Marketing & customer
Segmentation, Targeting, Positioning (STP)
The core sequence of strategic marketing: divide a heterogeneous market into meaningful segments, choose which of them to serve, then position the offer so the chosen customers see a distinct and defensible reason to prefer it.
Also known as STP, STP marketing model, Segment-target-position. First set out by Wendell R. Smith (segmentation); Al Ries and Jack Trout (positioning); sequence codified and popularised by Philip Kotler in 1956; the primary source is cited in full below.
Where this is contested
STP has no single author. Smith (1956) supplied market segmentation, Ries and Trout (1969-1981) supplied positioning, and the three-step sequence itself is a later codification popularised through Kotler's Marketing Management rather than an original framework with one source.
- Format
- Process / loop
- Level
- Business unit · Product
- Best for
- Understand customers · Position against competitors · Prioritise
- Decision stage
- Diagnose · Explore options · Decide
- Difficulty
- Intermediate
- Time to apply
- Several weeks for a first serious pass, because credible segmentation needs research; a day to re-run targeting and positioning on an existing segmentation.
Plate · The model
The components
Segmentation
Dividing a heterogeneous market into groups of customers with similar needs, behaviours or responses to marketing. Smith's insight was that demand curves are plural: a market is many demand schedules, and strategy starts by seeing them.
Signals of strength
Customers buy the same category for visibly different reasons or occasions · Price sensitivity varies sharply across identifiable groups · One-size messaging performs unevenly across channels or audiences · Needs-based clusters survive when tested against actual purchase behaviour · Segments are stable enough to plan against for more than one cycle
Targeting
Evaluating the segments and committing resources to the ones the business can serve profitably and defensibly. Targeting is the allocation decision inside STP, and it is where the sequence bites, because choosing a target means declining the rest.
Signals of strength
Segment attractiveness scored on size, growth, margin and rivalry, with evidence · Fit assessed against real capabilities rather than aspiration · A named primary target, with secondary targets explicitly ranked · Segments consciously excluded, with reasons recorded · Budget and effort visibly concentrated where the target decision says they should be
Positioning
Designing the offer and its communication so the target segment perceives a distinct, valued place for it relative to competitors. Positioning lives in the customer's mind rather than in the brand book; the company only gets to propose it.
Signals of strength
A stated frame of reference: what the customer should compare you with · One primary point of difference the target actually values · Reasons to believe that survive scrutiny · Perception research showing the intended position is the received one · The mix (product, price, place, promotion) consistently expresses the position
When it earns its keep
- You are launching or repositioning a product and need to decide, on evidence, which customers to build the proposition around rather than trying to please everyone.
- Marketing spend is spread thinly across audiences with different needs, and returns suggest the average message is landing with none of them.
- A market looks crowded at the aggregate level and you suspect there are underserved segments whose needs the big players ignore.
- You are preparing a marketing plan and need the strategic layer (whom to serve and why you win) settled before tactical decisions about product, price, place and promotion.
And when it doesn't
- The market is genuinely homogeneous or too small to subdivide economically. Smith's original paper is explicit that segmentation and differentiation are alternatives; sometimes one differentiated offer to the whole market is the better strategy.
- You have no data on customer differences. STP built on demographics guessed at in a meeting room produces segments that describe nobody; do the research first or use a lighter tool.
- The decision is tactical, for instance setting this quarter's promotional calendar. STP sets the strategy those tactics should serve; running it for every campaign wastes it.
- Your buyers behave interchangeably across the category and reach matters more than fit. Sharp's work on buyer behaviour argues that for many repertoire categories broad reach beats narrow targeting, so check which regime you are in.
How to run it
Before starting, gather the inputs the analysis depends on:
- Market research revealing genuine differences between customers: needs, behaviours, occasions, price sensitivity, media habits, not just demographics.
- Estimates of segment size, growth and profitability, plus evidence on how well competitors currently serve each segment.
- An honest audit of your own capabilities and brand permissions, since a segment is only attractive if you can win it.
- A view of competitors' current positions in the minds of target customers, from perception research or a positioning map.
- 1
Define the market
State which category, geography and customer population you are analysing. A segmentation of 'drinkers' and a segmentation of 'UK premium spirits buyers' produce entirely different maps, so fix the frame before cutting it up.
- 2
Segment the market
Divide customers into groups that are internally similar and externally distinct on things that drive choice. Behavioural and needs-based bases usually beat demographics alone. Test each candidate segment for the classic criteria: measurable, substantial, accessible, differentiable and actionable.
- 3
Evaluate the segments
Score each segment on attractiveness (size, growth, margin, intensity of competition) and on fit with your capabilities and brand. Resist the pull of the biggest segment; the biggest is usually the best served and the hardest to win.
- 4
Select the target
Choose one or a small number of segments to serve, and be explicit about the ones you are declining. A target list that excludes nobody is a decision that has not been made.
- 5
Develop the positioning
Define the place you intend to occupy in the target customer's mind relative to alternatives: the frame of reference, the point of difference, and the reasons to believe it. Ries and Trout's test applies: the position must be simple enough to survive in an oversaturated mind.
- 6
Translate and revisit
Carry the positioning into the marketing mix so product, price, place and promotion all express the same choice, then revisit the segmentation periodically. Segments drift as markets and technology change, and a five-year-old segmentation is usually describing a market that no longer exists.
Reading the result
A defined set of market segments with supporting evidence, an explicit targeting decision that names the segments to be served and declined, and a positioning statement for each target that the whole marketing mix can be tested against.
