CFA Level I · CFA Level I Exam · Company Analysis: Past, Present, and Future
A firm pursues a differentiation strategy by offering a premium product. Which development would most likely undermine the sustainability of this strategy?
Customers increasingly viewing cheaper competitor products as close substitutes would most likely undermine it. Differentiation depends on buyers perceiving unique value worth a premium price; once that perception fades, the premium erodes, while stronger loyalty or longer patents help sustain it.
- ACustomers increasingly view competitors' cheaper products as close substitutesCorrect
- BThe firm's brand loyalty increases among existing customers
- CThe firm's patent on a key feature is extended
Explanation
Differentiation relies on buyers perceiving unique value and paying a premium. If cheaper products are seen as close substitutes, the premium erodes. Stronger loyalty and longer patent protection both support the strategy.
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