Lock-in is a general method for companies to retain customers in order to build long-term relationships with existing customers .
It is also called “lock-in strategy” in management terms and “lock-in effect” in economic terms. For example, when a consumer purchases a product of some manufacturer, when the product is replaced, the product of the same manufacturer is used. It is the effect of purchasing and maintaining the relationship with the customer. The reason for this is that if you change the manufacturer when you buy a new one, the cost (switching cost) required at that time will be high, and it is the same for consumers to reduce costs. There is a background of continuing to buy products from manufacturers.
In general, the cost of acquiring new customers is higher than the cost of retaining and expanding existing customers, and from the perspective of the customer life cycle, it is effective to retain existing customers in the company.
- Three factors that enable lock-in
- 8 lock-in strategies
- Lock-in conditions
- Lock-in pitfalls
Three factors that enable lock-in
Lock-in is possible because one or more of the following three factors work for the customer:
Switching costs are financial and psychological costs that customers incur when switching from a product they are currently using to another company’s product. For example, when changing smartphone models, it is necessary to learn how to use it from scratch in addition to the purchase price.
Sunk cost is a already paid cost . From the customer’s point of view, they are conscious of not wanting to waste the expenses paid in the past and the experience of using the product, and they will continue to use the product of a specific company. For example, this is the reason why many people continue to receive the services of the same airline because they do not want to waste the mileage of the airline they have earned.
Network effect means that the size and frequency of use of a user affect the utility value of the product or service.
For example, if you ask “Why are you using Facebook or Twitter?”, You will answer “because people around you are using it” and “because you can’t interact with people without it.” In such cases, it can be considered that the utility value is determined not by the function or quality of the product or service, but by the number of users or terminals. For online and communication services, where the utility value tends to increase, there is less incentive to move from a service with a large number of users to another service.
8 lock-in strategies
There are eight main types of customer lock-in strategies developed by entrepreneurs. Both methods are methods to retain customers by being aware of the switching costs and sunk costs of customers, or the existence of network externalities of products and services.
1. Intimacy Lock-in
Intimacy lock-in is about building and enclosing relationships by appealing for human intimacy to entrepreneurship and products. A typical example is the business method of an insurance company or a car dealer. As sales reps intimately interact with customers, they feel reassured and have trouble switching to another company.
2. Membership Lock-in
Membership lock-in is a lock-in that encloses by building relationships using mechanisms such as membership system and point system . Typical examples are airline mileage and retail point cards, and the membership system of sports clubs also leads to incentives for customers who want to get paid.
3. Convenience Lock-in
Convenience lock-in is a customer convenience and lock-in lock-in by providing one-stop service and replenishment type service. A typical example is a convenience store or a shopping mall with everything.
4. Brand lock-in
Brand lock-in is a lock-in that is enclosed by the brand power and name of the product. Typical examples are luxury brands such as luxury cars, clothing and jewelry. In addition, products with strong brand power such as Coca-Cola when it comes to cola and Calbee when it comes to potato chips also fall under this category.
When a customer makes a specific purchasing behavior, the product choices that he or she remembers in his or her mind are called “ recall sets “. Companies and products at the top of the recall set, such as Calbee and Coca-Cola, may be able to lock in their customers.
5. Learning lock-in
Learning lock-in is a lock-in that is locked in by learning costs (money and labor) related to the use of products and services. Computer software is a typical example. Once a customer learns how to operate a particular software, switching to other similar software can be a hassle.
You may be locked in by the accumulation of your own learning, or you may be locked in by relying on the learning accumulated by other companies. For example, the management consulting firm that clients can rely on, and the sales of KEYENCE, a major industrial sensor company that provides products by knowing the issues of the customer’s site.
6. Community lock-in
Community lock-in is a lock-in that creates an incentive to “ I want to use it because it is used by others “. Community lock-in has a lot to do with network externalities. For example, customers may continue to use Instagram or certain social games because they are being used by others.
Another good example is the Nihon Keizai Shimbun, which is chosen by customers because it is read by other business people.
7. Series Lock-in
Series lock-in is a lock-in that makes the lineup of products attractive and encloses. Typical examples are trading card games and series novels that make you want to have various characters and items. Not all customers collect the series completely, but customers who want to have a complete lineup will be locked in to the company.
8. Vendor lock-in
Vendor lock-in is a configuration that depends on the products, systems, and services of a specific vendor (manufacturer) when building a computer system, etc., so that you can switch to another company. It’s a lock-in that makes it difficult. Typical examples are Microsoft Windows and Microsoft Office, which have an overwhelming share of the operating system and office suite market.
Customer loyalty has increased to some extent
If you try to lock in without feeling loyalty or attachment to the company, it can be annoying to your customers. Therefore, first of all, it is a prerequisite to have a certain degree of customer trust.
It is more attractive in terms of function and brand than other companies’ products
No matter how high the introduction cost (switching cost) and the cost already paid (sunk cost) are for the customer, if the similar products of other companies are overwhelmingly superior, there is a risk of switching to similar products of other companies. I have. Therefore, it is necessary that the quality of the products and services we provide is above a certain level, and that our products and services have an appeal that is different from that of other companies.
Some lock-ins are lock-ins for the product itself (such as huge shopping malls and placement medicines), while others cannot be locked-in without the use of ancillary services (points, mileage, etc.).
In the latter case, it is expensive to implement, and if similar products are overwhelmingly functionally superior, have conveniences that existing products do not have, or if customers get bored, the effect of lock-in will be effective. May fade. (Newspapers and net news, series books, etc.)