Market segmentation involves which of the following?

• A. Eliminating consumer surplus by offering only one product
• B. Setting a single price for all consumers regardless of preferences
• C. Dividing consumers into groups based on their willingness to pay
• D. Ignoring differences in consumer demand

Answer: (C)

Verified step by step guidance

1. Understand the concept of market segmentation: it is the process of dividing a broad consumer or business market into sub-groups of consumers based on some type of shared characteristics.
2. Recognize that market segmentation aims to identify groups of consumers with similar preferences or willingness to pay, allowing firms to tailor products or pricing strategies accordingly.
3. Evaluate each option by comparing it to the definition of market segmentation: eliminating consumer surplus or setting a single price does not involve dividing consumers into groups.
4. Focus on the option that mentions dividing consumers into groups based on their willingness to pay, as this aligns with the core idea of market segmentation.
5. Conclude that market segmentation involves dividing consumers into groups based on their willingness to pay, enabling firms to better target their products and pricing.