What is STP Analysis

TP Analysis is an acronym that stands for Segmentation, Targeting, and Positioning. It is a strategic marketing approach that involves dividing the broad market into distinct segments, selecting the most attractive segments to target, and crafting a unique market position that differentiates the product or service from competitors. STP Analysis is instrumental in ensuring that marketing efforts are concentrated on the right areas to maximize effectiveness and return on investment.

Market Segmentation

Market Segmentation is the process of dividing a large, heterogeneous market into smaller, more homogenous groups of customers who share similar characteristics, needs, or preferences. This division helps businesses tailor their products, services, and marketing efforts to meet the specific demands of each segment effectively.

Criteria for Effective Segmentation

For market segmentation to be effective, it must meet certain criteria:

• Measurable
  The characteristics used to segment the market should be quantifiable.
• Accessible
  The segmented groups should be reachable through marketing channels.
• Substantial
  Each segment should be large enough to be potentially profitable.
• Differentiable
  Segments should be distinct from each other in their needs and responses.
• Actionable
  It should be possible to develop effective marketing strategies for each segment.

Types of Market Segmentation

• Demographic Segmentation
  This is based on demographic factors such as age, gender, income, occupation, and family size. For example, a cosmetic company may create different product lines for teenagers, adults, and seniors.

• Geographic Segmentation
  In this type, the market is divided based on geographic boundaries such as nations, regions, cities, or neighborhoods. A clothing retailer may offer different products in stores depending on the climate of the region.

• Psychographic Segmentation
  This is based on social class, lifestyle, and personality characteristics. A travel agency may create packages that appeal to thrill-seekers (adventure trips) versus those looking for relaxation (beach resorts).

• Behavioral Segmentation
  This takes into account the consumer’s knowledge, attitudes, uses, or responses to a product. It can also be based on customer loyalty, benefits sought, readiness to purchase, etc. For instance, a technology company may offer advanced features for tech-savvy users and a simplified version for beginners.

Targeting

Targeting, the second step in the STP Analysis, involves evaluating the attractiveness of each segment identified through market segmentation and then selecting one or more segments to enter. It is about making choices on where to compete and where not to by focusing resources and marketing efforts on specific market segments.

Approaches to Targeting

There are several approaches that companies can use to target segments:

• Undifferentiated Targeting (Mass Marketing)
  This approach involves treating the entire market as a single segment. The company develops a single marketing mix and directs it at the entire market, with no customization. This is best suited for products that have universal appeal.

• Differentiated Targeting (Segmented Marketing)
  In this approach, the company targets several market segments and designs separate offers for each. This can result in a larger market share but might be more expensive due to customization and separate marketing campaigns.

• Concentrated Targeting (Niche Marketing)
  This strategy focuses on a single, specialized segment of the market. It is particularly useful for companies with limited resources as it allows them to become experts in that niche and serve it very effectively.

• Customized Targeting (Micro Marketing)
  This is an even more focused form of targeting, where products or marketing efforts are tailored to the needs and wants of individual customers or very small segments.

Criteria for Effective Target Market Selection

To select an effective target market, companies need to consider several criteria:

• Segment Size and Growth
  Is the segment large enough to be profitable, and is it growing?

• Segment Structural Attractiveness
  Is the segment structurally attractive in terms of competition, the availability of substitutes, and the power of buyers and suppliers?

• Company Objectives and Resources
  Does targeting the segment align with the company's long-term objectives, and does the company have the resources needed to compete effectively in the segment?

• Segment Compatibility
  Is the segment compatible with the company’s mission, vision, and values?

Evaluating and Selecting Target Markets

• Segment Evaluation
  Companies need to evaluate each segment based on the above criteria. They should analyze the size, growth rates, profitability, competition, and other factors that make the segment attractive or unattractive.

• Selection
  Based on the evaluation, the company selects one or more market segments to target. This decision should align with the company’s overall strategy and objectives.

• Target Market Strategy Development
  Once the target market or markets are selected, the company needs to develop a marketing strategy tailored to the needs and characteristics of the target market.

Positioning

Positioning is the process of establishing a unique place in the minds of the target customers for the brand or product relative to the competition. It is about shaping customer perceptions so that they recognize and appreciate the distinct values and attributes of the product or service.

