A review of the Segmentation, Targeting and Positioning (STP) market strategy

Student Name: Cl

Student Number: 11111111

Module: MKTM028 Strategic Marketing

Portfolio Module Leader: Dr Stephen Castle

Submission Date: 16 February 2018

Table of Contents 1 Introduction ……………………………………………………………………………………………………………………….. 1

2 Segmentation, Targeting and Positioning (STP) concept as a marketing strategy ………………………… 1

2.1 Use of the STP strategy in organisations ………………………………………………………………………….. 2

2.2 Effectiveness of the STP model ……………………………………………………………………………………….. 5

2.3 Weakness of the STP concept …………………………………………………………………………………………. 5

3 Industry application of the STP strategy …………………………………………………………………………………. 6

3.1 The Aldi case study (UK Focus) ……………………………………………………………………………………….. 6

3.2 Procter and Gamble – Pampers Case Study ………………………………………………………………………. 6

4. Recommendation and Conclusion ………………………………………………………………………………………… 7

Reference ……………………………………………………………………………………………………………………………… 9

1

1 Introduction Rajagopal (2016) stated that in today’s highly competitive business environment, the STP –

segmenting; targeting and positioning – strategies of an organisation can significantly impact their

performance. Proctor (2000, p.401) agree that “Segmentation, Targeting and Positioning are the three

pillars of modern marketing strategy”. Morgan (2011) posited that managers can set about achieving

organisational goals by employing the STP concept to enable them to identify where to compete, who

to target and how to compete as a strategy enhance their organisational performance and grow their

market share. This essay seeks to review the STP marketing concept in relation to its industry

application exploring the Aldi and P&G (Pampers brand) marketing strategies as case studies.

2 Segmentation, Targeting and Positioning (STP) concept as a market strategy Bernstein (2014) stated that the strategic marketing concept consisting of segmenting, targeting and

positioning (STP) model is the first step in any marketing planning process. This assertion is supported

by Kotler (2003) who stated that the segmentation, targeting and positioning process is regarded as

vital to any marketing strategy, as supported by Jaman (2012) who highlighted that in today’s

customer-focused era, organisations tend to analyse their markets by grouping customers according

to their similarities. Kotler and Keller (2005) asserted that companies cannot gain a competitive edge

if their product and service offering is identical to every other offering in the market but instead

organisations should employ appropriate differentiation and positioning strategies to enable them

“occupy a distinctive place in the mind of the target market” (Kotler and Keller, 2005, p.310). Toften

and Hammervoll (2009) however argued that for small or specialist companies, the STP process is likely

to be very demanding due to their limited resources especially with regards to financial capacities,

human resources and information systems. Bernstein (2014) further highlighted that the concept of

target marketing involves grouping the market into homogenous sub-groups (Segmenting), identifying

the most profitable segment to the organisation (Targeting) and developing products and services to

suit the target markets (Positioning). Dibb (1998) suggested that due to changing customer needs,

businesses have resorted to a market segmentation approach, thereby allowing companies to offer a

variety of products which better aligns with the expectations of the segmented customers to enhance

customer satisfaction (Malaval et al, 2013). Similarly, Drummond and Ensor (2005) suggested that a

successful market segmentation process depends largely on understanding consumer behaviour

which enables the identification of various segments based on variables such as geographic,

demographic, psychographic and behavioural (Jaman, 2012; Rajogopal, 2016), to provide propositions

which can better meet the target customer’s needs for a competitive advantage. Hooley et al (2012)

highlighted that due to the constantly growing differences between customers, it is sometimes the

2

case that customers are micro-segmented and treated individually as a segment of their own. Phillips

and Peterson (2001) however argue that the niche-marketing strategy which involves employing

focused marketing initiatives such as product differentiation towards a group of customers with a

distinct set of needs (Kotler, 2003) could be considered as a viable alternative to traditional market

segmentation strategy. Hooley et al (2012) further stipulated that to ensure success employing a niche

marketing strategy, organisations will need to “creatively identify new and potential niches not yet

exploited by competitors” (2012, p.287). An example is demonstrated by the LUSH cosmetics success

story whose business model is based on providing ethically sourced and organic, fresh handmade

cosmetics (lush.com, 2018) to a niche market. Toften and Hammervoll (2009) contend that the process

of focusing on a set of customers within a niche-market equally relates to some aspects of the market

segmentation strategy. Moutinho (2000) argue that to qualify as a “true market nicher” (2000, p.130),

it is essential that the target niche market is profitable in the long run with a potential for growth

noting that the cost implication of adapting the product to appeal to the target segment; will

consequently lead to premium pricing and above-average margins.

