STP – Segmentation, Targeting and Positioning is a very common acronym used across the marketing domains.
A statistical definition of segmentation would be – A process to divide the population into groups, based upon their needs, such as there is homogeneity within the segment and heterogeneity across the segments.
Targeting – A process of choosing one or more of the existing segments to cater to and target the products/ proposition only towards them.
Good Descriptors – When the consumers are grouped in terms of homogeneity of descriptor variables the groups are also homogeneous in terms of underlying basis variables.
Let me explain through an exercise which I worked on, in an online course on Data Driven Marketing –
Problem Statement – There is a laundry detergent product under development specially formulated for use with cold water. Think about a segmentation exercise for this product in your country.
Solution – To gather a market research data for segmentation of the market for an environmentally sustainable detergent product, we will have to first decide the market and then the bases and the descriptors to look for in the people constituting the market.
If we look at the Indian consumer goods market at large – we find that the major adoption rate for a newly introduced product is in the urban/ metro city markets. These markets are full of those early adopters, who would be motivated enough to try a product which is ecologically sustainable and might charge slightly premium over the other prevalent options. These people will create the traction and buzz for the product and bring that critical mass, before the product can be introduced and supplied to the interior markets. Hence, the market research for the segmentation exercise should be done keeping these urban/metro city markets in mind.
Thinking about what need a sustainable detergent product shall fulfill for these people, can help us get the following three bases variables that can be included in the segmentation exercise –
1. Consuming Responsibly – These people are very watchful about behaving responsibly, by switching off fans or lights while going out, turning off their car ignition if the signal is longer or trying to order small portions of food to avoid food-wastage etc. Using a sustainable detergent will make them feel responsible.
2. Improve it for the Future Generations – They are not only concerned about themselves, but also about the next generation. These people are well aware of the global climate change and other environmental deterioration issues. They want to make their own small contribution. Using a sustainable detergent will make them feel that they are preserving the world for the future generations.
3. Lead by example (influence others) – These people are titillated by the fact that they are first movers/ leaders into something. Buying this product gives them a chance to influence people towards buying a laundry detergent specially formulated for use with cold water – that consumes less electricity, is gentle on clothes and goes long way into conserving the environment.
Because it is not quite easy to identify these set of people in a market research exercise, we might have to extrapolate the above base variables into certain demographic, psychographic or other easily findable variables that strongly correlate with the base variables. This shall give us our descriptor variables –
1. Mid Aged White Collor professionals – They are aspirational individuals and their early taste of success tends to instill a sense of personal responsibility and a sense of giving back into them (in whatever small way they can).
2. Have Kids – They are family oriented. Want to improve the environment for future generations.
3. Past history of purchasing goods that are termed – organic, green, recycled, lower emission – Their retail history reveals them to be already fascinated by the environmentally sustainable product options. And hence a high likelihood that they will try a sustainable option in detergents.
This examination of bases and descriptors helps us to measure and analyze consumer preferences and gives us a structural framework to think through a set of personas in a market. Where the bases are the inner stuff (customer needs, preferences and desires) and the descriptors are the traits that can be found out about these personas in a survey/questionnaire/purchase behavior/analytics etc.
Now, if we shift focus from statistics and market research towards the data available in the digital world. We can see that, the digital data can be leveraged to obtain primarily three different types of target group segments: audience, contextual, and behavioral.
- Audience Segmentation – It is based on segmenting people based on demographic variables which are usually obtained when users log in and give information about themselves, during the website registration process or sales contact forms. Audience segmentation in the digital era can be much more specific as compared to traditional media – Instead of having a goal of reaching a broad age group customer segment with a message, we can now focus instead on 26–29 year-old women who also have certain kind of education, and (using geo-targeting) who are in a certain area.
