Toyota customers have a wide range of preferences. Some prefer the fuel economy of a hybrid (Prius), some prefer a family van (Odyssey), and others may prefer a large SUV (Highlander). This is an example of:

a. differences in willingness to pay

b. horizontal differentiation

c. segmentation

d. vertical differentiation

e. mass customization

The correct answer is letter "C": segmentation.

Explanation:

Market segmentation is the classification companies make of their customers based on features such as age, gender, income, and profession, just to mention a few. By segmenting the market, firms group consumers by certain characteristics that allow the institution to specialize in the analysis of that special sector to provide them a tailored good or service they will be more likely to acquire.

Thus, Toyota is segmenting its market in economic vehicles (Prius), size of the family (Odyssey), and large SUV (Highlander) to better fit consumer needs and preferences.