There’s one very particular process in every marketing campaign that can make or break a company. Enter segmentation, targeting and positioning.
It’s a crucial decision and if done poorly, you’ll spend millions paying for advertising or executing growth hacks trying to get some sales. But the ugly truth is, there’s no way to get out of that hole.
If you’re like me, you kinda don’t want that. So, I’ll tell you how to nail it in a minute, but first things first.
The STP marketing in model is one of the greatest, if not the greatest, framework to create purposeful marketing strategies. Not only that, but it serves to effectively connect troubled people with products that truly solve those problems for them.
“Well, Victor. Isn’t that the whole point of marketing?” Indeed, my friend, but not all marketing is done right.
If you follow the steps and principles detailed below, you’ll be connecting your product’s core value with your customers in no time! And, you’ll save yourself some of the pain along the way.
What is Segmentation, Targeting and Positioning?
The Segmentation, Targeting and Positioning model (or STP model) is really just a way to identify the potential customers for your product. Then selecting the group that seems more attractive to go after. And finally, it’s all about crafting a value proposition and a brand identity that connects with that group of customers on a deeper level.
It’s of utter importance to get this right before you start implementing growth marketing tactics, for it will make their effectiveness exponential!
First things first. Segmenting your market means separating and classifying your potential universe of customers based on shared characteristics.
Some segmentation methods include:
- Demographics — This classifies users based on physical and factual criteria such as age, ethnicity, income, education, profession, city. It’s usually one of the most basic types of segmentation.
- Firmographics — Quite similar to demographics but for B2B companies. This takes into account revenue, headcount, type of expenses, industry, location, financial soundness, type of business, etc.
- Behavioral — Although usually confused with psychographics, this one refers to behavior performed with your business or any of its assets. Things like the type of product they buy, how frequently they come to your website, even things like time on site or completion of certain “goals”.
- Psychographics — This describes mindset-related attributes. Things like beliefs and values, priorities, personality traits, lifestyle, hobbies, activities, opinions, etc.
- Needs-based — Some brands prefer to segment customers based on specific needs. This is also known as jobs to be done. Different customers might be trying to achieve a particular task or fulfill a need by using (or not using) your product. This is quite a sophisticated approach and may need some hard, first-hand data to be able to pull off.
A word of caution here. Humans are complex. By now, you may have realized that segmentation can be quite simplistic.
It won’t be practical to use just one type of segmentation. In many cases, you’ll need to combine these in creative ways to come up with your own segments, and in other cases, you can create a matrix to identify specific intersection points between two or more methods.
Targeting is nothing more than deciding upon which segment to go after (first).
There are many things to consider. And honestly, I’ve seen that there’s a quick iteration and research process that goes back and forth between Targeting and the last step, Positioning. But I’ll talk about that in a minute.
The key to a great go-to-market plan is properly targeting a promising segment based on research and then committing to executing. This doesn’t mean that you’re not open to learning along the way, but that you’re focused on solving the needs of a specific segment.
There are several factors to consider before committing to a target market. You should research as many of these for all of your potential segments:
- Market size and volume
- Market purchase power; also known as “should I go after volume or margin?”
- Demand Analysis
- Growth (or decay) of say segment
- Psychology and cultural behaviors of that segment
- Your very own company quirks
Then, mix it up with some intuition and BOOM! There’s your target market.
Targeting, similar to keyword research in SEO and dating, the most attractive ones are usually already taken. This means that your targeting research will tell you which segments are the most attractive, but not necessarily the most underserved.
This is where positioning comes in. Once you map out the entire range of competitors based on the variables that customers care about, you’ll see a correlation between attractive segments and the most competitive ones.
Positioning is then part art, part science. There are two ways in which you can go about it:
- Identify a gap in the market and serve it
- Create your own “category” from scratch
For instance, you could easily position a product based on pricing if you see your competitors tend to cluster around a market average. This means you can offer something very cheaply, thus targeting a broader public — earning by volume rather than margins. Or you could go ultra-high price and sell just a couple of units but at a really large margin per sale.
However, if your product and market are highly commoditized or there are low barriers of entry, it’s better to create something from scratch. You read that right, a new category for a regular seemingly product.
And while this sounds overly complex, it’s just a matter of well-crafted storytelling, proper communication and coherent brand actions — aka, walk the talk.
Positioning, done right, feels like magic. It feels like creating something from nothing, but it’s truly just appealing to people’s desires through specificity.
We’ll dive right into an example in a minute.
The Importance of STP in Marketing
“He who talks to everyone communicates with no one.”
There are four main reasons why it is a good idea to engage in a process of segmentation, targeting and positioning as a startup. These are the following:
1. Market Domination:
Borrowing an analogy from Crossing the Chasm; think about STP as a military strategy:
As a war general, would you send 1,000 soldiers to 1,000 different cities aiming to conquer them all at once? Or would you rather send those 1,000 soldiers to a limited area? You know, just to make sure you completely secure that beachhead and use it as barracks to start conquering neighboring cities, perhaps?
