What is market segmentation?

Market segmentation is the process of dividing a broader target market into smaller, more specific categories based on shared characteristics, preferences, or behaviors. This approach allows businesses to tailor their marketing strategies and product offerings to meet the distinct needs of different groups, consequently increasing the effectiveness of their marketing efforts and enhancing customer satisfaction. By understanding various segments within the market, companies can create targeted campaigns that resonate more deeply with consumers, leading to improved sales and customer loyalty.

In context, the other options do not accurately define market segmentation. Identifying potential investors pertains to financial strategies rather than market analysis. Promotion and advertisement focus on how to convey messages to consumers rather than segmenting them. Lastly, calculating the cost of goods sold is a financial metric relevant to pricing and profitability, not related to dividing the market for effective marketing strategies. Therefore, the definition of market segmentation as dividing a target market into smaller categories stands out as the most accurate and relevant understanding.