Horizontal integration: acquiring a direct competitor
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Do your entities follow the same pricing rules?
Schedule a meetingLearn about our operational pricing consulting servicesHorizontal integration is a strategy through which a company expands by acquiring or partnering with competitors in the same segment of the value chain: acquisition of a retail chain, joint purchasing group, or commercial alliance. In terms of pricing, it strengthens the company’s bargaining power with suppliers and allows for the sharing of pricing tools and strategies.
The Essentials in 6 Questions
Acquire or form an alliance with a direct competitor.
Retail chains expanding through acquisitions, purchasing cooperatives.
In the event of a merger, acquisition, or alliance.
Next in the chain: distribution.
Greater purchasing power, shared fixed costs.
Audit price discrepancies, renegotiate, and gradually standardize tools.
Why Horizontal Integration Is a Pricing Lever
Because a larger player negotiates better terms, which it can translate into higher margins or lower prices.
- Increase bargaining power with suppliers.
- Pool fixed costs: centralized purchasing, logistics, and pricing tools.
- Harmonize pricing practices to avoid conflicting arbitrage opportunities in common markets.
Real-world example: 75 stores, +2.1% gross margin
Two regional home improvement chains are merging, securing an additional 1.8-point discount, and reinvesting half of it into their prices.
75 stores, gross margin up 2.1% over 12 months
Merger of two regional home improvement chains (40 + 35 stores)
additional discount secured from the main supplier thanks to the purchasing power of the new headquarters (75 stores, €480 million in revenue).
Gross margin over the 12 months following the merger
Average traffic over the 12 months following the merger
The two chains (40 and 35 stores, in non-competing markets) together generate €480 million in revenue. The discount achieved is split between a 0.9-point increase in margin and a 0.9-point decrease in prices on key sales indicators: a 4.5% increase in foot traffic over 12 months.
How Can You Take Advantage of Horizontal Integration in Pricing?
Three initiatives—and a major undertaking in change management.
Audit price discrepancies
Among entities, prior to any harmonization.
Renegotiate supplier contracts
Once their weight has stabilized, often as early as the first few months.
Gradually standardize the tools
To avoid maintaining two pricing engines in parallel.
Our operational pricing consulting team conducts audits and standardization; our pricing strategy consulting team defines the common positioning. See alsoprice standardization.
The 3 Common Mistakes Made After a Horizontal Integration
Moving too quickly to standardize, underestimating IT, or neglecting the teams.
- Rushing to harmonize rates before understanding the specific characteristics of each entity.
- Underestimating IT complexity: System integration can take several years.
- Ignoring change management: The departure of key experts undermines pricing performance.
Frequently Asked Questions
Short answers to the most frequently asked questions about horizontal integration.
What is horizontal integration?
Horizontal integration is a growth strategy through which a company expands its business by acquiring or forming partnerships with competitors operating at the same stage of the value chain: acquisition of a retail chain, a joint purchasing group, or a commercial alliance.
How long does it take to integrate two pricing organizations?
Renegotiations with suppliers can begin after 3 to 6 months; standardizing tools takes 12 to 24 months; and standardizing work processes often takes 2 to 3 years.
Should we merge the pricing teams?
It doesn't have to happen all at once: a transition period with two teams coordinated by a shared governance structure preserves local expertise.
What is the risk to the company's reputation?
This is a real risk if harmonization leads to noticeable increases in certain areas; clear communication and a phased approach to convergence can mitigate it.
Key Takeaways
- Horizontal integration brings competitors in the same link of the supply chain closer together.
- It boosts purchasing power, which can be reflected in profit margins or prices.
- Prices and tools are being standardized gradually.
Are you looking to standardize prices following an acquisition or merger of retail chains?
Booper helps you standardize your pricing policies following a horizontal merger.
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