Increasing Revenue by "Going Niche"
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Are you giving your customers exactly what they want?
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Sofia has just started a new job as a marketing manager for a fashion outlet. She conducts a careful analysis of sales data within the first few weeks, and quickly identifies a profitable opportunity with a particular group of high-value customers.
So, she brainstorms several ideas with her team, and they come up with an exciting new product which has the potential to be a real success for the company.
Sofia has identified a profitable segment of the market, but how has she done this? How can her team members develop a perfect product for these people? And how should they communicate its benefits?
In this article, we'll look at the Segmentation, Targeting and Positioning (STP) Model*, an approach that you can use to identify your most valuable market segments, and then sell to these successfully with carefully targeted products and marketing.
About the Model
The STP Model consists of three steps that help you analyze your offering and the way you communicate its benefits and value to specific groups.
STP stands for:
- Step 1: Segment your market.
- Step 2: Target your best customers.
- Step 3: Position your offering.
This model is useful because it helps you identify your most valuable types of customer, and then develop products and marketing messages that ideally suit them. This allows you to engage with each group better, personalize your messages, and sell much more of your product.
Example
Marriott International® owns a number of different hotel chains that target specific consumer groups.
For example, Courtyard by Marriott® hotels focus on travelers on the road, who want a nice, clean place to stay during their trip; Ritz-Carlton® hotels target those who don't mind paying a premium for luxury; and Marriott ExecuStay® hotels are aimed at professionals who need a longer-term, comfortable place to stay.
As you can imagine, Marriott International doesn't communicate the same marketing message to all its customers. Each hotel is designed and positioned to appeal to the unique wants and needs of a specific group.
Applying the STP Model
Follow the steps below to apply the STP Model in your organization.
Step 1: Segment Your Market
Your organization, product or brand can't be all things to all people. This is why you need to use market segmentation to divide your customers into groups of people with common characteristics and needs. This allows you to tailor your approach to meet each group's needs cost-effectively, and this gives you a huge advantage over competitors who use a "one size fits all" approach.
There are many different ways to segment your target markets. For example, you can use the following approaches:
- Demographic – By personal attributes such as age, marital status, gender, ethnicity, sexuality, education, or occupation.
- Geographic – By country, region, state, city, or neighborhood.
- Psychographic – By personality, risk aversion, values, or lifestyle.
- Behavioral – By how people use the product, how loyal they are, or the benefits that they are looking for.
(You can use Simonson and Rosen's Influence Mix to identify factors that influence customer purchases.)
Example
The Adventure Travel Company is an online travel agency that organizes worldwide adventure vacations. It has split its customers into three segments, because it's too costly to create different packages for more groups than this.
Segment A is made up of young married couples, who are primarily interested in affordable, eco-friendly vacations in exotic locations. Segment B consists of middle-class families, who want safe, family-friendly vacation packages that make it easy and fun to travel with children. Segment C comprises upscale retirees, who are looking for stylish and luxurious vacations in well-known locations such as Paris and Rome.
Step 2: Target Your Best Customers
Next, you decide which segments to target by finding the most attractive ones. There are several factors to consider here.
First, look at the profitability of each segment. Which customer groups contribute most to your bottom line?
Next, analyze the size and potential growth of each customer group. Is it large enough to be worth addressing? Is steady growth possible? And how does it compare with the other segments? (Make sure that you won't be reducing revenue by shifting your focus to a niche market that's too small.)
Last, think carefully about how well your organization can service this market. For example, are there any legal, technological or social barriers that could have an impact? Conduct a PEST Analysis to understand the opportunities and threats that might affect each segment.
Tip:
It can take a lot of effort to target a segment effectively. Choose only one segment to focus on at any one time.
Example
The Adventure Travel Company analyzes the profits, revenue and market size of each of its segments. Segment A has profits of $8,220,000, Segment B has profits of $4,360,000, and Segment C has profits of $3,430,000. So, it decides to focus on Segment A, after confirming that the segment size is big enough (it's estimated to be worth $220,000,000/year.)
Step 3: Position Your Offering
In this last step, your goal is to identify how you want to position your product to target the most valuable customer segments. Then, you can select the marketing mix that will be most effective for each of them.
First, consider why customers should purchase your product rather than those of your competitors. Do this by identifying your unique selling proposition , and draw apositioning map to understand how each segment perceives your product, brand or service. This will help you determine how best to position your offering.
Next, look at the wants and needs of each segment, or the problem that your product solves for these people. Create a value proposition that clearly explains how your offering will meet this requirement better than any of your competitors' products, and then develop a marketing campaign that presents this value proposition in a way that your audience will appreciate.
Example
The Adventure Travel Company markets itself as the "best eco-vacation service for young married couples" (Segment A).
It hosts a competition on Instagram® and Pinterest® to reach its desired market, because these are the channels that these people favor. It asks customers to send in interesting pictures of past eco-vacations, and the best one wins an all-inclusive trip.
The campaign goes viral and thousands of people send in their photos, which helps build the Adventure Travel Company mailing list. The company then creates a monthly e-newsletter full of eco-vacation destination profiles.
Key Points
The STP Model helps you position a product or service to target different groups of customers more efficiently. This three-step approach helps you quickly zoom in on the most profitable parts of your business, so that you can fully exploit the opportunities these offer.
To use the model, start by segmenting your market into groups. Next, choose which of these you want to target. Last, identify how you want to position your product, based on the personality and behavior of your target market.
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