2.1 Use of the STP strategy in organisations Webster (2005) suggested that an organisation’s marketing strategy stems from their segmentation,

targeting and positioning processes. Kotler (1999) equally highlighted that the STP process as

demonstrated in figure 1 below, refers to an organisation’s strategic planning; which involves the

identification of market segments; selecting the target segment with regards to financial viability and

then positioning of the organisation’s value offerings to their target customers (Proctor, 2000).

Figure 1: The STP Process

(Malaval et al, 2013 p.144)

3

Dibb and Simkin (2001) also stated that the market segmentation theory suggests that groups of

buyers with similar needs and buying behaviour are likely to demonstrate a similar response to

marketing strategies. In support, Proctor (2000) highlighted that it is essential for organisations to

research the market first to enable them to identify how to best segment the different buying groups

according to their buying behaviour. Similarly, Ellson (2004) posits that segmentation, targeting and

positioning (STP) play a vital role in any marketing planning strategy with the aim of “identifying and

selecting potential customers and communicating the distinct product benefits” (2004, p.21). Barry

and Weinstein (2009) equally contend that customers are no longer satisfied with ‘a one size fits all’

marketing approach such as employed by the Henry Ford Model which offered customers any car

colour as long as it is black (Kotler, 1999), rather high performing organisations such as General Motors

who in the 1920’s, adopted the strategy – to develop their cars to cater for every “purse, purpose and

personality” (Kotler, 1999); ensured their organisational success by employing the market

segmentation and targeting approach (Dibb and Simkin, 1991). The Body Shop example equally

demonstrate a successful STP strategy whose positioning communication in their early days as “the

most honest cosmetics company in the world” (Ellson, 2004 p.7) was based on their ethos of using

natural ingredients in a bid to eliminate chemicals from their products and promote good health; as a

means to appeal to women who were increasingly dissatisfied with cosmetic products which were

considered harmful due to the use of chemicals. (Chesters, 2011; Ellson, 2004). As a caution however,

Ellson (2004) highlighted that if positioning is used to manipulate the customer’s perception of reality,

companies will stand the risk of discouraging their organisational growth as their product or service

could lose credibility. This therefore means that organisations are expected to communicate

positioning statements which reflects the true value of their products or services. Kotler (2012) also

posited that although organisations usually position their brand communication to highlight the key

benefits for their target customer however, there will usually be other benefits embodied in the full

value proposition. Proctor (2000) further asserted that for organisations to successfully position their

product offerings to their target market segment, they “require careful formulation of the marketing

mix” (2000 p. 448) also known as the 4Ps model consisting of Product, Price, Promotion and Place

variables (Kotler, 2012). Wilson and Gilligan (2012) equally suggested that employing the STP

marketing strategy should also include the development of the marketing mix variables as

demonstrated in figure 2 below to ensure the effective positioning of the organisation’s products or

services.

4

Figure 2: The STP process enhanced by the 4Ps marketing mix

(Whalley, 2000 p. 73)

An example of the STP concept aligned with the marketing mix strategy is illustrated by Volvo which

positions “its car as the safest that drivers can buy, developed for buyers concerned about automobile

safety” (Kotler and Keller, 2011 p.32) but also included in their value proposition, are other attributes

such as durability, spacious, style and fair pricing (Kotler, 1999). Bickhoff et al (2014) however argued

that the 4Ps marketing mix is better suited for consumer goods whereas service organisations can

enhance their offerings better by employing the 7Ps framework highlighted in Figure 2 below as an

extension of the 4Ps marketing mix to include personnel, physical facilities and process management

variables.

Figure 2: The 4Ps and 7Ps extended marketing mix models

(Bickhoff et al, 2014 p.81)

5

2.2 Effectiveness of the STP strategy Boejgaard and Ellegaard (2010) highlighted that the market segmentation process as demonstrated

by the STP concept is commonly regarded to be effective as a strategic marketing tool. Foedermayr

and Diamantopoulos (2007 p.223) stated that “segmentation decisions are critical for achieving

differential advantage in an increasing competitive market”. This implies that managers can benefit

from utilising the STP concept to understand their markets better which aids in developing the

appropriate marketing programs that can meet the needs of the customers in their target segment

(Weinstein, 2006). Piercy and Morgan (2006) however cautioned that for managers to ensure an

effective STP strategy, the target segments should be assessed in relation to their organisational

capability and compatibility rather than from the conventional view of external market attractiveness.

