I am unable to install a watchOS 2 WatchKit app due to an application-identifier entitlement. This happened after turning on App Groups in the Capabilities tab.
Full
You will get this error when your AppID prefix does not match the prefix of the previously installed app. If your app is already in the App Store, you will not be able to submit updates without restoring the original AppID prefix or contacting Apple.
Apple's instructions for handling this problem: https://developer.apple.com/library/content/technotes/tn2319/_index.html#//apple_ref/doc/uid/DTS40013778-CH1-ERRORMESSAGES-UPGRADE_S_APPLICATION_IDENTIFIER_DOES_NOT_MATCH_THE_INSTALLED_APP
If you did not intend to change the AppID prefix then Xcode is signing your app with the wrong provisioning profile.
If you do intend to change the AppID prefix (because the app was transferred to a new developer, or you are migrating from an old pre-2011 AppID) you must contact Apple to migrate an existing AppID to a new prefix.
You must also add the previous-application-identifiers entitlement to your app, listing all previous AppIDs (with old prefixes). And you must ask Apple to generate a provisioning profile for you that includes the previous-application-identifiers entitlement.