Marketing’s STDP Process
Depending upon the marketing textbook that you are reviewing, the process of moving from market segmentation to positioning is sometimes referred to as the STP process, or in some other textbooks, the STDP process.
These are identical processes, with the exception of the STDP approach simply be more explicit with the separation of differentiation, which would normally sit under positioning anyway.
Please note that this website has numerous articles dedicated to the STP process for more information.
Key components of STDP
As suggested by the letters, there are four key components of the STDP process, as follows:
- S stands for segmentation – or more appropriately market segmentation
- T stands for targeting – or target market selection
- D stands for differentiation = having something unique in the product offering that is not available in the same combination from a competitor
- P stands for positioning – the main attributes and benefits that the brand is known for
As suggested by the above diagram, STDP needs to be approached in a sequence manner – working from segmentation through to clear positioning.
About market segmentation
In the STDP process, the role of market segmentation is to help analyze an overall market that is of interest to the firm, and then split the market into related sets or groups of consumers.
A key word here is “analyze”, as the process of market segmentation should assist with gaining an understanding of the marketplace and hopefully identifying key marketing insights.
There is NO one best way to segment a market. Indeed, viewing a market from a different perspective than traditional competitors may be an effective way of gaining a competitive advantage in the marketplace by having a new approach.
The main options for segmenting the market built around: geographic, demographic, psychographic and/or behavioral segmentation bases, which are discussed extensively elsewhere on this website.
Companies usually require significant marketplace data to effectively segment a market and utilize tools such as cluster analysis and segmentation trees to split the overall market into smaller groups of related consumers.
It is critical to ensure that market segments, when finally defined, have effectively grouped consumers that have some similarity – in terms of needs, purchases, behavior, or profile – that is relevant to the brand in question.
The next step in the STDP sequence is targeting. This happens after the development of multiple market segments from the previous step.
In that step, each of the market segments would be defined, measured, and various pieces of information would be provided. And based upon this information, a marketer would select the most appropriate target market/s (could be more than one) for the brand.
Typically, in selecting target markets, a marketer would consider array of factors including: size and growth, current and potential profitability, degree of competition, potential impact of environmental factors, and other market structure considerations (discussed further in this article on selecting target markets).
In addition to the above consideration of the attractiveness of the target market, obviously it is critical that the firm have the capabilities to successfully compete in that market segment. In that regard, the firm’s channel relationships, product mix, brand equity, geographic coverage, and so on would need to be a good fit to address the marketing challenges.
Differentiation is the additional step in the STDP model configuration, as opposed to STP only. However, it is the same process, with the exception of a more explicit differentiation stage.
The reason is the same process being discussed, is that differentiation is typically an embedded component of positioning, but in some marketing textbooks they break it out as a separate entity.
What is differentiation? Differentiation is simply being different. Having something unique in the offering of the brand/product to the consumer. Ideally, it is something that cannot be offered well by consumers.
Differentiation is important because it gives consumers a reason to purchase your product versus a competitor offering. Without any differentiation, a brand is effectively forced to compete on price only, which severely limits the profitability potential of the brand.
By having differentiation, brands can compete on its unique features, rather than price, allowing for greater profit margins.
Differentiation can be quite simple – such as a unique flavor of a food or drink item. Or it can be quite technical or advanced – such as a patented pharmaceutical, or a technically superior smart phone.
As implied in the prior section, there is a significant overlap between positioning and differentiation. Positioning is essentially what the brand stands for in the minds of consumers.
It is an image construction in consumer’s minds of what the brand is best for and how it is better than other competing offerings.
For example, many consumers know Starbucks offer a wide choice of coffee drinks, in many convenient locations, delivered with friendly and fast service. This would be an example of Starbucks’ positioning.
In this above statement, the key elements of Starbucks’ value proposition are listed, along with a positive spin – such as “wide choice” and “convenient”.
The Role of the STDP Process
STDP highlights the key elements of marketing strategy for many firms and brands, as it forces the marketer to consider key strategic questions and make clear decisions before designing and implementing the marketing mix.
By considering market segmentation, the firm must first define the overall market that they wish to compete in. That may sound strange at first, but consider a fast food restaurant chain – are they in the burger market only or are they in a broader range of food offerings – are they also in the takeaway coffee market – are they in the in-store dining market? As you can see, the scope of the market can be very narrow or extremely broad.
In the market segmentation stage, the firm will get to understand the different types of consumers in the marketplace and their need. Which ones have similar needs? What are the different ways of looking at the same market? Can we have a different view of the market than our competitors?
This is very helpful information both from a marketing insight perspective, but also from a potential competitive angle as well.
In the target market selection stage, the firm will consider which consumer segments of the market that they will compete in. As we know in marketing, it is difficult to be a mass-marketer. Therefore, most firms will need to be selective in where they channel their marketing resources, and the target market selection answers the big question = Where to Compete?
Differentiation requires the firm to have at least one unique aspect in their overall value proposition that will appeal to the targeted segment. Without clear differentiation – which consumers see as having value – there is no reason for a consumer to purchase their products, as opposed to any other offering in the marketplace.
Therefore, considering differentiation forces the company to design an offering that has a clear target market appeal.
And finally, positioning is how the brand wishes to be seen and known in the marketplace. It will most likely include its clear points-of-difference from above, and may also highlight what is known as points-of-parity.