Expertise · Customers and market

Choosing the customer segment: where to focus resources when resources are limited.

Not the largest file, not the most attractive file, but the file where your advantages are clearest.

Quick summary

When resources are limited, choose your target audience based on four criteria: large enough to sustain the business, able to pay, accessible at a reasonable cost, and where you can serve them better than competitors. Do not choose the largest audience; instead, select the one where your advantages are most evident, as limited resources win through focus, not spread. Choosing the wrong audience from the start will misalign your product, message, and channels, leading to wasted costs later.

Quick comparison
You should choose this direction when
  • Small resources, need to secure a stronghold first
  • has several attractive segments, prioritizing where the advantage is clearest
  • stagnant growth or excessively high customer acquisition costs
Not needed when.
  • choose the largest file instead of the file that matches the advantage
  • Choose a niche that is too narrow to sustain the business.

Choosing the customer segment is the first decision in the strategy, done even before brand positioning. Because when you decide who to serve, everything that follows, from products, pricing, messaging to distribution channels, must align with that decision. Choosing the wrong segment from the start means that even if you do all the other steps correctly, the outcome cannot be saved.

Four criteria to filter available segments

Kotler presents a set of criteria called DAMP, which stands for Distinct, Accessible, Measurable, and Profitable. A file that does not meet all four criteria cannot be targeted, no matter how appealing it may sound.

  • Large enough to sustain: The file must have a sufficient number of customers, with appropriate purchase frequency and price levels, to maintain the business. A niche that is too narrow may help you lead but still leave you starving.
  • Affordability: Does this group have money and are they willing to pay for what you sell? These two things are different: having money but not seeing value means they won't buy.
  • Accessibility: Do you have a channel to reach this group at a reasonable cost? If the cost to reach them is higher than the profit per customer, that segment is not viable even if it meets other criteria.
  • Competitive advantage: You serve this group better than competitors on points that matter to them. This is the criterion that distinguishes a good segment from one that only appears good.

When to concentrate on one file, when to expand

Concentrated targeting strategy: Focus all resources on a single segment. Suitable when resources are limited and a solid position needs to be established in one area first. Advantages: sharp messaging, concentrated marketing costs, easier to build credibility within the group. Risks: dependence on one segment, vulnerable to changes in that segment. Expanding to multiple segments: Suitable when you have already secured a strong position in the original segment and have enough resources to serve additional groups without diluting quality. Avoid early expansion to prevent missing opportunities, as this is the quickest way to reach no one.

For businesses in the early stage or restructuring, Sinh Vũ advises focusing on a concentrated strategy first. Winning firmly in one area before expanding is a more sustainable path than spreading thin from the start.

Common mistakes when selecting a file

  • Select the largest segment: A large segment does not mean it is the best for you. A large segment often already has strong competitors dominating, and limited resources will not be enough to compete directly.
  • Target everyone out of fear of missing out: The result is that no one is truly reached. A message that is broad to everyone means nothing to anyone specific.
  • Choose based on the founder's feelings: Founders often select profiles similar to themselves or those they like, overlooking whether these individuals can afford the service and if they have access.
  • Selecting a niche that is too narrow: Leading in a market segment that is too small to sustain a business is a common trap when trying to avoid competition.

Positioning starts with choosing whom to serve. Selecting the target audience is the foundational decision; if this is wrong, the product, message, and channels will all be misaligned.

Sinh Vũ internal process perspective, S1

The viewpoint of Sinh Vũ

In the S1 process, Sinh Vũ builds a trio of customer personas along with an empathy map (a tool that helps deeply understand customers' emotions, thoughts, and behaviors). However, the important thing is not to create all three personas, but to force you to choose the most important group to focus on. The three personas are meant to understand the market sufficiently, not to serve all three at once.

Sinh Vũ uses interviews and market research to verify that the target audience is large enough, able to pay, and reachable, avoiding letting the founder choose the audience based on intuition. When the wrong audience is selected, all costs incurred in product, marketing, and operations will be misaligned and difficult to adjust later.

A question Sinh Vũ often asks clients at the start is: among all the groups of people who could buy from you, which group do you serve better than any competitor, and is that group large enough to sustain the business? The answers to these two questions often point directly to the target audience.

The tool brings back.

Decision checklist

Topic: Choosing which customer segment to serve when resources are limited. Sinh Vũ guide, sinhvu.com

0 more than 7 items

Select each item you find appropriate, then print or save as PDF to take with you.

Sign indicating that you should take action
Questions to answer before deciding

If you have marked most of the signs above, this is the time to discuss in more detail. Sinh Vũ can help you review and propose a direction.

References

Philip Kotler, DAMP segmentation criteria and concentrated targeting strategy in STP. Sinh Vũ's internal process perspective, S1, inherits Keller's POD and April Dunford's competitive alternatives.

Frequently asked questions

Can the customer segment change after some time in business?

It is completely possible, and that is normal. When growth stagnates or the cost of acquiring new customers increases, it is often a sign that the initial target audience was not chosen correctly or that the market has changed. You can reconsider the audience, but you should not change it continuously, as each shift requires adjustments to the product, messaging, and channels.

If there are multiple attractive customer segments, which segment should be prioritized?

Prioritize the segment where your competitive advantage is clearest, not the largest or easiest to reach segment. A clear advantage means you serve them better than competitors on important points for that specific group. Once you have a stronghold in one area, you can then expand to the next segment.

How can you tell if the target audience you choose is large enough to sustain the business?

Sinh Vũ uses interviews and market research to verify, not allowing the founder to estimate based on intuition. You need to estimate the number of potential customers in the target audience, their purchase frequency, and the price they are willing to pay. If that number is not enough to sustain the business at a minimum level, the audience is too narrow even if it sounds appealing.

← Back to Strategy and positioning