Segmentation, targeting and positioning: a worked example you can copy

Segmentation, targeting and positioning is a three step method for deciding who you sell to and what you mean to them. Segmentation splits the market into groups that behave differently, targeting picks the groups you will serve, and positioning fixes the one idea you want to own in those buyers' heads. The worked example below runs all three steps for an illustrative payroll software company and ends with the positioning statement that comes out of it. The example is an illustration built to show the method, not an account of a real company.

The three steps, defined

• Segmentation. Divide the total market into groups whose needs, buying behaviour or willingness to pay differ enough that you would treat them differently. A good segment is measurable, reachable, large enough to be worth serving, and distinct from its neighbours.
• Targeting. Score the segments and choose. The decision is a commercial one: size, growth, how well you can serve it, how hard it is to reach, and who else is already there.
• Positioning. Decide the single thing you want the chosen buyer to believe about you, and make sure it is true, different from the alternatives, and worth paying for.

The order matters. Positioning written before targeting ends up as a slogan nobody can act on.

Step one, segmentation, worked

The illustrative company sells cloud payroll software. Its total addressable market is every business that runs a payroll. That is useless as a target, so it splits the market by the variable that actually changes buying behaviour, which here is headcount combined with who runs payroll today.

Segment	Who runs payroll now	What they need	What they will pay for
Micro business, under 10 staff	The founder, in a spreadsheet	Something that will not go wrong, almost no setup	A low monthly fee, and only if setup takes under an hour
Growing business, 10 to 100 staff	One office manager or an external accountant	Statutory filings handled, payslips, leave and attendance in one place	Per employee pricing, and support that answers the same day
Mid market, 100 to 1000 staff	A small HR team plus finance	Approvals, audit trail, integration with accounting and biometrics	Implementation help and a named account contact
Enterprise, 1000 plus	A dedicated payroll function	Multi entity, multi state rules, security review, custom reporting	A tender process, a long contract, and procurement terms

Four segments, each with a different buyer, a different trigger and a different sales motion. That is what a real segmentation produces. Splitting by industry instead would have produced twenty groups that all buy the same way, which is a list, not a segmentation.

Step two, targeting, worked

Score each segment on the factors that decide whether you can win it. Use a simple one to five scale and write the reason next to the score, because the reason is what you will argue about later.

Segment	Size	Growth	Fit with what we have built	Cost to reach	Competition	Total
Micro	5	4	3	2	2	16
Growing	4	5	5	4	3	21
Mid market	3	4	3	3	3	16
Enterprise	2	2	1	1	2	8

The growing business segment wins, and the scores show why: the product already fits it, the segment is expanding, and it can be reached through search and accountant referrals rather than a field sales team. Micro business scores well on size and badly on cost to reach, because a low monthly fee cannot fund a sales conversation. Enterprise scores badly on fit, which is the honest reading when the product has no multi entity support yet.

Targeting is also a decision about who you decline. The illustrative company's answer to an enterprise enquiry is a referral, not a six month custom build.

Step three, positioning, worked

A positioning statement is an internal document. It is written in one shape so that it can be argued with.

For [target buyer]
who [the situation they are in]
our [category]
is the one that [the single difference]
because [the proof]
unlike [the main alternative]
which [the compromise that alternative forces]

Filled in for the chosen segment:

For the office manager at a 10 to 100 person company
who inherited payroll along with everything else on her desk
cloud payroll software
is the one that files every statutory return on time without being chased
because filing deadlines are built into the calendar and the
  software prepares the challan before the due date
unlike spreadsheets plus an external accountant
which leave the office manager carrying a deadline she cannot see

Three tests before you accept a statement like that. Is it true today, with proof a buyer can check. Would a competitor say the opposite, which is how you know it is a position rather than a platitude. Does the target buyer care enough to pay for it. A statement that fails any one of them is a tagline.

What changes once STP is written down

• The website. The home page headline speaks to one buyer in one situation, and the pricing page leads with per employee pricing rather than enterprise tiers.
• The channels. Search for the statutory and deadline questions the office manager types, plus accountant partnerships, rather than conference sponsorship aimed at enterprise HR.
• The product roadmap. Filing calendar and reminders move up the list, multi entity moves down.
• The sales script. The first question becomes how payroll is run today, because that is the segmentation variable.
• The metric. Filings completed on time becomes the number marketing quotes, because it is the position stated as evidence.

If nothing in the plan changes after an STP exercise, the exercise produced a description rather than a decision.

The four mistakes worth avoiding

• Segmenting by something that does not change behaviour, such as region, when every region buys identically.
• Targeting every segment at once, which produces a home page that speaks to nobody.
• Positioning on a quality every competitor also claims, such as easy to use or reliable.
• Writing the statement and never using it in a brief, a page or a sales call.

This page covers the STP method with one worked example. For the four Ps that sit downstream of it, see our page of four Ps examples you can copy the shape of.

Questions buyers ask about Segmentation, targeting and positioning

How many segments should a plan have?

Three to five for most businesses. Fewer than three usually means the market has not really been divided. More than six means the segments are describing customers rather than behaviour.

What is the difference between targeting and positioning?

Targeting is a choice about people. Positioning is a choice about meaning. You can target the right segment and still position badly, which shows up as good traffic and poor conversion.

Can a company have more than one position?

One position per target segment, each on its own page or in its own campaign. One company trying to hold two positions in the same buyer's head loses both.

What data do I need for segmentation?

Your own closed won and closed lost records first, because they show which groups actually buy. Add search demand data and whatever industry figures you can source for sizing. Start with what you have rather than waiting for a research budget.

How often should STP be revisited?

Once a year, and immediately after a product change that makes a new segment serviceable.

Where to go from here

• The marketing mix section of a business plan, filled in
• PESTEL analysis with a worked example
• Sixty marketing terms in plain language
• Campaign examples and the mechanism behind each

The segment that asks a machine first

Your positioning statement is written for a segment you chose. Some members of that segment never read it: they ask an assistant for "a supplier like us that does X" and read the three names it returns. How the assistant describes your position may differ from the one you drafted.

Test the statement against the reply. Ask as your target segment would, and note the words used for you. AI Knows Us lets you repeat that test across assistants and questions, so you can check whether the positioning survives a retelling.