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Higher Profits Through Customer Lock-In

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Higher Profits Through Customer Lock-In

Thomson Texere,

15 mins. de lectura
10 ideas fundamentales
Audio y Texto

¿De qué se trata?

Why don`t people dump bad products? 1) Switching is very expensive. 2) Worse yet, it was designed to be that way. Gotcha.

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Editorial Rating

8

Qualities

  • Innovative
  • Applicable

Recommendation

Author Joachim Büschken adeptly presents a different form of pricing strategy based on making it more expensive for customers to switch from your product to a new one, even if your product fails them. This concept, called "customer lock-in," entails charging such high "switching costs" for changing vendors that customers are stuck. It means that consumers who buy deficient software or earn frequent flier miles on a chronically tardy airline are reluctant to change because switching is a big nuisance or too expensive. While your business may not embrace this idea, some hardware (Hewlett-Packard) and software (Microsoft) companies use it to great advantage. To his credit, Büschken has a short section on the ethics of lock-in. He concludes that it is ethically okay given disclosure, though you may want to have a deeper discussion. While the writing can be repetitive and dry, getAbstract.com finds that this is a rare book on a sensitive topic. We recommend it to marketers and product strategists who want to learn more about this little-known, potentially controversial pricing practice. It is also a pretty good eye-opener for consumers; customer lock-in takes caveat emptor to new heights (or depths).

Summary

A Captive Market

Customers who have a choice between two products of equal quality and cost present a marketing challenge. Buyers with too many options can increase marketing costs, curtail profits and change the thrust of future product development. But what if those customers face higher costs if they switch to different products? Then, they would chose products based on other criteria, and might not investigate alternatives. Your company can boost profits by "locking-in" customers this way, but how would it affect your relationships with them?

The customer lock-in strategy uses increased "switching costs" as a barrier in order to retain customers who may wish to change. Under the lock-in strategy, customers face higher costs if they decide to use a different product or service. This barrier is in addition to the other negatives involved in switching, such as learning to use new equipment or building new relationships. Lock-in strategies can help companies stabilize revenue streams, accelerate product development and expand options for cross selling to new and existing customers.

Customer Service vs. Customer Lock-In

Carmakers, especially from Japan...

About the Author

Joachim Büschken, professor of marketing at the Ingolstadt School of Management of Catholic University, Eichstatt, holds a Ph.D. from the University of Munster (Germany), studied at Texas A&M’s graduate school and received a Fulbright scholarship. Since 1990, he has been an associate dean of Catholic University in Germany and Switzerland. He has consulted for international companies and has written several textbooks and articles published in English and German.

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