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The customers of goods and services offered by a firm can vary on the type of product being sold. To increase sales it is important for a firm to first determine who the customers of its products would ideally be. This depends to a large extent on the product. If groups of people with a particular profile are more likely to buy the product, it makes sense for the firm to target that particular group instead of marketing their product generally to everyone in the market.

Determining a target market reduces the cost of marketing and increases the returns. For example, a firm that sells t-shirts worn primarily by teenagers would gain if it advertises in schools and colleges, sponsors events that are attended by them, and has a brand ambassador that is popular among those in the target market. Instead of doing this if a homogenous marketing strategy is adopted, which involves everyone irrespective of whether they lie in the target market or not, the marketing budget would go up without a corresponding increase in turnover.

The target market can be determined by considering a large number of differentiating factors, some of which are age, gender, education, income, marital status, ethnicity, family life cycle, etc.

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