What is the STP Framework?
“Product-market-fit” and “target markets'' are terms that are constantly used in marketing departments and startups. However, businesses consistently forget the importance of these concepts. The STP framework is a tool that we use in conjunction with the 4 Ps framework to articulate and identify a product or service’s target market. Without a target market, your product line could be excellent, but never generate any sales.
Phillip Kotler, distinguished professor of marketing at the Kellogg School of Management at Northwestern University, created the STP framework as a tool to find a target market, before using the 4 P’s to create a product and marketing plan. The framework is comprised of 3 stages; segmentation, targeting, and positioning (see Figure 1).
As illustrated above, the first step in the STP framework is to identify the customer segments in the market that you are trying to penetrate. Using the MECE principle (Mutually Exclusive Collectively Exhaustive) at this step will be key when identifying all of the consumers that participate in the market.
Some important information to gather about each customer segment include, but aren’t limited to:
Once you’ve identified all the customer segments for your product, you must organize and edit the market segments. Kotler recommends using the “DAMP” approach, where you analyze every segment you’ve identified and ensure they pass the following criteria:
Distinctive: Market segment does not overlap with another segment
Accessible: There are realistic marketing channels to communicate with the market segment
Measurable: The market segment can be sized and market penetration can be measured
Profitable: The market must be large enough to sustain revenues and have enough income to generate large enough ticket sizes
After identifying DAMP market segments, you can now choose one or two market segments to target. A strong target market should be large but ideally has limited competition. Choosing a target market can be a challenging task; however, you can always pivot your brand, so moving forward and testing product-market-fit is usually the highest yield strategy. The market will tell you whether they like your product or not a lot faster than you will be able to research your way to the answer.
Finally, positioning your product or service is the final stage in the STP framework. Tailoring your branding and marketing strategy towards your target market will not only make your company more attractive to the target market, but it will also build a community and relationship between the brand and its customers.
Some great examples of brands that have successfully positioned themselves towards their target market are Apple, Jeep, Trader Joes, and Wealthsimple. Apple is the “young” luxury technology company that is progressive and innovative. Jeep is the off-road car brand. Trader Joes is the local and small grocery conglomerate. Wealthsimple is the Canadian stock brokerage for millennials and young investors. Thinking about what kind of “the” brand that you want to be can be a useful tool when shaping your marketing strategy.
A brand has no direction without a target market. By using the STP framework, you will be able to identify the optimal target market for your new product, or realize there are more profitable target markets that you can currently reach. This can be a massively valuable exercise to run through biannually as a preventative measure for losing market share, but also a growth tool to penetrate emerging markets.
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