In the context of competitive markets, a differentiation strategy enables a business to address the five competitive forces by:

• A. focusing exclusively on increasing market share through aggressive advertising
• B. limiting the number of suppliers to reduce input costs
• C. making its products or services unique, thereby reducing the threat of substitutes and increasing customer loyalty
• D. lowering production costs to undercut competitors on price

Answer: (C)

Verified step by step guidance

1. Understand the concept of differentiation strategy in competitive markets: it involves making a product or service unique in ways that are valued by customers.
2. Recall Michael Porter's Five Forces framework, which includes the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and competitive rivalry.
3. Analyze how differentiation affects these forces, particularly by reducing the threat of substitutes because unique products are less easily replaced by alternatives.
4. Recognize that differentiation also increases customer loyalty, which can reduce the bargaining power of buyers and lessen competitive rivalry.
5. Conclude that differentiation is not primarily about aggressive advertising, limiting suppliers, or lowering production costs, but about creating uniqueness to address competitive forces effectively.