Managing Lock-InIntroductionLock -INBasic Strategies For BuyersPrecautions For BuyersBasic Strategy Of SellersInvestInstalled BaseLook Ahead In Lock-In CycleHigh Market Shares Don't Imply High Switching CostsSelling To Influential CustomerMultiplayer StrategiesEntrenchmentEntrenchment By DesignLoyalty Programs And Cumulative DiscountsLeverageSelling Complimentary ProductsSelling Access To Your Installed BaseSetting Differential Prices To Achieve Lock-InAttempts To Raise Search CostsExploiting First Mover AdvantageControlling Cycle LengthDiscussion QuestionsManaging Lock-In Slides borrowed from Carl Shapiro, Hal R. Varian & modified By:Amine Benjelloun Sumanth MallipeddiIntroduction  StrategiesFor buyersFor sellers Precautions For buyers For sellersLock -INBuyer: Hard to switchSeller: Loyal CustomerHere is a good and loyal customer !!!Basic Strategies For BuyersBargain for initial sweetenersLarge switching costs  large compensationLook as an attractive customer now and in the futureAppear as an influential customerPrecautions For Buyers Keep your options openDual sourcing to prevent monopolyDemand compensation for each stepWatch out for creeping lock-inEx: Medical fileBe wary of vague commitments & partial contracts Quality of service (response time …)Basic Strategy Of Sellers InvestEntrenchLock-InleverageInvestTry to build an installed base of customersLooking ahead at the lock-in cycleHigh market shares don't imply high switching costsSelling to Influential customerMultiplayer StrategiesInstalled Base Design products and promotions to attract customers Ex: cellular service providers, photo printerLook for the cost effective way of investingLook Ahead In Lock-In CycleCalculate customer value over whole cycleBreak down the analysis by type of customer Ex: Old & New in Telecommunication fieldPerfect CompetitionCompetition forces you to invest in discounts to get consumers locked-in Quasi Profit Ex: KodakHigh Market Shares Don't Imply High Switching CostsEx:Netscape vs. IE Low market share can still mean large lock-in Computer AssociatesSelling To Influential Customer Quantity of benefits that are resultedIntel, Nike Influencing a part of company may lead to more sales in the rest of the parts too Ex: Apple IPodMultiplayer StrategiesDecision maker and payerFrequent flyer milesBuyers of complementsRazors and bladesPrinters and cartridgesSubsidize the far-sighted group, tax the short-sighted groupEntrenchment Entrenchment by design Loyalty programs and cumulative discountsEntrenchment By DesignLengthen and strengthen the cycleExpand the installed base Offer value-added services to deepen the relationship with the customers Ex: Pharmaceutical companiesLoyalty Programs And Cumulative Discounts Loyalty programs will turn conventional markets into lock-in markets .  Ex: United Airline‘s Mileage program, Amazon referral program (Computer Associates)LeverageSelling Complimentary ProductsSelling Access To Your Installed Base Setting Differential Prices To Achieve Lock-InAttempts To Raise Search Costs Exploiting First –Mover Advantage Controlling Cycle LengthSelling Complimentary Products Strategy adopted to win lock-in markets Sell products that are complimentary to your installed product base Customer enjoys One-Stop shopping. Ex: IPod complementary productsSelling Access To Your Installed Base Installed base is terrible thing to waste You can get more by selling your customers information to other parties.  Ex: AOL, HospitalsSetting Differential Prices To Achieve Lock-InBased on Installed BaseRival’s Installed BaseNew customers Prices aimed at locked-in customers may not appeal to new buyers VersioningAttempts To Raise Search Costs Make yourself easy to find and your rivals hard to find.  Ex: Bargain finder Make product unique, cut down the prices, market differentiated products rather than banning the comparisonExploiting First Mover Advantage Always have long lasting in lock-in markets Entering into multiyear contracts with key customers Ex: Ticket Master Stagger termination dates on different customer contracts to keep rivals from achieving scale economies Ex: Cicadas in jungleControlling Cycle Length Depends on  Duration of Contractual agreements lifetime of durable agreement  Presence of complimentary products Information your rivals have regarding the various contracts you have with your customers Get your customers to extend their contracts before they expire. Seller side: try pre-emptive renewalBuyer side: try to synchronizeExample: Cellular companiesDiscussion QuestionsDo you support giving out the access to your customers to other online merchants? If so, what precautions should be needed?Say you are Sony, as a direct competitor to Apple, what steps would you take to enter the market with a new music player to attack the IPod?Imagine you are Apple, what steps would you take to hold your existing customers and to attract the rival’s as well as the new