STP | Unit of Sale/Value | Marketing Mix
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[5 min. read]
Positioning is about context.
To establish context it can be helpful to start from a global, zoomed-out perspective and then narrow the focus.
6a. Classic STP
An effective way to zoom in is to use the Segment-Target-Position (STP) method. Here’s how.
Start by segmenting the market of potential buyers.
Segments might include demographic, geographic, psychographic, or behavioral criteria. Segments MUST BE DISCRETE, a person is either in or out of a segment.
For example, a demographic segmentation might be by age. A prospect is either over 18 or under, but not both.
With the market divided into segments, the next step is to target the segment that you best serve. This is your ideal customer profile (ICP)
Selecting a segment to target is making a choice that people with certain attributes are your potential customers, and others are not.
Now comes the tricky part because there are likely others already selling to that target, perhaps they are selling products with similar benefits.
Positioning is about how you intend to compete for a share of that target market. If there is a low-cost leader (using a penetration strategy), will you try to be cheaper? Will you try to capture the premium (skimming) spot or compete on quality (value)?
That puts us back to defining value, but positioning is defining value in context.
One of the ways innovative, novel, and category-defining companies can adapt to their particular context is to re-think the unit of sale.
6c. Defining Your Unit of Sale
A unit of sale is the variable axis that scales what the customer pays for.
Customers may pay for users (Salesforce.com), for files (Shutterstock), for transactions (Stripe), or purchase an all-you-can eat enterprise license agreement (ELA).
You probably have several options to choose from. They typically correspond to either what is the easiest thing for you as the company to sell, or what makes the most sense as a unit of value for the customer to buy.
Venture Capitalist and startup blogger David Skok was interviewed on Jason Lemkin’s SaaStr podcast and gave an excellent breakdown of SaaS pricing in particular (starting about 32:30) and discussed variable pricing axes.
The unit of sale question is deciding what unit you charge more for when it is consumed? In the GoReact case that was individual users. Skok actually makes a case for moving away from users and using the Hubspot model of leads/contacts, which is usage based. In fact, in their 2021 SaaS Pricing Guide, OpenView reported, “7 out of 9 recent software IPOs with the best net dollar retention have a usage-based pricing model.”
The move to usage based is rooted in the key principle that your variable metric scales up or down in order to fully capture the customer’s WTP.
6c. The Marketing Mix
An overlooked tool in positioning is the Marketing Mix. The Marketing Mix was originally developed as a messaging tool. It involves 5 Ps.
- Product
- Promotion
- Place
- People
- Price
Think of these as dimensions upon which you intend to differentiate, to “win” against the competition. Most products are trying to win on one. It’s very difficult to win on two or more because to emphasize one, you must compromise on the others.
Here’s an example from retail.
Target aims to win on product. Their buyers tend to sacrifice price in order to offer products that appeal to the upscale side of the mass market.
Kohls tries to win on promotion. They flood our mailboxes with coupons and Kohls Cash and the price marked on the rack is never what you pay at the register.
Amazon competes on place—the Internet and Prime shipping make it super convenient to do your shopping from home.
And what about Walmart? Of course they try to win on price. Their slogan, “Save money. Live better.” is all about price.
While these giants are fierce competitors, they have all survived because the market includes some customers who prioritize each of the various elements of the Marketing Mix.
You’ll notice that there is a pricing component to all of the Ps. Knowing for which P you’re trying to win versus the competition informs your price positioning strategy.
Established markets and categories can be a crowded place to differentiate. Savvy marketing coaches like Al Reis and Jack Trout, authors of Positioning: the Battle for Your Mind (1980) or newcomer authors of Play Bigger: How Pirates, Dreamers, and Innovators Create and Dominate Markets (2016) tackle the challenge of differentiation by avoiding competition altogether and instead reframe a company in a new category where it is the leader.
Creating a category solves a lot of problems that face competitors within an old category. And it influences, but doesn’t solve the question of pricing. Because even in a market where you’re the only player, the customer can opt-out and choose not to buy. You’re still positioning against the status quo, which might be choosing nobody.
Takeaways that may influence your pricing policy from this chapter include: have you done an STP exercise to understand who your market is and how you intend to differentiate yourself from others targeting the same buyer? Are you clear on which factor of the Marketing Mix is the one you intend to “win” on? Have you considered your options for unit of sale, and selected the unit(s) that offer your best opportunity to capture maximum WTP?
Additional Reading:
How to Actually Use the 4 Ps of the Marketing Mix by Chad Jardine