Step 2: Target Your Best Customers

Next, you decide which segments to target by finding the most attractive
ones. There are several factors to consider here.

First, look at the profitability of each segment. Which customer groups

contribute most to your bottom line?

Next, analyze the size and potential growth  of each customer group. Is it

large enough to be worth addressing? Is steady growth possible? And how
does it compare with the other segments? (Make sure that you won't be
reducing revenue by shifting your focus to a niche market that's too small.)
Last, think carefully about how well your organization can service this
market. For example, are there any legal, technological or social barriers
that could have an impact? Conduct a PEST Analysis  to understand the
opportunities and threats that might affect each segment.
Tip:
It can take a lot of effort to target a segment effectively. Choose only one
segment to focus on at any one time. 
 
Example
The Adventure Travel Company analyzes the profits, revenue and market
size of each of its segments. Segment A has profits of $8,220,000,
Segment B has profits of $4,360,000, and Segment C has profits of
$3,430,000. So, it decides to focus on Segment A, after confirming that the
segment size is big enough (it's estimated to be worth $220,000,000/year.)