Segmentation, targeting and positioning, often shortened to STP, is the framework most marketing courses teach first. Divide the market into groups. Choose the group you'll serve. Decide how you want that group to see you. It's a sensible structure, and parts of it are essential.
But research on how people actually buy, particularly the Ehrenberg-Bass Institute's decades of work, has shown that some of the ways STP gets applied work against growth. So in this guide I want to go through each step, keep what holds up, and show where to do things differently.
Segmentation: understand the variety, then look for what's shared
Segmentation means dividing the people in your market into groups that differ in ways that matter: what they need, how they buy, how much they spend, where they are.
This holds up well as a way of understanding your market. Knowing that some of your customers are businesses ordering every week, others are households buying for a celebration, and others are tourists who'll buy once, helps you plan stock, staff, prices and service.
Where it can mislead is in the assumption that each segment needs a completely different business. When researchers compare the customers of competing brands, they tend to find the customer bases look broadly similar: most brands in a category sell to roughly the same kinds of people, in roughly the same proportions. The differences between segments are real, and they're usually smaller than the similarities among everyone who buys in your category.
So segment to understand, and to tailor the parts that really differ, like delivery, pack size or payment terms. Then look for what's common across all the people who buy what you sell, because that's what lets you reach them all.
Does that make sense? Picture the customers of two competing bakeries on the same road. You might expect one to attract older customers and the other younger ones, or one families and the other offices. When researchers look at real buying data, the two customer lists usually look surprisingly alike. Mostly, people buy from both, depending on which is closer, which is open, or which came to mind first.
Targeting: aim broadly within the market you can serve
Targeting means choosing who you'll aim your marketing at. This is where the traditional advice most often leads small businesses astray.
The traditional approach says: pick a narrow target, often your current best customers, and focus everything on them. It feels efficient. But growth comes mainly from winning more buyers, and most of the buyers a business can win are light, occasional buyers of the category who aren't currently thinking about you. A narrow target concentrates your spending on a small group, many of whom already buy from you, and misses most of the people who could.
What holds up is targeting by the market you can actually serve: the area you deliver to, the type of product you make, the price level you're at. Within that, aim to reach as many of the people who buy in your category as you can, regularly.
There's one useful form of narrowing: knowing your ideal customer for direct selling. If you sell to businesses through a salesperson's visits and calls, an ideal customer profile, the kinds of business that are the best fit for what you offer, tells the salesperson where to spend limited time. That's targeting effort, which is scarce. Advertising reach is different, and works best when it's broad.
Positioning: be easy to think of in the right situations
Positioning means deciding how you want people to see your business relative to the alternatives. Traditionally, that means finding a unique point of difference, faster, cheaper, more premium, more caring, and building everything around it.
Two findings change how to think about this.
First, buyers tend to see competing brands as broadly similar, and don't hold strong, distinct beliefs about most of them. A carefully crafted point of difference is often barely noticed.
Second, what does make a business more likely to be chosen is coming to mind in the situations where people buy, and being instantly recognisable when they see it.
So for a small business, useful positioning has three parts.
Be clear about your category. People should know instantly what you are: a bakery, a printer, an accounting firm, an air-conditioning repair service. Clever positioning that blurs the category makes you harder to think of.
Link yourself to the buying situations. The more of the moments when people need what you sell that your business is connected to in their minds, the more often you're thought of. A bakery linked to birthdays, office meetings, unexpected guests and festival seasons comes to mind far more often than one linked only to wedding cakes.
Be distinctive. Consistent colours, logo, name and style, so that everything you put out is recognisable as yours. (Our guide to distinctive brand assets covers how.)
Put the steps together and you can see the chain that narrow targeting breaks. Growth is mainly the result of more people buying from you. More people buying is the result of more people thinking of you when they need what you sell. And that is the result of reaching them, recognisably, over time. Aim at only a narrow slice, and you've cut the chain at the reaching step.
Differentiation still has a place
None of this means your offer shouldn't be good, or that there's no point in being better. A product that's reliably good, a service that's easy to deal with, prices that are fair, delivery that's on time: these keep customers from leaving and make word of mouth work. Real advantages should be stated clearly in your messaging, because they give people a reason to choose you when they're comparing.
The adjustment is one of emphasis. A point of difference, on its own, does less to grow a business than being thought of by more people, more often, in more buying situations, and being easy to find and buy from when they are.
Three ways of using a framework
The first applies STP exactly as the textbook says: narrow segment, narrow target, unique positioning. The second, after it disappoints, decides marketing theory is useless and goes back to instinct. The third uses frameworks and evidence together: keeping the parts that research supports, adjusting the parts it doesn't, and testing the result in your own business.
That last part matters. The research describes patterns across many businesses and categories. Your business is one case, so treat the findings as strong starting assumptions, and check them against your own numbers.
Putting it together
For a small business, a practical version of STP looks like this:
Segment to understand who buys and how their needs differ, and tailor the parts of the offer that need it.
Define the market you can serve, and aim to reach as many of the buyers in it as you can, steadily, all year.
Position on the category, the buying situations and your distinctive assets, with real advantages stated plainly.
Use an ideal customer profile to focus scarce sales effort, if you sell directly.
Then measure what happens: more enquiries, more customers, more of the market buying from you.
How Gridwerk helps
Segmentation, targeting, positioning, messaging and ideal customer profiles are all part of our Sales & Marketing service, applied with what research shows about how businesses grow. If you're not sure who you should be reaching, or how, start with the free diagnostic. It's eighteen questions, about seven minutes, and then we call you to go through the rest.
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