Final answer:
Firms engage in product differentiation by using their market expertise to offer customized programs, thereby distinguishing their products from competitors and increasing competitiveness.
Step-by-step explanation:
When firms leverage their extensive knowledge and expertise in one market to offer customized programs, they engage in product differentiation. This strategy involves any actions undertaken by firms to make consumers perceive their products as distinct from those of their competitors. Through specialization and enhancement of their trades, businesses are capable of increasing their productivity, which in turn fosters greater competition within the market. Offering customized solutions that cater to the specific needs of consumers is a direct reflection of a company's advanced understanding of its clientele and the industry it operates. By continually developing more sophisticated products, firms not only distinguish themselves from their competitors but also contribute to the overall dynamism and innovation within their sector.
Product differentiation is a critical element for businesses seeking to establish a unique market position and to capture the loyalty of customers who value the tailored approach and specialized offerings a company provides.