- Contextual Segmentation – Here we analyse the users for the specific context in which they are operating. Depending on the fact that the information the advertiser is providing to the visitor has to do with a certain topic – which hits the sweet spot only when presented in a particular context. A parallel to it in the traditional media is: posting ads about a new car in a car magazine. The difference here in digital era is that we can leverage many more contextual information (content category, language, location, time etc.) – For example, if a visitor reads an article about cars, we may conclude the reader is interested in cars. We might later send the visitor an ad for a car, but he may no longer be interested. An ad for a car at any other time might not be as relevant as when it appears at the exact time when the user is reading an article around car.
- Behavioral Segmentation – This is based on the user behavior the advertiser / publisher has observed across channels. The type of behavior can vary in relevance to an advertiser; it can be of high interest if the search was very specific. It is often inferential and not as accurate. For example, how many times must a consumer engage in a certain kind of behavior in order to fit into a given segment? What is the source of the behavioral data, its recency, frequency and monetary impact etc. Then there is an issue of drawing wrong inferences e.g. A/B testing is causation, while market basket analysis is correlation which is not really causation. Let me further elucidate behavioral segmentation through an exercise which I worked on, in an online course on Data Driven Marketing –
Problem Statement – To rejuvenate the sales of Toyota’s small hybrid car, the Prius, Toyota would like to use the Prius website to identify segments of consumers in the market and to customize marketing messages to segments. Toyota would like to segment consumers based on the motivation to buy (or not buy) a hybrid vehicle, as well as their readiness to buy a hybrid vehicle (that is, at what stage of the buying process is the consumer?). Visit the Prius website and browse different pages (home page and internal/external links), as if you were shopping for a car. Remember that as you do so, a server at Toyota is recording every keystroke you make. This allows Toyota to generate data that can be used to segment individuals who are browsing, both while the browsing session is ongoing and after it is over.
Now imagine you are a marketing manager at Prius. Identify five variables that you would consider relevant for segmenting individuals who have been to the Prius website. Remember that each variable must be based only on behaviors that the Toyota server can record.
Solution – Based on the motivation to buy (or not buy) as well as their readiness to buy, multiple users will take multiple routes across the Toyota Prius website. As a marketing manager at Prius we can Identify below five variables that can be considered relevant for segmenting individuals who have been to the Prius website –
Variable 1 – Clickthrough on the home page on “Gallery” menu item link. Significant time spent on “Exterior”,”Interior”, “”Videos” and “360 Views”. Clickthrough on reviews and industry accolades.
This implies that the user is more inclined towards the Styling, Appeal and Trendiness of the car. Hence the marketing messages and further contacts with the user should be in line with these aspects.
Variable 2 – Clickthrough on the home page on “Compare” menu item link, followed by a further click on “Cost” or “Fuel Economy” or “Warranty” menu item link. Or, Clickthrough on the home page on “Local Specials Near You” link.
This implies that the user is more inclined towards the Cost, Value and Fuel Economy aspects of the car. Hence the user should be targeted with cost saving offers and other value related newsletters.
Variable 3 – Clickthrough on the home page on “Toyota Safety Sense” link, followed by a further click to view detailed “Safety Specs” page.
This implies that the purchase decision for the user is more inclined towards the Safety aspects of the car. Hence the user should be targeted with safety related newsletters.
Variable 4 – Significant time spent on “Eco Heritage” section of the features page.
This implies that the purchase decision for the user is motivated by environmentalism. These users are the prime targets for a hybrid car and hence the user should be targeted with follow up emails or calls and invited for test drives or demonstration etc.
Variable 5 -Customizing car colors on the home page banner or Brochure download or Request a Quote. Clickthrough on the home page on “See Your Nearby Dealer” link, followed by a further click on contact Dealer button.
This implies that the user has moved further down the purchase funnel, and is about to complete his purchase decision. These users are hot leads and hence should be targeted with follow up emails or calls and invited for test drives or demonstration or easy financing options etc.
This examination of variables makes us realize how much value, the user behavioral data holds. They can help identify and quantify the needs of the user, which can be used to segment them, followed by suitable marketing treatment.