Answer:

a. No, A firm should not pursue differentiation in a market that is very price sensitive because it might end up restraining its resources and incur losses when the customers still end up preferring low priced products. In a market that is price sensitive, a differentiation strategy can give a firm competitive advantage but at the best optimized prices possible. Also, with quality products, the firm might end up sensitizing the customers on importance of considering quality products over prices.

b) It is true that product features are among the best basis of product differentiation which also comes at a risk of being imitated. To solve the paradox, firms should be dynamic in their product differentiation procedures. This is to mean that before their competitors get a glimpse of their method of production, they have already re-engineered the method and thus they can remain at the top of the chain due to their competitiveness in unique products. So the solution to this paradox is that for a firm to remain competitive from product differentiation, they should regularly modify their methods to avoid being imitated by their competitors.

c) Using regression analysis and hedonic prices to describe the basis of product differentiation is advantageous in that the hedonic prices can be compared since the researcher or product developer can compare the product features with other products which do not have that particular feature. This paves a way for proper and optimized pricing. On the other hand, the major weakness of using regression analysis is that other basis of regression apart from product feature differentiation might be a little difficult to apply or measure. A product developer might have a very difficult time trying to establish a control group if the basis of differentiation happens to be product reputation or complexity.

d) It is impossible for a firm to know whether it has the right or optimal mix of control and creativity. However, the firm can determine whether the final products or results are outbalanced or not. This can be assessed by possible high cost of production with low valued products. At this point, the researcher can re-adjust their product mix to achieve an optimal mix with high valued products that display uniqueness.

e) Complexity of a good and service gives the customer a sense of uniqueness and class. Some customers like to separate themselves from others by consuming complex, highly developed, and quality products. With such products, they feel the worthiness of the price paid for the products, in which case only a few may be consuming that product. They will end up feeling unique and of high social class.

f ) A firm that embraces product differentiation strategy can neutralize environmental effects and exploit opportunities in that it is able to readjust to the different environments. Such a firm is flexible enough to modify their products and their prices as well to fit the current economic status of that industry. New customers can be targeted through creativity and innovation of the products to meet their needs. Thus a firm can shelter itself from threats such as new entrants, limited resources, competitors, et cetera.