What is a lock-in effect?
A Lock-in effect exists when a customer is so strongly tied to a company that switching is only possible with considerable effort and expense. In the B2B environment, this can happen through strong integration of the provider into the customer's processes. But a lock-in effect can also be achieved with bonus and discount campaigns.
Winning new customers is an important concern for companies. However, it is often easier to retain the existing customer base. The systematic creation of lock-in effects is a sensible way to achieve this goal.
Through an ongoing customer relationship, the supplier provides the customer with ever greater added value, which the customer would lose as soon as he switches to a competitor. This creates a progressive dependency that is reflected in increasing revenue opportunities for the supplier. Companies can design these switching barriers in different ways:
Examples of lock-in effects:
- - Specific expertise once learned for the application cannot be transferred to competing products. (for example, with digital products such as Photoshop)
- - Binding through contractual agreements
- - Finding a new provider would take time and expense.
- - The loss of privileges granted by the provider that cannot be transferred to other services or products.
- - The individualization of the service offered increasingly binds the customer to a service.
- - Related products are offered by a company only compatible with each other.
- - Even if the customer has become accustomed to a product over a longer period of time, this can lead to a lock-in effect.
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Lock-in effects in service
In service, it is often not possible to retain existing customers to one's own offering solely on the basis of one's own brand awareness. Brand loyalty and other dimensions of customer loyalty, such as the habituation effect, are of particular importance at After-Sales-services are not so decisive in terms of the Repurchase rate. That's why it's important here to be particularly close to the customer and to know their needs, habits and processes in detail.
This makes it possible to make oneself indispensable to the customer over time by tailoring one's services precisely to the customer. Also Value Added Services can offer an added value that the customer does not want to miss over time and that can be poorly copied by third parties. If you have managed to do this, then it will be difficult to award the contract to another company and the lengthy training period of the same will have a deterrent effect on him.
Lock-in effect and data-driven services
In technical customer service, for example, VAS can consist of on-site training at the machine, consulting services, or service contracts. However, data-driven services in particular offer an excellent opportunity to impress customers. Here, for example, the implementation of projects from the area of Predictive Maintenance or the frequently discussed smart services that create added value for customers on the basis of interpreted data. The possibilities for getting creative here are almost limitless. Think about which data from his machines interest the customer and prepare it for him in the required form.
