HORIZONTAL CHAINING
Definition
Horizontal price linking ties the price of one product to that of other equivalent products within the same category. This is typically the case for substitutable products: two different brands of plain yogurt, two models of hammer drills with similar features, or two color variations of the same textile item.
The goal is to maintain a consistent price spread between these reference prices to avoid sudden price jumps that would confuse consumers or lead to uncontrolled cannibalization effects.
Why is this important to know?
- Ensuring the clarity of the product offering: a consistent price difference between the private label and the equivalent national brand influences the purchasing decision.
- Avoid unintended cannibalization: if the price gap between two interchangeable products narrows, one will cannibalize the other without any benefit to the retailer.
- Make the catman's job easier: rather than managing each price individually, he manages coherent families.
Example
A grocery chain sells three brands of pasta: the market-leading brand at €1.89, its national private label at €1.29, and its entry-level private label at €0.89. The horizontal pricing strategy follows this rule: national private label = market leader × 0.68 and entry-level private label = market leader × 0.47.
When the flagship product’s price rises to €1.99 due to higher material costs, the national private-label product automatically drops to €1.35 and the entry-level product to €0.94.
The perceived differences remain stable, and the scale remains easy to read.
Reliable competitive monitoring and product matching prevent the comparison of non-equivalent products and ensure that repricing is based on verified matches at the product detail, EAN, and attribute levels.
Mistakes to Avoid
- Defining imperfect substitutes: Two yogurts from different brands but with distinct health claims are not perceived as equivalent by the customer.
- Maintain a fixed difference in absolute terms: 0.40 € makes sense at 1.89 €, but loses its meaning at 0.99 €.
- Having too many horizontal rules: for a single product code, the system becomes unpredictable and decision-making becomes opaque.
Frequently Asked Questions
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