Perceptual position and competitive brand strategy in a two-dimensional, two-brand market

Brand positioning and competitive reaction are important determinants of optimal brand strategy. Analyses of brand strategy have focused on optimal pricing and positioning issues using either empirical models of perceptions and preferences, game theory to examine competition, or both. However, the important issues of advertising and distribution strategy have not been fully addressed. This paper analyzes competition and strategy between two brands that compete in a two-dimensional market with advertising and distribution spending, in addition to prices and product positions. In particular, for a unimodal taste distribution of ideal points it shows how (a) optimal competitive (Nash equilibrium) marketing mix levels and profits depend on the positions of both brands, (b) brands can reposition to increase profit and under what conditions these strategies imply minimum versus maximum differentiation positioning equilibria, and (c) how the intensity of advertising and distribution competition affect equilibrium brand positions.