Question

A differentiation strategy can be effective in controlling the power of substitutes in an industry because

a. customers have low switching costs.
b. substitute products are lower quality.
c. a differentiating firm can always lower prices.
d. customers develop brand loyalty.

Answer 1

A differentiation strategy can be effective in controlling the power of substitutes in an industry because customers develop brand loyalty.

Step-by-step explanation:

A differentiation strategy can be effective in controlling the power of substitutes in an industry because customers develop brand loyalty. When a firm successfully differentiates its products or services, it creates a unique brand identity that sets it apart from its competitors. This brand identity can lead to customer loyalty, making them less likely to switch to substitute products even if they are available.

For example, Apple has successfully differentiated its products with a focus on sleek design, user-friendly interfaces, and a strong brand image. This has created a loyal customer base that is less inclined to switch to substitute products, even if they may be cheaper or offer similar features.

In contrast, if a firm fails to differentiate itself and its products, customers may not develop brand loyalty and may be more likely to switch to substitute products. This is why having a differentiation strategy can help control the power of substitutes in an industry.