It's a basic lesson drilled into thousands of MBA students on their marketing module. Understand your target market. Don't sell them what you think they should have or what's expedient for you to produce. Citroen seem to have learned this lesson and learned it well. Their latest C2 VTS ticks all of the boxes required by young drivers looking for their first sporting car. Many car manufacturers rather snobbishly refuse to recognise the existence of a 'Max Power' generation but Citroen have wisely endeavoured to understand this niche market and have reaped the rewards.

The old Saxo VTR and VTS models vied with the Vauxhall Corsa as the prime pick amongst those young drivers looking for something sassy that wouldn't break the bank. Aftermarket tuners and accessories fuelled the new sales cycle and prolonged the profitability of the rather ageing Saxo line until its replacement by the C2 and C3 models. The C2 VTR and VTS models should be strong performers for some years to come in this particular market segment.

The petrol VTS is powered by a 125bhp 1.6-litre engine - up 15bhp on its VTR sibling - that's enough to punt it to 60mph in 8.1 seconds and on to a top speed of 126mph. This sixteen-valve unit never feels particularly rapid but a look at the torque curve shows why. It's so broad and flat that there's enough urge for overtaking right across the board with no awkward flat spots or the screaming peaks associated with old fashioned multivalve engines. This measured, linear response makes the car feel a good deal more relaxed than its racy looks suggest but it's an easy car to maintain pace in and deceptively quick when arriving at corners. The alternative is the VTS HDi and its 1.6-litre 110bhp diesel engine. Here, the 0-60mph sprint is dispatched in 9.4s but the 64mpg fuel economy is the headline-grabbing figure.

The five speed manual box is a good deal more conventional than the paddle shift system offered on the VTR model and features close ratio gearing to extract as much performance from the willing engine. Citroen could probably have made the engines a good deal more powerful had they wished, but in order to keep insurance costs manageable, they've pegged the power at 125bhp in the petrol car. Combine that with the C2's excellent security and safety and low cost of accident repair and the VTS weighs in fully six insurance groups lower than the old Saxo VTS. A Group 8 rating puts it on the shopping lists of many young buyers who thought this sort of car was unaffordable. The occasional free insurance deal provided by Citroen dealers (subject to the usual terms and conditions) also sweetens that particular pill.

"The C2 VTS weighs in fully six insurance groups lower than the old Saxo VTS"

You get a lot for your money. The £12,895 asking price is significantly less than the Saxo VTS was at launch all those years ago, and includes air-conditioning, a CD stereo and ESP stability control. The VTS HDi is more expensive at £13,895 but those low running costs will help it attract buyers. Your first performance hatch was once an abject lesson in disappearing off the Queen's highway tail first during a spectacularly ill-advised cornering manoeuvre but the ESP system does a great job of reining in youthful enthusiasm. Should you really want to test the effectiveness of Citroen's insurance policy, it can be switched off but you'll still have the safety net of anti lock brakes with electronic brake assist and brakeforce distribution to help you out of a spot.

After the familiar form of the Saxo, the C2 VTS comes as something of a shock. Unlike many cars that create a sudden negative or affirmative response regarding their styling, the C2 provoked a riot of discussion about whether that 'round at the front, sharp at the back' shape worked. The closest we could get to consensus was that it looked at first striking, then awkward but once you took time to get your eye used to it, yes it did work. What's beyond any reasonable doubt is that the VTS version looks a whole heap better than the standard shopping trolley version.

With a chunky sill and spoiler kit as well as 16-inch alloy wheels and colour-keyed bumpers, the VTS does a great job of walking the fine line between aggression and juvenility. So many manufacturers try to create a sporting hatch and just end up producing a car that few over the age of twenty-two would ever be seen dead in. With a long pedigree of producing credible performance hatches, Citroen haven't fallen into that particular trap. Sporting wider wheels than the VTR, the VTS also wears Michelin Exalto 2 tyres and utilises a quicker steering rack with 2.6 turn lock to lock. The electrically assisted steering is better than most systems of its ilk but the tiller never really feels that connected to the front wheels, an area where modern cars like this have to give best to a typical Eighties pocket rocket. The exhaust note isn't particularly inspiring either and this will doubtless be one of the first areas that the aftermarket will pick up on.

Despite being even shorter than a Saxo, the VTS is easily able to seat four in comfort. Lessons have been learned from the reception given to the C3 interior and the C2 adopts many of the funkier styling touches such as the ventilation system and the bar rev counter and introduces a few of its own. The latest cars feature an upgraded dashboard, in high-grade plastic with silver detailing, which brings a pleasantly up-market feel to the cabin. It's possible to carp about distortion from the curved windscreen but otherwise there are few bum notes in the VTS's cabin. The sports seats grip well, the air conditioning offers a decent blast of cold air and the stereo isn't bad. The target customers will doubtless feel that it could use a meaty sub and some amps but for those of us more interested in Sport on Five than Happy Hardcore it's perfectly acceptable.

The steering adjusts for rake and reach plus there's a height adjustable seat. Few will have any cause for complaint given the amount of space in the front of the cabin as it feels no smaller than the C3, a car already renowned for its spaciousness. Like the C3, the C2 gets a can holder ahead of the gear lever as well as generously proportioned door bins that can accommodate a 500ml bottle of pop. Access to the rear isn't bad and Citroen have displayed admirable pragmatism in failing to pretend that the C2 is anything other than a four seater. So many small cars cram three belts in across the back and end up trussing occupants up like a leg of lamb but the two rear seats of the C2 are well sculpted and respectable in terms of knee and shoulder room although taller passengers may feel the sloping roof impinges on their coif. The VTS also gets the rear seat system where the seats individually slide, recline, fold and tumble. This allows the owner to optimise luggage or passenger space by sliding the seats on runners but in order to fold the rear seats fully flat, the front ones need to be run a long way forward, precluding this possibility for long legged drivers and front passengers. It's also fitted with a tailgate that splits into two sections to ease loading in tight spots.

Surely the C2 VTS can't fail. It looks right, it's tightly priced, affordable to insure, is fun to drive and seems well bolted together and offers real world performance for real world customers. As a case study in connecting with the target market, there aren't many better.