Product Governance: Identifying the target market and common mistakes made by firms

Too many products are still being designed without the Target Market clearly defined.

This is a message the FCA has returned to time and again, sometimes in speeches, sometimes in correspondence with firms, and increasingly through direct supervisory actions and interventions.

On paper, most firms can point to a target market statement, usually, a generic document, which sets out what the product is, who it is designed for (and in some cases not), eligibility criteria and the main features, benefits and limitations.

However, the FCA is increasingly finding that many of these statements are identifying rather broad target markets with little reflection on different customer segmentations or the negative target market.

Too broad and generic target market statements can result in products being distributed to customers who they are not suitable for, increasing the risk of poor customer outcomes.

Target Market Identification is a core control for good customer outcomes

The FCA’s expectation is simple in principle:
Firms should design products for a clearly defined group of customers, and take reasonable steps to ensure those products consistently meet their needs throughout the product or customer relationship lifecycle.

Broadly this means:

• Being explicitly clear who the product is for, and why

• Being equally clear who it is not for

• Designing product features, pricing and distribution with those customers in mind (paying due regard to their likely demands, needs, characteristics and perspectives).

• Monitoring outcomes and taking action when things go wrong

Where firms are still getting it wrong

Despite years of regulatory focus, we’ve found the same issues keep resurfacing.

1. Target markets that are too broad
   Descriptions like “the mass market” might feel safe, but they say very little about actual suitability. In reality, these broad definitions often mask difficult trade‑offs particularly around product limitations, affordability and likelihood of benefit.

2. Negative target markets not genuinely considered
   Negative target markets are often not included within target market statements and where they are it is often just the opposite of the eligibility criteria! It is important to remember, that even though a customer might be eligible to purchase a product or service, it doesn’t necessarily mean the product is suitable for them. The negative target market is about really identifying and thinking about who the product is not suitable for.  

3. Weak links between customer needs and product design
   The FCA is increasingly challenging firms to evidence how product features meet the needs of the target market. This is where many struggle, especially for more complex products where value can quickly erode for certain groups.

4. Distribution strategy that doesn’t match the requirements of the intended target market
   It is not enough to define a careful target market and then distribute through channels that are not that well-suited to that audience. We continue to see misalignment where products intended for customers with specific needs or understanding levels are sold through high‑volume or lightly controlled channels.

5. Limited use of data to test outcomes
   Perhaps most tellingly, many firms are not using the data they already have to test whether products are working for the target market in practice. Complaints, product usage data and proactive customer feedback should all inform whether the firm is aligning to its intended target market.

When weaknesses turn into harm

It is worth noting that these are not technical shortcomings, our work across the market, and FCA interventions is showing that some of these weaknesses are now showing up as tangible consumer harm.

The FCA’s interventions increasingly point to situations where:

• Customers are sold products that offer little or no real value

• Product complexity prevents customers from understanding what they are buying

• Vulnerable customers are exposed to foreseeable harm

In many of these cases, the root cause is the same: a failure to properly identify, understand and distribute appropriately to the target market.

What good looks like

Firms that are doing this well tend to share a few common traits:

• They are willing to specify at a granular level who their target market is even where products have traditionally been identified as “mass market” products.

• They consider factors such as customer demographics, vulnerability financial resilience, behavioural/psychographic factors etc.

• They use evidence and insight, such as product performance data, customer feedback and market research, not mere assumptions.

• They think seriously about vulnerability and financial resilience and specifically different customer segmentations within the overall target market.

• They are able to use MI to identify and measure outcomes for different customer segmentations.

• They actively monitor outcomes and intervene early where appropriate.

• Crucially, they use target market identification to inform real decisions about design, distribution and ongoing oversight.

Final thought

As Consumer Duty expectations continue to bed in, the FCA is no longer asking whether firms have defined a target market, but whether that definition is granular and segmented enough to enable firms to form a view of good outcomes across different customer groups.

Without a sufficiently granular target market, firms have no reliable baseline to test fair value or evidence good outcomes because they cannot measure whether the product/service performs as intended for the specific customer groups it is meant to serve, or conversely, identify where it does not.

Target market identification is one of the earliest opportunities firms have to prevent poor outcomes.