Most brand owners are increasingly confronted with competition from new low price competitors (eg Private Label) that tends to require a change in their brand's pricing strategy. How they should tackle these situations depends heavily on how price sensitive they are

Recognising which class of brands they fall into is the key to devising a competitively sound strategy. Pricing studies across major FMCG categories, such as soft drinks, coffee, tea, detergents, dairy, confectionery, liquor, body care, etc have enabled ACNielsen to develop a relevant segmentation of the market to represent the different classes of brands that typically exist.

Price Takers
These brands typically have a low market share and a high price sensitivity. These tend to be low equity brands, not well differentiated from competition, and can include the more recent phenomenon of lowest price Private Label.

Price Fighters
High volume brands which exhibit a high price sensitivity and tend to be price focused. Traditional Private Labels would frequently fall into this segment.

Mainstream Brands
Average volume and average price sensitivity brands, eg the second or third brands in a market.

Market Leaders
Brands with a high volume share but low price sensitivity, typically number one in its market.

Niche Brands
Brands with a low volume share and low price sensitivity. As examples, organic, bio, and super premium brands would frequently be in this segment.

We observe that when a low price competitor, such as lowest price Private Label, enters a market, Price Takers and Price Fighters are likely to suffer the highest volume losses. Price sensitivity tends to remain high and may even increase. Therefore Price Takers and Price Fighters will need to respond rapidly to minimise sales losses.

For Price Takers, low volume share and high price sensitivity indicate low brand equity and weak differentiation from the competition. There are only two sustainable strategies: be a low-cost producer, and compete as lowest price on-shelf, or; invest in marketing to grow volume share and build brand equity longer term? in other words try to re-position as a Price Fighter.

For Price Fighters, volume share is high, as is price sensitivity. The brand will need to follow price decreases in the market to remain price competitive, and high volumes give the brand capacity to compete. Again, investment in marketing can build brand equity and reduce price sensitivity, and could move the brand towards the Mainstream segment. Whether a Price Taker or a Price Fighter, the investment required to re-position a brand is very significant, and there is no guarantee of success.

Mainstream Brands are likely to lose a smaller proportion of their volume, as their least loyal buyers leave the brand. For them, elasticities could increase (if consumers add the low price competitor to their repertoire), remain the same (if the new brand replaces another in the repertoire) or even decrease (if their more price sensitive consumers leave the brand). Mainstream brands need a clear understanding of their price elasticities and relationships, identifying key price competitors and responding to their price moves appropriately in order to optimise their price positioning.

Market Leaders with high volume share and low price sensitivity will generally be unaffected, or at worst, lose a very small amount of volume. Price sensitivity will most likely be unchanged after the arrival of the new competitor, or could decrease slightly if the most price sensitive, disloyal consumers leave the brand. Market Leaders generally don't need to respond to pricing of value brands. They need to continue with their marketing investment to maintain brand equity.

Niche Segments are very unlikely to be affected, unless the new brand is also a niche brand. Niche segments tend to be too small to be attractive to low price competitors, who require high volumes to drive profits from low prices. Where low price competitors do enter the niche segment for the first time, existing niche brands need to conduct research to understand the potential threat of consumer defection, before defining their response. Otherwise they should continue to market the niche benefit and remain relevant to their target audience. Applying this scheme for pricing strategy adds better visibility to a brand's future and can help skilfully negotiate a market terrain riddled with low price competitors and an ever-increasing flock of Private Label challengers.