I might have seen too many Tarantino movies, but the latter is usually a much more effective approach.
So yes, go all-in with all your horsepower into a single segment and then start expanding to tangential segments gradually. This is especially powerful because of the compounded interest from previously conquered segments.
2. Differentiation from competitors
Have you ever seen regular products turn into completely new categories just because a marketer said so? Red Bull, EightSleep, Liquid Death and Allbirds are all guilty of that.
Think about it, they sell high-end technology mattresses, branded canned water and comfortable shoes. Yes, some of these might have proper innovation and distinctive features, but fundamentally they’re competing in a market where people are already being served.
How then did they manage to enter a market that initially looks so competitive? Think about it. How do you even dare to compete with water companies? WATER COMPANIES?!
Well, they managed to do it by using an STP model that reached a specific set of consumers who identified with the brand.
3. Decreased CAC
Yes. If you send soldiers to many cities at once, that’s definitely costlier than sending them all to the same city. If you spread your resources so widely, you’re spreading too thinly and this is ineffective.
You may initially get cheaper Cost Per Click (CPC), Cost Per Thousdand Impressions (CPM), and other performance marketing metrics. But again, initially.
Once you realize you’re not getting the leads that you’ll ideally serve, you will feel it. Eventually.
4. Prioritization of features
If you’re starting a company with limited resources to sell diapers for babies and for older adults, how do you expect to serve both of their needs?
Different customer segments have different needs. You’ll need to allocate capital and time resources to meet these, and if you try to keep everyone happy at the same time, guess what’ll happen?
You won’t be able to keep the sh*t together. Literally.
Segmentation, Targeting and Positioning Example (Clubhouse Story👋)
It was the very first time I had read about this new app.
“What happens in Clubhouse stays in Clubhouse,” read the Griffin Johnson tweet. I actually had no idea who he was and what he was talking about, but there were too many likes from my friends to ignore it.
As usual, I put the bag of Cheetos down and proceeded to Google. I typed “Clubhouse” with my pinkies, lifting the rest of the cheesy orange fingers from the keyboard.
Nothing. There was really nothing on Google about this thing. Most results showed just a collaboration app that unfortunately shared the name.
“What’s so exciting about a collaboration app?” I thought to myself.
Oh, well. Forgotten and onto the next shiny thing on my feed.
A couple of weeks later, the name surged on my feed once again. This time, not just once but way too many times. I tried to download it but I couldn’t find it. What was this thing everyone was now talking about?
Enter FOMO, also known as Fear Of Missing Out.
As much as we humans don’t like to admit it, it’s true.
“If this is so popular how come I don’t know about it?,” I thought to myself. “Worse. How come I haven’t been invited yet?” I felt a sudden heart wreck and tried to brush it off and stay cool. “Who needs more social media anyways, right?”
Soreness at its best.
Little did I know that this thing, as big as it felt, was really just as tiny as a grain of sand.
In fact, I noticed an interesting trend. Virtually everyone on my digital social circle, — aka the people I follow on Twitter because of our mutual tech and startup interests — knew and craved the app. Outside of that small niche, not a single one of my friends did.
I was perplexed. Because I spend too much time online interacting with people within that small niche, Clubhouse felt like a nuclear bomb. It felt like the whole world knew about it. Yet, outside of the tech world, no one did.
“That is segmentation, targeting and positioning done right,” I told myself, before realizing that was a super-nerdy thought.
But indeed, Clubhouse did an amazing job. Usually, people say, “well what’s the point of segmenting and targeting a single niche? Why would I turn down a sale or download from someone out of that niche?”
Well, it turns out Clubhouse literally turned them down. And this extremely viral effect felt like a Tsunami for the people within the bubble of each segment.
Another key part of its massive growth was the careful selection of its first users. “Do things that don’t scale,” usually sounds like B2B advice, but Clubhouse proved consumer companies need to do that, too.
By enabling the app to a handful of influential people in the tech industry, followers and people who admire these leaders couldn’t help but feel the need to be there and listen to their heroes in real-time.
Fast forward two weeks, I got in. Immediately, there’s a feeling of power that comes with it. I suddenly threw my shoulders back and lifted my chin up.
Being “in the club” and being able to listen to big names drop knowledge bombs every few seconds was an incomparable feeling. I immediately understood the hype.
After dominating the tech circle, these influential leaders invited other leaders in tangential segments. We started seeing Hollywood people, marketing gurus, rappers and DJs (not sure you can say Rappers are tangential to Silicon Valley techies, but you get the point).
