Final answer:
Kelly's Kids uses demographic variables to segment its market, focusing on families with small children and middle to upper-middle-class income levels.
Step-by-step explanation:
Kelly's Kids, a home-based business that specializes in selling high-quality children's clothing at premium prices through in-home parties, is targeting a specific segment of the market. These targeted consumers are families with small children and who likely have a middle to upper-middle-class income level. Given this information, Kelly's Kids is using demographic variables to segment its market. Demographic segmentation involves dividing a market into segments based on variables such as age, family size, income, occupation, education, or gender, among others. In the case of Kelly's Kids, the business is focusing on income levels and presence of children in the household, which are typical demographic factors.