Many students in b-school find it very difficult to clearly understand the concepts of segmentation, targeting and positioning. Segmentation is easy, most grasp it immediately. After all, segmentation is simply slotting things together based on certain shared characteristics. Take Airbnb.com for example.
It’s users can be divided into two primary segments:
- those who are seeking a place to stay,
- those who have a place they want to rent out.
So that’s segmentation for you; simple to understand and visualize. What trips most people though, is targeting and positioning. I don’t know why exactly, but it does. Therefore, dear reader, this is my attempt to explain the entire STP concept using a pizza. Mind you, it isn’t a robust analogy and will fall apart with the slightest of prodding, but it’s good for a primer.
Assuming the pizza is your customer base you segment it into 4 equal pieces, or 8 equal pieces, or 6 equal pieces. However, you could also segment it in such a way that each piece received the different collections of cheese.
Just like pizza, customers are segmented in many ways which are specific to businesses and industries.
After you’ve got your segments neatly cut up, you decide which piece to eat first. It could be the one with all the olives, or maybe you’re scared that’ll trigger your allergic reaction so you pick the piece with all the meat. This is targeting. In the real world, it’s about choosing which customer segment you want to serve first. Larger organizations can afford to target multiple segments at the same time but startups are usually best off targeting one segment.
Choosing which segment to target first is itself a decision that requires a lot of homework. Startups seeking funding are usually asked about the “market size and potential”. This essentially translates to
Number of customers for your solution * Amount they’re willing to spend on your solution
Market size and potential are one way to choose your target market. Some other reasons are found here.
Positioning is how you (or your business) is going to come across to the customer segment. So in our analogy if the pizza slice is the customer segment you have chosen to eat (targeted), then positioning is how you eat it.
You could be the person who eats it with a fork, so your customer base thinks of you as well-mannered and cultured. You could be the guy who eats it using his fingers, with a beer in the other hand, so your customer segment thinks of you as casual and chill. Essentially, based on your communication (in any form), you come across as something/someone to the customer, and that my dear reader, is called positioning.
This post was in the works for a long long time, but I only completed it after reading my friend Jayant Rana’s post “Segmentation, Targeting & Positioning in the Real World“.
Your comments, as always, are solicited.