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 SKUs to avoid sudden price jumps that would confuse consumers or create uncontrolled cannibalization effects.

Why it's important

• 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.

A concrete 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 structure follows a rule: national private label = market leader × 0.68 and entry-level private label = market leader × 0.47. When the market leader’s price rises to €1.99 due to an increase in raw material costs, the national private label price automatically rises to €1.35 and the entry-level private label price to €0.94. The perceived price differentials remain stable, and the pricing scale remains clear and easy to understand.

How to measure/use it

Horizontal linking is based on three elements: a product repository that groups together interchangeable SKUs (product matching), a price difference rule (ratio or absolute difference), and a pricing engine that applies the rule with each update. The rule can be more nuanced than a simple fixed ratio: for example, maintaining a minimum price difference of €0.30 between private-label and national brands, with a cap of €0.80. Analytics tools combine horizontal rules, minimum margin constraints, and external competitive rules to determine the final price.

Common Mistakes

• 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.

Learn more

• Research & Data: Price Surveys and Web Scraping to Quantify Perceived Price Differences Between Substitutable Products.
• Solutions: Product matching to identify SKUs eligible for horizontal chaining.
• Tip: Operational Consulting Pricing to structure horizontal chaining rules by category.
• Resources: See our pricing FAQ for best practices regarding the price difference between private-label and national-brand products.

Mini FAQ

What price difference should be maintained between private-label and national brands?

Historically, the discount range in the food sector has been between -25% and -40%, with a downward trend since 2022 due to inflation and the growing value of private-label brands. Discounts rarely exceed -45% without damaging the private-label brand’s image.

Does horizontal chaining apply to all categories?

It works well for standardized products (food, personal care, household goods). It is more challenging for products that are differentiated by brand or experience (fashion, luxury, high-end technology).

What should you do if the competition pulls ahead?

There are two options: allow the spread to change temporarily and monitor the impact on volume, or adjust the chaining rule to align with the new market standard. The decision depends on the price elasticity of the relevant benchmarks.