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Note—Competitive Price and Positioning Strategies

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Author Info

  • John R. Hauser

    (Harvard University)

Abstract

Brand positioning and brand pricing are important strategic decisions for marketing managers. Such decisions are interrelated and depend upon competitive brand positions and prices. However, any unilateral decisions may encourage repositioning and price adjustment by competitors thus leading to either new market equilibria or a price/positioning “war.” This paper examines such price and positioning decisions in a competitive environment by extending the ‘Defender' consumer model to more complex equilibria. We assume that the brands are already in the market and that positions are “sticky” in the sense that brands cannot leapfrog one another. Among the insights for such incumbent brands are: • if prices are symmetric and held constant, firms seek to reposition toward the center of the market, • but price advantages by central firms can mediate that central tendency such that an equilibrium exists with positive profits; • if brand positions are held constant, the Nash equilibria for prices exist and are unique, and • category profits, the sum of brand profits, are maximized for maximum brand differentiation; • for two and three brand markets the (subgame perfect Nash) equilibrium, where positioning decisions are made with foresight on the price equilibria, causes firms to unilaterally seek maximum brand differentiation; but • for four or more brands greater foresight and/or cooperation appears necessary to reach the point of maximum brand differentiation. These results apply where the Defender consumer model is an exact description of consumer response and where the competitive reaction assumptions hold. In any empirical situation such forces might be softened resulting in differentiated, but not maximally differentiated, brands.

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File URL: http://dx.doi.org/10.1287/mksc.7.1.76
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Bibliographic Info

Article provided by INFORMS in its journal Marketing Science.

Volume (Year): 7 (1988)
Issue (Month): 1 ()
Pages: 76-91

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Handle: RePEc:inm:ormksc:v:7:y:1988:i:1:p:76-91

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Related research

Keywords: pricing; positioning;

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Cited by:
  1. Asim Ansari & Nicholas Economides & Joel Steckel, 1997. "The Max-Min-Min Principle of Product Differentiation," Industrial Organization 9702001, EconWPA.
  2. Sudharshan, D. & Ravi Kumar, K. & Gruca, Thomas S., 1995. "NICHER: An approach to identifying defensible product positions," European Journal of Operational Research, Elsevier, vol. 84(2), pages 292-309, July.
  3. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
  4. Martin Peitz, 1997. "Models à La Lancaster and à La Hoteling: When they are the same," Working Papers. Serie AD 1997-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Buechel, Berno & Klein, Jan, 2014. "Do Consumers' Preferences Really Matter? - A Note on Spatial Competition with Restricted Strategies," MPRA Paper 55288, University Library of Munich, Germany.
  6. Jordi Sintas & Ercilia Álvarez, 2002. "The Consumption of Cultural Products: An Analysis of the Spanish Social Space," Journal of Cultural Economics, Springer, vol. 26(2), pages 115-138, May.
  7. Nicholas Economides & Asim Ansari & Joel Steckel, 1994. "The Max-Min Principle of Product Differentiation," Working Papers 94-16, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. Raphael Thomadsen, 2007. "Product Positioning and Competition: The Role of Location in the Fast Food Industry," Marketing Science, INFORMS, vol. 26(6), pages 792-804, 11-12.
  9. Shriver, Scott K. & Srinivasan, V. Seenu, 2011. "What If Marketers Put Their Customers ahead of Profits?," Research Papers 2091, Stanford University, Graduate School of Business.

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