Pushed into a crowd: Repositioning costs, resources, and competition in the RTE cereal industry

Abstract

AbstractResearch summaryThis article exploits a natural experiment involving self‐regulation in the ready‐to‐eat (RTE) breakfast cereal industry to evaluate the performance impact of product repositioning. It then examines how a product's brand equity value declines with repositioning distance and explores various nonprice responses of firms to increased own and rival competition. Self‐regulation led to a crowding of the product space by forcing differentiated products to become more similar. We find that products constrained by regulation performed relatively worse than unconstrained products. Furthermore, brand equity specific to a product was tightly linked to existing product positions. Increased competition also led to increased brand equity investments and some products with strong brand equity repositioned more aggressively than those with weak brand equity.Managerial summaryThis article illustrates how firms respond to newly‐imposed regulatory constraints and how product brand equity is tightly linked to underlying product positions. The analysis is an empirical examination of a self‐regulatory initiative that placed advertising restrictions on high sugar RTE breakfast cereal products targeted toward children. We explore the impact of the regulation on performance and then use the setting to examine the connection between brand equity and changes in product positions. Finally, we examine firm responses to rival entry that include exiting, repositioning, and increasing investments in differentiation.