360 Degree View: Case Study: Retail "Free Riding" Hurts Technology Adoption

Just came across this blog today and they had a great story about Sylvania's challenge in creating a better marketplace for color TV's. Funny to read about a brand that used to be in the forefront of its industry and no longer seems to occupy that position. At any rate, I loved their conclusion at the end. Nice to know that our position on creating better retail experiences was actually determined by the Supreme Court! They have a number of good articles on the blog, so after you're done reading this full article, make sure you spend some time reading their other articles.

Territory protection was an essential element of the franchise strategy. Without it, a Sylvania retailer in one geographic area might free ride on a franchised retailer in an adjacent geographic area, by using lower prices to steal consumer sales away from the local franchised retailer (who would presumably have higher costs from investing in the new consumer experience in areas such as product education, in-home trial, repair service, etc.). Within three years, Sylvanias’ national share had doubled, with share in high priority geographic areas reaching as high as 15%.

But in 1977, a renegade Sylvania retailer entered an adjacent territory in which it was not authorized to conduct business, advertising significantly lower prices to those offered by the local Sylvania retailer. Sylvania promptly terminated its entire business relationship with the offending retailer, who sued on antitrust grounds.

In one of the most discussed and debated antitrust cases in history, the U.S. Supreme Court upheld Sylvania’s right to protect its products against intra-brand price competition. The court found that competition between brands – its primary concern – could actually be lessened when consumers lacked the retail experience required to discriminate between manufacturers. Put positively, the court determined that by offering a differentiated retail experience, consumers would be in a stronger position to make informed choices, and inter-brand competition would increase. (Emphasis mine)

360 Degree View: Case Study: Retail "Free Riding" Hurts Technology Adoption.