Multiattribute Demand, Cost and Competitive Repositioning

Abstract

Firms periodically alter the characteristics of their brands in hope of increasing their popularity and profitability. This paper develops and illustrates a methodology to evaluate these multi-dimensional repositioning strategies. We start by forwarding a procedure to estimate the multiattribute demand and cost functions facing firms in an oligopolistic market. Assuming that the market is in a Nash price equilibrium, an estimation procedure which utilizes individual level consumer survey data is suggested. The demand functions are based on a heterogeneous multinomial logit model, while the cost functions are multiplicative. A procedure for identifying optimal repositioning strategies which utilizes the estimated multiattribute demand and cost functions is developed. In addition, the relationship between the perceptual attributes used by consumers to evaluate brands and the physical attributes which are pertinent to brand design engineers is addressed. The repositioning methodology is illustrated using automobile market survey data.

JEL Classification: L11