Some other benefits of employing the STP process successfully in organisations include; better

understanding and prediction of target customers, able to offer more relevant products, enables

effectiveness of targeted communication and contributes to a more effective sales approach (Malaval

et al, 2014).

2.3 Weakness of the STP strategy Dibb (1998) argued that although there are benefits associated with the STP process, organisations

are often challenged by implementation difficulties arising from problems associated with the

practicality of the segmentation variable determinant as well as the cost effectiveness of the proffered

solution (Dibb and Wensley, 2002). Venter et al (2015) also contended that a key limitation is the poor

fit between the theoretical aspects of the STP process and the practical applications. Goller et al (2002)

equally highlighted that that other limitations such as lack of experiential evidence for segmentation

benefits and the implication of losing out on sales volume due to focusing on few segments as well as

the challenge of translating the segmentation findings into market strategies equally makes industrial

companies especially, wary of the model (Boejgaard and Ellegaard, 2010). Other challenges with the

model also relates to implementation difficulties from a planning and operational perspective (Clarke

and Freytag, 2008).

6

3 Industry application of the STP strategy

3.1 The Aldi case study (UK Focus) Aldi first started its business in 1913 as a German discount store but has since grown to become the

fifth largest supermarket in UK with 6.2% in the grocery market share (Vizard, 2017).

Peterson (2015) suggested that Aldi’s target segment is based on the psycho-demographic variable of

an elderly female who is likely to be an outgoing, stay-at-home mum with an interest in DIY projects;

having a low disposable income and values a bargain.

However, the increase in living costs due to the economic crisis meant that even the upper middle-

class segment sought to gain more value for their money by shopping smarter (Hyde, 2015). In

response, Aldi developed product ranges such as the premium range, fresh produce range and

introduced more British sourced products to appeal to these customers (Faull, 2017; Hyde, 2015)

which resulted in recent studies reporting that shoppers from the AB demographic now represent

about 31% of Aldi’s customers (Shadbolt, 2015). To better understand Aldi’s marketing strategy, the

4P’s marketing mix will be employed in alignment with the STP concept.

Product – Aldi focuses on providing a limited range of high quality own brands committed to simplicity

as well as using industry experts to ensure that product quality is not compromised when compared

to famous brands (Armstrong, 2016). From a global perspective, Mr Paul Foley -a former head of Aldi

UK stated that Aldi tends to invest in countries where returns on groceries is usually higher than global

averages (The Economist, 2016)

Price – Competitive pricing is regarded to be an important part of Aldi’s marketing strategy. They can

offer their selection of products at lower prices than their competitors due to their focus of buying

very large volumes of a limited product range which allows them to get the lowest possible prices

from their suppliers (Butler, 2014). This pricing strategy has helped ensure that they are able to offer

comparable product quality with their competitors which equally encouraged positive consumer

perceptions of the brand resulting in their continued growth in the grocery market. (Vizard, 2017)

Place – Aldi carefully selects the location of their stores in terms of the demographics based on high

population, high visibility from major roads and less competition (Aldi, 2018). They also encourage a

simple layout of their stores to improve their customer’s shopping efficiency and keep their input costs

low. (Faull, 2017)

Promotion – Aldi engages in various above-the-line campaigns such as the ‘Like brands only cheaper’

TV ads as well as their ‘Everyday Amazing’ campaigns to establish emotional connections with their

target customers as well as a range of below-the-line promotional activities to position the quality and

7

value attributes of their products in the minds of their target customers and encourage customer

loyalty, improve their brand image and boost demand in a bid to grow their market share. (Faull, 2017)

3.2 Procter and Gamble – Pampers Case Study Pampers is a premium baby nappy product range of Procter and Gamble (P&G) – a fast moving

consumer goods multinational corporation – reputed to be one of the most trusted brands by mothers

owing in part to its innovation leader status in the baby diaper industry (Callou, 2016; Lafley, 2013).

In line with the STP process, P&G segment their Pampers market based on demographic and

psychographic variables targeting literate women first time mums with babies up to 3 years old living

in urban regions with increasing disposable income and a value for quality (Inkwood, 2017). Their

primary target segment of first time mums with babies up to 3 years old (Pampers, 2018) is also based

on the behavioural approach that once the customers use the product, they are likely stay loyal to the

brand. They equally engage in consumer-focused research to ensure they gain the best insight and

understanding of their target customers to enable relevant product offerings across all the baby diaper

market segmentation categories to enhance customer satisfaction (Callou, 2016; Inkwood, 2017). The

P&G (Pampers) STP market strategy is analysed employing the 4P’s marketing mix.

