The Impact of Regulation on Strategic Positioning: Self-Regulation in the RTE Cereal Industry

Abstract

This paper exploits a natural experiment involving self-regulation in the ready-to-eat (RTE) breakfast cereal industry to evaluate how firms respond to entry in light of changes in competition and to estimate the value of brand equity as products are re-positioned. Self-regulation led to a crowding of the product space by forcing differentiated products to become more similar. Among other things we find that products constrained by regulation perform relatively worse than unconstrained products, brand equity specific to a product is tightly linked to existing product positions and does not transfer well to new positions, and that when competition increases, firms reposition to new segments and increase investments on product differentiation. The paper offers a performance based assessment of repositioning and to our knowledge offers the first empirical analysis in the strategy literature that measures in performance terms how repositioning changes the value of brand equity.