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As a demon enthusiast, I'll say this: there are four main selection criteria:
1. Your opponent.
2. Tactics.
3. The map and game conditions.
4. The hero's development path.
I don't see any clear advantages of one upgrade over another (using Hellhounds as an example: the "fiery" breath is only useful against a player (the chance of a successful breath is very low, plus or minus the probability of hitting your own units), while -1 damage works everywhere, especially in large-scale battles... Cerberuses, on the other hand, provide a confident and stable attack with noticeable damage).
The same applies to other units.
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*P. Offspring reliably halves a unit of goblins, peasants, skeletons, or imps.
*It is not recommended to use demons in a squad or when "foreign" troops are present.
*The Archdemon's skill is very useful from a tactical point of view.
*A squad of Cave Lords does an excellent job against outposts and strong neutral creatures.
*Imps and Lesser Imps in large numbers significantly reduce losses from enemy magic.
*Lesser Imps are an excellent companion for druids and archmages (by the way, replenishing the Inferno army with them is always a good idea).
*The disadvantages of Inferno can be mitigated with appropriate artifacts.