A firm with an established market position can employ various tactics to make it harder for new firms to obtain a trial for their product. It may employ tying and exclusive dealing contracts which we discuss in chapter 15. It may also offer products only for lease, rather than sale, especially if the leases are for a long term a marketing technique commonly employed in the photocopying industry. A new firm can also offer products on a rental basis, but this involves a substantial investment in inventory.
By offering a variety of brands as in the breakfast cereal industry, a dominant firm can preempt opportunities for a new firm to come in on a small scale and serve a narrowly focused segment of the market. Read More
If the entrant does not want to bargain with distributors, it may try to develop a favorable brand image by advertising directly to the final consumer, counting on the consumer to demand the product from distributors. The cost of cultivating a positive brand image will be largely sink: if unsuccessful, the entrant could hardly expect to sell its goodwill, recover its investment in differentiation, and leave the market.