Positioning Strategies

There are several strategies that companies can use to position their products or services:

• Perceptual Mapping
  \Perceptual mapping involves visually displaying the perceptions of customers in a graph, helping to understand how they perceive competing products in relation to one another. This can help identify gaps in the market which the company can target.

• Unique Selling Proposition (USP)
  This involves focusing on a single, strong claim that differentiates the product from competitors. The USP should be compelling and strong enough to attract customers.

• Brand Positioning
  Here, the focus is on using the brand to create a distinctive image in the minds of consumers. This might be based on quality, innovation, tradition, or other brand values.

• Competitor Positioning
  This strategy positions the product or service directly against a competitor, highlighting the advantages and benefits over the competing product.

• Benefit Positioning
  Focuses on the unique benefits the product or service provides to the customer that are different or better than competitors.

• Price/Quality Positioning
  This involves positioning the product based on its price or quality, such as being the most affordable or the highest quality in the market.

Creating Positioning Statement

A positioning statement is an internal tool used by marketers to clearly define how they want the target market to perceive the product or service. The statement generally includes the target segment, the unique benefit, and the reason why the customer should believe this.

For [target market], [product/brand name] is the [point of differentiation] among all [frame of reference] because [reason to believe].

Positioning and Repositioning

While positioning is about establishing an image or identity, repositioning involves changing the identity of a product or brand in the minds of the consumer. Repositioning may be necessary due to changes in the market, increased competition, or other factors that make the original position less effective.

Evaluating the Effectiveness of Positioning

Evaluation is an ongoing process. Marketers need to continuously monitor how the target audience perceives their product or service. Some ways to evaluate positioning are customer surveys, focus groups, and analyzing market trends. It’s also crucial to track the performance of the product or service in terms of sales, market share, and customer loyalty.

Case Study: Tesla, Inc.

Tesla, Inc. is an American electric vehicle (EV) and clean energy company founded in 2003 by a group of engineers, including Elon Musk, who became the company's CEO. Tesla is renowned for its electric vehicles, battery energy storage, solar products, and its mission to accelerate the world's transition to sustainable energy.

Market Segmentation

• Demographic Segmentation
  Tesla’s primary demographic segment consists of environmentally-conscious consumers who are typically middle-aged, with a higher income level, as the prices of Tesla cars are relatively high compared to traditional gasoline cars.

• Geographic Segmentation
  Initially, Tesla focused on the United States, particularly in technology-savvy areas like Silicon Valley. However, the company has expanded globally and has a significant presence in Europe and China, which are also large markets for electric vehicles.

• Psychographic Segmentation
  Tesla targets consumers who are not only environmentally conscious but also tech enthusiasts who appreciate innovation, performance, and style.

• Behavioral Segmentation
  Tesla focuses on consumers who are willing to be early adopters of new technology and who are looking for high-performance vehicles.

Targeting

• Differentiated Targeting
  Initially, Tesla employed a differentiated targeting strategy. It first focused on the high-end market with the Tesla Roadster, then moved to a broader customer base with lower-priced models like the Model S, Model 3, and Model Y.

• Niche Marketing
  Initially, Tesla’s targeting could also be considered as niche marketing focusing on the high-income group. Over time, as the EV market grew, Tesla expanded its target market.

Positioning

• Innovation and Technology
  Tesla positioned itself as a leader in electric vehicle technology. Its cars are perceived as cutting-edge, with features like Autopilot and over-the-air software updates.

• Performance and Style
  Tesla vehicles are not just environmentally friendly; they are also high-performing and stylish. The Model S, for example, competes with luxury brands on performance as well as design.

• Environmental Sustainability
  Tesla has positioned itself at the forefront of the sustainable energy movement. Its mission statement clearly reflects its commitment to making EVs mainstream to combat climate change.

Tesla’s STP Analysis: The Outcome

Tesla's effective use of STP Analysis has made it one of the most successful and valuable automotive companies in the world. By initially segmenting the market to focus on high-income, environmentally-conscious consumers, and then gradually expanding its target market, Tesla has been able to grow exponentially. Its clear positioning as an innovative, high-performance, and sustainable alternative to traditional cars has created a strong brand image.

Challenges and Future Prospects

As the electric vehicle market grows, Tesla faces increased competition from both traditional automakers and new entrants. Maintaining its position as an innovator and leader in the EV space while expanding its target market will be crucial for Tesla's continued success.