Product – The Pampers brand is positioned as a premium protection and comfort brand centred on

quality and safety that can help improve the lives of babies and convenient for parents to use. They

also provide a variety of tailored products such as baby dry range, active fit, disposable pants, and the

swimmers range to satisfy the specific needs of their different customer segments (Pampers, 2018).

They continuously innovate and upgrade their product range as a key competitive strategy as

exemplified by the recent introduction of the pampers preemie range developed in collaboration with

NICU nurses for the tiniest babies (Pampers, 2018; Olivo, 2017).

Price – Pampers pricing strategy is usually higher when compared to their competitors, however their

excellent quality proposition helps to differentiate them and ensure that their customers are happy

to pay extra to satisfy their needs (Callou, 2016). Pampers have equally developed low-cost product

ranges to also cater for customers with lower disposable income (Braizaz, 2013).

Place – The Pampers brand enjoy a large global distribution network as part of the P&G portfolio of

products. Pampers have a high presence in major supermarkets and retailers around the world and

the products are also available on E-commerce website like Amazon in line with their strategy of

ensuring that their customers have a wide access of reach to their products (Braizaz, 2013).

Promotion – Pampers is actively promoted and advertised via all available media channels and below

the line activities. The core of their positioning strategy –love, sleep, play – ties in with their brand

8

value proposition of providing “the best absorption, comfort and skin protection nappies made from

soft and breathable materials that moves with babies as they play and sleep during the day”. Pampers

also ensure good positioning of their products with their primary targets by making alliances with

hospitals and nurseries via sponsorships as well various CSR projects around the globe (Olivo, 2017;

Pampers, 2018).

4. Recommendation and Conclusion The segmenting, targeting and positioning (STP) strategy is regarded as critical to any marketing

strategy with a variety of literature promoting its importance for organisations.

To apply the STP process effectively, managers should ensure that they utilise the appropriate

segmentation variables in assessing the market to enable an actual identification of the various

segments as a critical first step (Bernstein, 2014).

It is also recommended that organisations assess their identified segments in line with their

organisational capabilities to ensure that they can meet the demands of the segment rather than

selecting their target segments from an external attractiveness approach.

Organisations should also ensure the long-term profitability of the identified target segment as well

as the growth potential of the segment before making any investments.

Organisations are equally encouraged to ensure a robust positioning strategy to ensure an emotional

connection to their target customers to promote customer acceptance and loyalty.

Organisations are also likely to benefit from employing a two-way communication approach with their

target customers through various sources to ensure they can better understand the ever-changing

requirements of their target-segment and enable a pro-active response which can be translated to

their customers utilising the marketing mix strategy for a competitive advantage.

In conclusion, the review of the STP market strategy revealed a variety of potential benefits for

organisations ranging from growth in market share to customer retention due to the understanding

of the segments which allow organisations to tailor their products to suit their target customer needs.

It is however noted, that the model is equally limited by implementation challenges due to the

difficulty in truly assessing the homogeneity of the segment groups as well as the impracticality of the

model for smaller organisations due to factors like cost implication.

9

Reference Aldi (2018) Aldi Property. Aldi [online]. Available from: https://www.aldi.co.uk/about-aldi/property [Accessed 16th February 2018].

Armstrong, A. (2016) How aldi became the magnet for the middle-classes. The Telegraph [online]. Available from: http://www.telegraph.co.uk/business/2016/08/06/how-aldi-became-the-magnet- for-the-middle-classes/ [Accessed 16th February 2018].

Barry, J. and Weinstein, A. (2009) Business psychographics revisited: from segmentation theory to successful marketing practice. Journal of Marketing Management. 25(3/4), pp.315-340.

Bernstein, J. S. (2014) Identifying Market Segments, Selecting Target Markets, and Positioning the Offer. In: Standing Room Only. New York: Palgrave Macmillan.

Bickhoff, N., Hollensen, S. and Opresnik M. (2014) The Quintessence of Marketing: What you really need to know to manage your Marketing Activities. London: Springer.

Boejgaard, J. and Ellegaard, C. (2010) Unfolding implementation in industrial market Segmentation. Industrial Marketing Management. 39(8), pp.1291-1299.

