he Differentiation strategy is where a company decides to choose a certain attribute of the product to focus on. In order to make this strategy work you have to select an attribute that a big enough section of the market care about enough in order to pay a premium price for your product.
Unlike the Cost Leadership strategy, the Differentiation strategy allows multiple products to co-exist as long as they concentrate on different attributes.
In order to make the Differentiation strategy work, you must ensure that the premium price you are able to charge is enough to cover your costs of focusing on the chosen attribute. If the attribute you choose to focus on is not valued highly enough by the market, you will end up with below average returns.