the most profitable segment as their might be well-established competitors handling the strata and entry barriers might be too high for theAdventure travels to make a place for itself. Secondly STP as a strategy cannot be used in isolation, the company needs to perform a SWOT analysis to identify that does the company has the resources to fulfill the needs and demands of the identified segment, then only it can choose it as its target market. Therefore, it is not always about choosing the best section but the most feasible section which can match the resources of the company.

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  5. Good Article. Suppose if we change the product and make it like a powder which is suitable for powder coating on MDF(wooden substrate), then how would STP analysis would look like?

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