Braizaz, M. (2013) Pampers’s know how attracts mums. Womenology [online]. Available from: http://www.womenology.com/reflexions/pamperss-expertise-attracts-mums/ [Accessed 13th February 2018]. Callou, A. (2016) What marketers can learn from Pampers’ best-in class brand management. Linkedin [online]. Available from: https://www.linkedin.com/pulse/what-marketers-can-learn-from-pampers- best-in-class-brand-callou/ [Accessed 15th February 2018]. Chesters, A. (2011) A brief history of the Body Shop. The Guardian [online]. Available from: https://www.theguardian.com/fashion/fashion-blog/2011/nov/21/brief-history-of-body-shop [Accessed 14th February 2018].

Clarke, A. H. and Freytag, P. V. (2008) An intra- and inter-organizational perspective on industrial segmentation: A segmentation classification framework. European Journal of Marketing. 42(9/10), pp.1023-1038.

Dibb, S. and Simkin, L. (1991) Targeting, segments and positioning. International Journal of Retail & Distribution Management. 19(3).

Dibb, S. (1998) Market segmentation: strategies for success. Marketing Intelligence and Planning, 16(7), pp.394-406.

Dibb, S. and Simkin, L. (2001) Market segmentation: diagnosing and treating the barriers. Industrial Marketing Management. 30(8), pp.609-625.

Dibb, S. and Wensley, R. (2002) Segmentation analysis for industrial markets: Problems of integrating customer requirements into operations strategy. European journal of marketing. 36(1/2), pp.231-251.

Drummond, G. and Ensor, J. (2005) Introduction to Marketing Concepts. Routledge.

Ellson, T. (2004) Segmentation, Targeting and Positioning In: Culture and Positioning as Determinants of Strategy. London: Palgrave Macmillan.

10

Faull, J. (2017) How Aldi rose through the ranks to become one of the UK’s biggest grocers. The Drum [online]. Available from: http://www.thedrum.com/news/2017/02/08/how-aldi-rose-through-the- ranks-become-one-the-uk-s-biggest-grocers [Accessed 16th February 2018].

Foedermayr, E. K. and Diamantopoulos, A. (2008) Market segmentation in practice: Review of empirical studies, methodological assessment, and agenda for future research. Journal of Strategic Marketing. 16(3), pp.223-265.

Freytag, P. V. and Clarke, A. H. (2001) Business to business market segmentation. Industrial Marketing Management. 30(6), pp.473-486.

Goller, S., Hogg, A. and Kalafatis, S. (2002) A new research agenda for business segmentation. European Journal of Marketing. 36(1/2), pp.252-271.

Hooley, G., Piercy, N. and Nicoulaud, B. (2012) Marketing strategy & competitive positioning. Harlow New York: Financial Times Prentice Hall.

Hyde, D. (2015) One in three Aldi and Lidl shoppers is 'upper or middle class'. Telegraph [online]. Available from: http://www.telegraph.co.uk/news/shopping-and-consumer-news/11473701/One-in- three-Aldi-and-Lidl-shoppers-is-upper-or-middle-class.html [Accessed 15th February 2018].

Inkwood research (2017) Global disposable diapers market forecast 2017-2024. Inkwood Research [online]. Available from: https://www.inkwoodresearch.com/reports/global-disposable-diapers- market-forecast-2017-2024/#report-summary [Accessed 16th February 2018].

Jaman, M. (2012) Critical analysis of segmentation strategy for potential product launch – Mapping the Customers. International Journal of scientific and Technology research. 1(11), pp.62-65.

Kotler, P. and Keller, K. L. (2011) Framework for Marketing Management: Global Edition. 5th ed. Great Britain: Pearson Higher Education.

Kotler, P. and Keller K. L. (2006) Marketing Management. 12th ed. Pearson Prentice Hall.

Kotler, P. (1999) Kotler On Marketing: How to Create, Win, and Dominate Markets. New York: The Free Press.

Kotler, P. (2003) Marketing Management. 11th ed. New Jersey: Prentice-Hal.

Kotler, P. (2012) Kotler on marketing. Simon and Schuster.

Lafley, A.G. (2013) What P&G learned from the diaper wars. Fast Company [online]. Available from: https://www.fastcompany.com/3005640/what-pg-learned-diaper-wars

Lush (2017) ‘Fresh handmade’ is not only the Lush process for manufacture, but also our business model. Lush [online]. Available from: https://uk.lush.com/article/more-marketing [Accessed 13th February 2018].

Malaval, P., Bénaroya, C. and Aflalo, J. (2014) Market Segmentation and Positioning. In: Aerospace Marketing Management. USA: Springer.

Morgan, N. A. (2012) Marketing and business performance. Journal of the academy of marketing science. 40(1), pp.102-119.

Moutinho, L. (2000) Strategic Management in Tourism. 2nd ed. Wallingford: ProQuest Ebook Central.