Abstract: In recent years, with the market competition becoming fiercer, more and more companies are trying to gain competitive advantages by differentiation strategies. However, the degree of product differentiation will affect consumers' purchasing choices, which may result in lower product sales and cannot compensate for the additional costs generated by the differentiation strategy, resulting in loss of corporate performance. Moreover, it is easy to find that there are still some loyal consumers in market, and these consumers will only consider purchasing products of certain brands or with certain functions, which further increases the uncertainty of the implementation of the differentiation strategy. In this context, a competitive market consisting of two manufacturers is considered. One of the manufacturers is the original supplier of the market, so be called in-place manufacturer, and the other is trying to enter the market with kind of substitute products that are different from the original products. And this paper mainly focuses on the impact of customer loyalty on the market invasion from the aspect of optimal pricing issues faced by both of the manufacturers.
The main work in this paper includes four parts. At first, based on Consumer Utility Theory, game theory models are constructed for the cases without market invasion and with market invasion respectively, in order to find out the optimal pricing strategies and profits of each manufacturer. Second, profits of two manufacturers for each case are compared, and this paper also examines the pricing strategy of in-place manufacturer when facing with the market invasion. Third, considering the influence of product differentiation and loyalty of consumers, the impact of market invasion on two manufacturers' optimal pricing strategies and profits are analyzed. At last, for further inspiration, the impact of consumer loyalty on pricing strategies and profits of differentiated competitive manufacturers is analyzed.
The results show that, there are four types pricing strategy for two differentiation competitive manufacturers. The incumbent manufacturer can shut the entrant manufacturer from the market when the entrant manufacturer's production costs satisfy several conditions. Moreover, the market encroachment may or may not affect the incumbent manufacturer's optimal pricing strategy, but leads to the entrant manufacturer cutting down the prices of its products and loss of profits under competitive environment. And in the case that in-place manufacturer can prevent market invasion successfully, optimal profit before market invasion will be obtained.

Key words: product differentiation, customer loyalty, market entry, pricing