differentiation parity

[chinni234]

I lost 2 of questions. Could you please explain differentiation parity means.
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A differentiator can lose its competitive position by all of the following EXCEPT:
A) increased competition from smaller differentiation focusers.
B) by losing differentiation parity.
C) by losing cost parity.
D) by losing pricing power without gaining an advantage in its cost structure.
Your answer: C was incorrect. The correct answer was B) by losing differentiation parity.
A differentiator can lose its competitive position by losing cost parity, i.e. losing pricing power without gaining an advantage in its cost structure, and from increased competition from smaller differentiation focusers.
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Differentiation parity is important to which of the following strategies?
A) Cost leadership and cost focus.
B) Differentiation and differentiation focus.
C) Cost leadership and differentiation focus.
D) Differentiation and cost focus.
Your answer: B was incorrect. The correct answer was A) Cost leadership and cost focus.
Differentiation parity is important to cost leadership and cost focus; consumers must perceive the firms product as being similar to the competitors products.
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[McLeod81]

When you are a differentiator, you profit by differentiating and charging greater prices. But in order for those higher prices to translate to greater profit you have to keep your costs at par (cost parity).
The opposite goes if you are a Cost Leader, you profit by keeping your costs low but you still need to sell a product with par quality (differentiation parity) or your prices will have to be lowered (killing the benefit from your lower costs).

 

[chinni234]

McLeod81 ,
Excellent. I understood now. Thanks a lot.
Chinni