The STP Approach

Segmentation has two phases:

Phase 1 Segment the market using demand variables (e.g., customer needs, wants, benefits sought, problem solutions desired, and usage situations).

Phase 2 Describe the market segments identified using variables that help the firm understand how to serve these customers (e.g., shopping patterns, geographic location, clothing size, spending power, and price sensitivity), how to talk to these customers (e.g., media preference and use, attitudes, activities, interests, and opinions), and buyer switching costs (the costs associated with changing products or suppliers).

For General Understanding of a MarketBenefits sought (in industrial markets the criterion used is purchase decision)Product-purchase and product-use patternsNeedsBrand-loyalty and brand-switching patternsA hybrid of the variables above

For Positioning StudiesProduct useProduct preferenceBenefits soughtA hybrid of the variables above

Segmentation: objectives

For New-Product Concepts (and New-Product Introduction

Reaction to new concepts (intention to buy, preference over current brand, etc.)Benefits sought

For Pricing DecisionsPrice sensitivityDeal pronenessPrice sensitivity by purchase/use patterns

For Advertising DecisionsBenefits soughtMedia usePsychographic/lifestyleA hybrid (of the variables above and/or

purchase/use patterns

For Distribution DecisionsStore loyalty and patronageBenefits sought in store selection

Evaluating Segment Attractiveness

 

Criterion Examples of Consideration I. Size and Growth 1. Size Market potential, current market penetration 2. Growth Past growth forecasts of technology change II. Structural Characteristics

3. Competition Barriers to entry, barriers to exit, position of competitors, ability to retaliate

4. Segment saturation Gaps in the market 5. Protectability Patentability of products, barriers to entry 6. Environmental risk Economic, political, and technological

change III. Product-Market Fit

7. Fit Coherence with company’s strengths and image

8. Relationships with other segments

Synergy, cost interactions, image transfers, cannibalization

9. Profitability Entry costs, margin levels, return on investment

Conjoint analysis procedure

Stage 1 – Designing the conjoint study:Step 1.1: Select attributes relevant to the product or serviceSept 1.2: Select levels for each attributeSept 1.3: Develop the product bundles to be evaluated

Stage 2 – Obtaining data from a sample of respondents:

Step 2.1 Design a data-collection procedureSept 2.2 Select a computation method for obtaining part-worth functions.

Stage 3 – Evaluating product design options:Step 3.1 Segment customers based on their part-worth functions.Step 3.2 Design market simulations.Step 3.3 Select choice rule.