This paper examines the strategic incentives to adopt sustainability measures within the positioning perspective on competitive advantage. While much of the existing literature emphasizes “win–win” opportunities, suggesting that a commitment to sustainability can simultaneously enhance economic, social and environmental performance, this study adopts a more critical stance. Drawing on the logic of trade-offs inherent in competitive strategy, it argues that the internalization of environmental and social externalities often entails costs that must be justified through price premiums. Integrating insights from strategic management and consumer research, the paper analyzes how demand-side conditions shape the viability of sustainability as a basis for differentiation, with particular attention to consumer involvement and information transparency across niche and mass markets. To capture these dynamics, the paper develops a conceptual 2 × 2 framework identifying how varying levels of involvement and transparency shape firms’ incentives for sustainability differentiation and greenwashing. The analysis suggests that sustainability is most viable as a differentiation strategy in niche markets characterized by high involvement and transparency, whereas its prospects in mass markets remain limited due to price sensitivity, low engagement, and imperfect information. These findings challenge optimistic assumptions about the scalability of sustainability through competitive market mechanisms and highlight the structural constraints that favor cost-based competition and greenwashing.