Gradually, people who followed these leaders in their respective industries started getting in the line and joining the app. Successfully, they were conquering other clearly delimited niches and every time quicker than the previous one.
Today, Clubhouse has more than 5 million users, it’s starting to open up to mass audiences. And as a water hose whose end has been pressured by a thumb for a long time, it’ll eventually turn into a rapid and pressurized current.
How to create an STP marketing strategy process?
After the great marketing lesson from Clubhouse, let’s dissect how they might have gone on with their STP strategy and how you can replicate it yourself.
Bear in mind, this is me reverse-engineering Clubhouse’s strategy, but it’s not necessarily an objective and thorough analysis.
Observe the total universe of potential segments and label them with a mix of methods to come up with a semi-persona.
The first step is always to observe and brainstorm who would use your product and who wouldn’t. In the case of Clubhouse, it’s quite obvious that this isn’t for elderly users, it’s also not that great for kids and teens.
If you mix up demographic segmentation, psychographic segmentation and needs-based segmentation you could come up with a pretty clear picture of several subcultures and niches.
For instance, they could go after the techies, Hollywood people, traders, musicians and artists, or even new parents. Obviously, there are a thousand other segments, and one could approach this in a million different ways.
Facebook started out with Ivy League students in quite a similar fashion. Clubhouse could’ve done pretty much the same. And that’s when targeting comes in. But for now, those would represent the potential segments within the universe of users.
Initially, the segmentation process will need to be performed more rigidly as you develop skill. But once you understand consumer trends, subcultures and some other similarities between segments, you won’t segment by age and hobbies only. Rather, you’ll use an intersection between these and many other variables.
Quantify the overall potential users’ space and break it down by segment.
There are two ways in which we can calculate our Total Addressable Market (TAM):
- Bottom-up (ideally): If there’s hard data available for you to know approximately how many potential customers are in a single segment, use that. Then add up this data for all of your segments.
For B2B companies this is usually easier, but it needs you to hunt down that data. It’s usually not available with a quick Google search. For B2C companies this is much harder, and this is where the next approach usually comes in handy.
- Top-down (not so cool, but ok): With limited data the best you can do is to do some back of the napkin calculations. Use estimates, informed rates and any other grounded assumption you can use to justify your market size claims.
From the overall universe of consumers, start discounting until you can pinpoint an acceptable number for each one of your segments.
Now, TAM, SAM, SOM, and other bing, bang, bong stuff are an art in and of itself. So, I’ll save the meaty part for a future article, but for now this is all you need to proceed.
Decide which segment to go after first, based on situational, economical and psychological factors
Clubhouse’s targeting of the tech and startups niche resulted from what I’d believe is the combination of several factors.
- Segment growth: The technology industry is growing and people’s interest in launching, working or using a startups’ products is more and more mainstream nowadays.
- Media format growth: Audio was a growing trend, led by podcasts and audiobooks. However, they missed the “social” factor embedded in the product. Clubhouse went after the same target audience; the voracious learners and the people who cared about constant personal improvement.
- Psychological factors: First, the psychology of the tech niche is one of constant power signaling and FOMO. Having access to the latest apps is a sign of power and people like to build their personal brand by proving they have knowledge.
Second, contrary to “Instagram influencers,” Twitter influencers and other text-based opinion leaders, care more about ideas and knowledge than aesthetics and physical traits.
Finally, these people crave novelty. Founders and techies are great early adopters, especially when it comes to new software products. They respect their peers’ journey and are tolerant to buggy or low-design platforms.
- Personal Factors: The founders’ own network. Being founders themselves, this meant they had quick access to a large stream of potential early users. The authority figures that were key to drawing attention into the app were also within their close personal reach.
Create a positioning strategy that matches that segment’s needs, pains and desires with your product
Knowing how the startup world works, in which accessing the latest platforms is a sign of socialité, was crucial to its massive growth.
Clubhouse artificially increased its exclusivity. Invites represented a way to generate demand out of nowhere. And clearly, giving influential people early access was the second key initiative to that dynamic.
Competing products — aka, other social media networks — already serve diverse audiences. However, most of them are a way to display visual talents: dancing, fitness, painting and graphics.
Very few cared about the segment of people eager to discuss ideas and gather more knowledge; which was also a growing trend observable in the podcasting industry growth over the past couple of years.
Rinse and repeat with a tangential segment
Right after launching into the startup segment. Understanding similar dynamics, psychological and cultural factors of other segments was critical to diligently launching into tangential markets and conquering them one by one.
A properly implemented strategy of segmentation, targeting and positioning can truly make the difference between a company’s go-to-market flop or a massive Clubhouse-like success. Choose to ignore it at your own peril.
I suggest the following books to complement this introductory read:
- Crossing the Chasm: Physical / Audiobook
- Zero To One: Physical / Audiobook
- Blue Ocean Strategy: Physical / Audiobook
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