- Judge the work by the quality of the choice, not the elegance of the segmentation. If the targeting step did not exclude any segment, or the positioning would read equally well for a competitor, the exercise is decorative.
- Check the chain of logic runs both ways: the position should only make sense for the chosen target, and the chosen target should be winnable given the position and your capabilities.
- Treat the output as a hypothesis to test in market. Perception research and sales response, not internal consensus, confirm whether the intended position has been achieved.
A worked example
A craft gin distillery decides where to compete after the category cools
A small Yorkshire craft gin distillery grew comfortably through the mid-2010s gin boom, selling a flagship London Dry through farm shops, its own website and a few regional bars. With the category now crowded and declining at the value end, the founders run STP to decide which customers to build the next three years around, rather than continuing to sell 'to anyone who likes gin'.
- Define the market
- The team frames the market as UK premium spirits buyers spending over 30 pounds a bottle, not 'gin drinkers'. This matters: at that price point their real competitors include premium rum and whisky, and the framing changes who counts as a substitute.
- Segment the market
- Research and sales data suggest four behavioural segments: gift buyers purchasing for occasions, home cocktail enthusiasts who buy on provenance and flavour complexity, on-trade venues buying for their back bar, and habitual gin-and-tonic drinkers who trade down when prices rise. The segments differ on need, channel and price sensitivity, and each is measurable through existing data.
- Evaluate the segments
- Habitual G&T drinkers are the largest segment but the most price-sensitive and the best served by supermarket premium brands. Gift buyers are seasonal but high-margin and reachable through farm shops and tourism channels the distillery already owns. Cocktail enthusiasts are small but growing, loyal, and poorly served by mass brands. The on-trade is attractive but demands listings support the distillery cannot yet fund.
- Select the target
- Primary target: gift buyers in the north of England. Secondary: home cocktail enthusiasts nationally, served through the website. Explicitly declined: the habitual G&T segment, which the distillery cannot win on price, and the national on-trade, deferred for two years. The declining decisions are written down, which is what makes the targeting real.
- Develop the positioning
- Frame of reference: premium gifts from Yorkshire, not simply craft gin. Point of difference: single-estate botanicals grown on the distillery's own land, verifiable and hard to copy. Reasons to believe: visible growing plots on tours, harvest dates on every label. The position would be false for any competitor buying botanicals wholesale, which is the test of a defensible claim.
- Translate and revisit
- The mix is re-cut against the position: gift packaging and a tour-and-bottle bundle (product), a price move from 34 to 42 pounds (price), concentration on farm shops, the visitor centre and the website rather than chasing supermarket listings (place), and harvest-season storytelling instead of generic category advertising (promotion). The segmentation is diarised for review in eighteen months.
The read. The analysis forces a real trade: walking away from the largest segment because the distillery cannot win it, and pricing up to serve two segments that value provenance. The risk it surfaces honestly is concentration, since gift buying is seasonal and discretionary; the cocktail-enthusiast secondary target exists partly to smooth that. STP has done its job because the resulting plan would have been different, and worse, without the exclusions.
Pitfalls
- Segmenting on convenient data rather than on drivers of choice. Age and region are easy to measure and often explain nothing; a segmentation that would not change what you build or say is a filing system, not a strategy.
- Skipping the targeting decision. Teams often produce a handsome segmentation and then continue to market to everyone, which converts the whole exercise into wall art.
- Writing positioning statements the customer never sees evidence for. A point of difference without reasons to believe, expressed through the mix, remains an internal aspiration.
- Treating segments as permanent. Markets re-segment as needs, channels and technology shift, and a stale segmentation quietly misdirects spend for years.
- Confusing the company's intended position with the position actually held in customers' minds. Only perception research settles the difference.
What the critics say
Segmentation research has long faced questions about rigour and usefulness: Wind's landmark review argued that segment instability, the gap between statistically derived clusters and actionable groups, and the weak link between segmentation studies and management decisions were persistent problems, and much of that critique still stands.
Wind, Y. (1978) 'Issues and Advances in Segmentation Research', Journal of Marketing Research, 15(3), pp. 317-337.
There is a well-documented implementation gap: organisations complete the analytical stages of STP and then fail at execution because structures, sales channels and incentives are not aligned to the chosen segments. Dibb and Simkin catalogue these barriers and argue the framework understates the organisational work targeting requires.
Dibb, S. and Simkin, L. (2001) 'Market segmentation: diagnosing and treating the barriers', Industrial Marketing Management, 30(8), pp. 609-625.
Evidence-based marketing scholars challenge the premise of tight targeting itself. Sharp and the Ehrenberg-Bass tradition show that in many categories rival brands' buyer bases barely differ and growth comes from broad reach and mental availability, which implies STP's sharp target choices can shrink a brand's opportunity rather than focus it.
Sharp, B. (2010) How Brands Grow: What Marketers Don't Know. Melbourne: Oxford University Press.
Sources and further reading
- Smith, W. R. (1956) 'Product Differentiation and Market Segmentation as Alternative Marketing Strategies', Journal of Marketing, 21(1), pp. 3-8. ↗
- Trout, J. (1969) '"Positioning" is a game people play in today's me-too market place', Industrial Marketing, 54(6), June 1969, pp. 51-55.
- Ries, A. and Trout, J. (1981) Positioning: The Battle for Your Mind. New York: McGraw-Hill.
- Kotler, P. and Keller, K. L. (2016) Marketing Management. 15th edn. Harlow: Pearson.