Note—Competitive Price and Positioning Strategies

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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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