Case Number: 5-106-003(B), Year Published: 2006
HBS Number: KEL201
Economies of Scale, Consolidation, Demand with Strong Taste for Variety
Demand in some markets displays a strong taste for variety. This means that the market consists of small niches, each with strong preference for a distinct version of the basic product. Examples include markets with strong local character (local video stores, dry cleaning, etc.), products appealing to specialized tastes (micro-brewed beer, specialty restaurants), and markets for entertainment content. Car retailing falls into this category because demand is fundamentally local in nature. A key strategy in such industry is consolidation. This case studies attempts at consolidating automobile retailing, emphasizing their pitfalls and showing that they were based on overly optimistic assessment of the potential economies of scale and creation of customer value. The learning objectives are to introduce the concept of demand with strong taste for variety, as well as economies of scale and consolidation strategies.
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