Product Governance: Product Design & Approval - Using Target Market to Design Products
Defining a target market is only your starting point.
The real test, where the FCA is focusing its attention, is whether firms are genuinely using that target market to shape their products and services.
Across our client work, we see the same gap time and again: firms can define who a product is for but cannot clearly show how that has shaped the product itself, its pricing or the outcomes it delivers. Put simply, the substance of product governance is often missing.
Target Market Should Drive Product Design, Not Follow It
The target market should come first. However, too often we see the reverse: products are designed around legacy propositions and commercial drivers (sometimes unavoidably) and the target market is then fitted around them.
The FCA’s expectation is clear - products should be designed for a defined group of customers, not make the product first and identify who may be able to take them.
That means the agreed target market should actively inform:
The product’s core features and functionality
The pricing structure and overall value proposition
The distribution strategy
The level of support customers may need to make effective decisions
Where Firms Are Still Getting It Wrong
However, all too often firms still get this wrong which can manifest into many of the issues we see in our work, for example;
Product features not aligned to customer needs - needs do not translate into tangible design decisions. Resulting in either unnecessary, or overly complex product features.
Pricing that does not reflect the target market - pricing models are driven by commercial considerations without sufficient regard to financial resilience - eroding value, particularly for more vulnerable or lower‑income segments.
Distribution strategies that undermine the target market definition - resulting in products intended for customers with specific needs being distributed through channels that rely on self-selection, with limited friction or oversight.
Approval processes that focus on completeness rather than challenge. Approval packs are often commercially driven, with limited evidence of how the target market has shaped the product. The result: weak challenge and product misalignment.
Embedding Target Market into Product Design
Firms should be able to answer one simple question, with evidence: How has the target market shaped this product?
Good practice is where that link is clear across core design decisions:
Features and functionality. Products should be built around clear, rationalizable and evidencable customer needs and behaviours, not assumptions.
Pricing and fair value. Pricing should reflect what the target market can afford and the value they receive.
Distribution strategy. Distribution must match how the target market engages, giving them the advice they need, in the markets they operate.
Customer journey and communications. Products must be understandable in practice to your target market, not just those that are designing them. This is critical where vulnerability is a factor.
Strengthening Product Approval
Product approval processes are critical in ensuring that target market considerations are not lost. However, effectiveness varies significantly across firms.
A strong Product Approval Process will:
Give clear articulation of the target market at the outset
Have explicit links between customer needs and product design decisions
Facilitate structured challenge where alignment is weak or not evidenced
Harvest cross functional input to provide different perspectives on product suitability and customer outcomes
All too often we see the target market is treated as a standalone section within approval documents, not giving the governance forums the information they need to properly assess whether the product is appropriate.
The Risks of Harm are Real.
FCA interventions are increasingly highlighting situations where poor product design has led to tangible and widespread harm. This includes:
Customers taking on products they do not fully understand.
Products delivering no real value for certain customer groups.
Features or pricing structures disadvantaging more vulnerable segments.
What Good Looks Like
Firms that are more mature in this area tend to demonstrate a consistent set of behaviours:
They define the target market early and use it to shape product concepts.
They translate customer needs into specific, evidenced design decisions.
They consider target market segmentation when designing product features.
They are clear on who the product will not work for.
They ensure approval processes focus on customer outcomes, not just commercials.
They test whether the product performs as intended and refine where necessary.
The ensure product governance is embedded into product development, rather than applied at the end of the process.
Final Thought
If firms cannot evidence that products have been designed with a clearly defined customer group in mind, demonstrating fair value and good outcomes becomes difficult. The foundation for this is a product design and approval process that consistently embeds the target market at every stage.
The target market is not a check at the end, it is what should drive the process.
Firms that embed this are better positioned to meet regulatory expectations and deliver products that genuinely serve their intended customers – who will become loyal and generate long term engagement with their product!
If you’d like to explore your product governance processes, including insights into both good and bad practices across peer firms, get in touch for a conversation with one of our highly experienced compliance experts.
