Which of the following pairs of variables is least effective for differentiating strategic groups?

The least effective pair of variables for differentiating strategic groups is the size of market share and profitability level. This is because both of these metrics are often direct consequences of a company's strategic choices and market conditions, rather than the defining characteristics that differentiate one strategic group from another. Market share and profitability tend to be outcomes that reflect the effectiveness of a company's strategy rather than the strategic choices themselves.

In strategic group analysis, the focus is on identifying the dimensions along which companies within an industry position themselves. By examining factors like geographic coverage alongside product features, a clear distinction can be drawn about how companies target different customer segments and regions. Similarly, brand reputation and pricing strategies reflect different approaches to customer engagement and market positioning, making them effective in differentiating companies.

Advertising budget and customer service quality can also highlight significant differences in strategic focus, as they illustrate how companies allocate resources to either drive brand recognition or customer satisfaction, which are critical to their competitive strategies. However, size of market share and profitability do not inherently indicate distinct strategic approaches, making these variables the least effective for differentiating between strategic groups.