Which of the following best describes market segmentation?

Market segmentation is defined as the process of dividing a broader market into distinct subsets of consumers who have common needs or characteristics. The correct answer emphasizes the importance of understanding groups of customers who share similar preferences, behaviors, or needs, allowing businesses to tailor their marketing strategies effectively.

When companies group customers with similar needs, they can better meet those needs with targeted marketing campaigns, product development, and customer service strategies that resonate with specific segments. This approach increases efficiency in marketing efforts and can lead to improved customer satisfaction and loyalty.

The other options provided focus on different marketing aspects. Identifying different demographics is a part of segmentation but does not encompass the entire concept, as market segmentation includes other factors such as psychographics, behaviors, and geography. Creating unique brand messages is more about positioning and communication strategies rather than segmentation itself. Lastly, setting product prices based on costs does not involve understanding customer segments; instead, it is primarily related to pricing strategy and financial analysis. Each of these activities can be important in its own context, but they do not define market segmentation as accurately as grouping customers with similar needs does.