Abstract
Beyond real functional differences, brand positioning can have profound effects on the purchase decisions of consumers. Using a product-portfolio and consumer search framework, we provide a micro-foundation for why and how brand positioning can deliver credible information to consumers. Consumers form their perceptions of a brand from various interactions with all products under the same brand. We conceptualize brand positioning as the average location of a brand's products on a Hotelling-line. When consumers conduct their search for product matches, they are guided by how brands are positioned in the market. We show that niche brands naturally convey more information than mainstream brands. A firm with a mainstream brand has incentives to opportunistically dilute its brand by offering a wide range of products. A niche brand may arise as an equilibrium even in a monopolistic market because it serves as a commitment device for no dilution.
Published Version
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