Final answer:
The correct answer is market segmentation, which is a marketing strategy used to divide a large market into smaller segments with specific needs. It is connected to product differentiation, which leads to monopolistic competition.
Step-by-step explanation:
The process of defining, dividing, and subdividing a large homogeneous market into clear identifiable segments having similar needs, wants, or demand characteristics is identified as market segmentation. This approach is necessary to address the variety of consumer preferences and is evident in the existence of differentiated products in the market. Due to product differentiation and the resulting monopolistic competition, markets are rarely perfectly competitive. Companies use segmentation to target specific groups effectively and compete by offering diverse styles, flavors, locations, and characteristics that cater to different consumer segments. Perceived demand for a monopolistic competitor is also shaped by how well they differentiate their products and services from others in the market.