Segmenting, Targeting, and Positioning (STP) Approach
Segmenting, targeting, and positioning (STP) have been offered as a way to manage
customer heterogeneity since the 1950s. However, the mechanics and analyses for
executing STP have advanced significantly. In the earliest and most basic form,
managers would describe each customer group according to their impressions after
meeting potential and existing customers, often with a focus on the most observable
customer demographics (segmenting). With this information, managers would select the
segment they felt would produce the most sales and profits (targeting), then make
product, pricing, channel, and promotion decisions (positioning) in relation to this target
segment. This process captures the essence of the STP approach, but it also has
several weaknesses. If based on managers’ beliefs rather than empirical analyses, it
may be biased:
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Often, it is based on what managers want to be true versus what is actually true.
It is weighted more toward past customer preferences, reflecting when managers
developed their beliefs, rather than present or trending preferences.
It assumes customers are more similar than is often the case.
It focuses on firms’ own customers while ignoring large, untapped groups of
customers who the managers encounter less often.
It uses customer demographics (gender, age, income) or purchase history as
primary segmentation variables, because these data are more readily observable
by marketers.
Polaroid Corporation:
Polaroid is an American company best known for its instant film and cameras. The
company was founded in 1937 by Edwin H. Land, to exploit the use of its Polaroid
polarizing polymer. The company’s peak revenue was $3 billion in 1991.
What happened to Polaroid in last decades?
In 1975, Polaroid’s fiercest competitor, Kodak, entered the market with its digital
camera. Ironically, at the time, Polaroid already had a digital camera prototype ready,
but they underestimated the concept and thought consumers wouldn’t be prepared for
it. By 1989, 42% of Polaroid's research and development funding was being spent on
digital imaging. But it should be notice that companies doing everything well can lose
their leadership position due to failing to manage disruptive innovations.
Polaroid STP choices:
1. Market Segmentation:
Market segmentation is the process through which marketing managers at can divide
the large market into smaller segments based on distinct needs, characteristics, or
consumer behaviour. Companies can do segmentation based on following criteria:
geographic, demographic, usage, user status, income, lifestyle, value proposition
priorities, benefits sought, loyalty status, gender, social class, self-perception,
psychographic factors, and other attitudes.
Earlier, The Company tended to be product led rather than market led and carried out
very little market research. Its emphasis on technical excellence caused it to lose out on
opportunities which by Polaroid’s standards might have been regarded as frivolous. It
saw its traditional target market as private individuals and businesses that needed
high quality instant photographs for serious purposes, for example, many professional
photographers would take an instant picture with a Polaroid camera in order to judge
the composition of a picture that they would later take with a standard camera.
Polaroid’s traditional target market had ceased to grow and was increasingly challenged
by new forms of electronic imaging which were just beginning to be affordable for
business users, although still prohibitive for most private users.
Therefore, in 90’s Polaroid made a change and a key part of this task involved moving
the company’s positioning away from one of technical excellence to one of fun.
2. Targeting:
Once the overall market is divided into various segments then company needs to
choose a target segment or few target segments. The key is not to be everything to
everybody as the products can only deliver specific value proposition.
First step in the targeting process is to conduct a Segment Attractiveness Analysis.
Under the Segment Attractiveness Analysis all the segments are evaluated based on
the following criteria:
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Mode of competition and business models: Sometimes the way competitors
compete shape the whole landscape of an industry. For example email can
easily be a paid product, but organizations chose to make it free products to
increase customer base and lure in advertisers. So if Polaroid Debt is trying to
enter a segment where revenue from other division is financing the core service
then it has to build a requisite business model where revenue is driven by an
adjacent or related product and service.
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Customer behaviour and loyalty analysis: How customers are behaving in
each segment and are there opportunities of over lapping. Loyalty behaviour
analysis is also a critical factor in analysing the conversion rate if the Polaroid
Debt core strategy is based on attracting existing players’ customers.
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Profitability in various segments: Some segments often have higher margins
compare to another.
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Maturity of the market: For example within the car industry the SUV category is
more mature than Electric Vehicle market, so the margins can be very limited in
the SUV category but the demand forecasting is easy. On the other hand EV
division can have higher margins because of lower competition but the demand
forecasting can be a difficult process.
After moving the company’s positioning away from one of technical excellence to one
of fun, it reasoned that if serious users of instant photography were becoming harder
target markets, segments of more casual users may be more promising. The company’s
most promising new market segments were the under 17s, a far cry from its previous
marketing strategy.
Another targeting strategy followed by the company was that they decided to introduce
the new camera at the September 1992 Photokina tradeshow in Cologne, Germany.
Polaroid decided a different marketing strategy by introducing first to the Germany and
in other European countries and in Japan so that the sequential introduction would allow
the team to adjust to many production problems and to build up production quantities
before introducing the product to US market. They named it "vision" so that it would
make sense to different languages while also conveying the essence of Polaroid’s spirit
and mission.
3. Positioning:
Differentiation process involves how company is differentiating its products and services
in the market place compare to its competitors. Positioning is the position of the brand
or products in minds of target customers based on distinctive features, qualities and
functions.
Because of digital-imaging products market exploded in 1994 and the demand was
rapidly expanding to include various models of an individual products. Some digitalimaging include, a digital camera where photos can be stored on a hard disk and
processed and retrieved through computers and software, and a film camera and
scanner which comprise a magnetic disk that is used to print photos from a computer.
There is also the video camera and frame grabber that works with a compact flash,
memory stick, and magnetic diskette which allows photos to be transmitted via the
internet, in addition, this product has an optical disk to show images through projectors.
However, the product that seemed to attract more attention and demand is the digital
camera also refers to as the filmless camera. Although Polaroid had begun investing in
research and development in digital imaging in the 80s, it wasn’t until the early 1990s
that their first product called Helios Medical Imaging entered the market but started
fading by 1996 mainly due to poor marketing strategies. With new entrants from
competitors, such as Kodak and Fuji, Polaroid was forced to reinvent its marketing
strategies to maintain its presents in the digital-imaging market.