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Differentiation is a good strategy if you want to avoid competition on price (and a potential price war). It really depends on your market and industry. For example, A lemonade stand could differentiate into a lemonade delivery service. They could charge higher prices AND increase sales due to the new value proposition.
You can add a feature that the competitor does not possess. You can change the color, size, add to the product line which are all good starting points.
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