Lock-in effect
Under the lock-in effect ( english lock in , "include" or "lock up") is generally understood in economics and especially in marketing the close customer loyalty on products / services or a provider that allows the customer due to emerging switching costs and other barriers to change makes it difficult to switch products or providers.
General
The lock-in effect is both a market strategy and a marketing strategy . It is regarded as a technical-functional customer loyalty , because product or service components can only be obtained from one manufacturer or complementary products only provide joint benefits . Often there is also economic customer loyalty due to the risk of switching costs . Its inventor is considered to be John D. Rockefeller , who around 1870 exploited mutual technical and physical dependencies of products when he was selling petroleum lamps in China, where he owned a petroleum monopoly. His lamps burned only with the petroleum he sold, so that he was able to achieve simultaneous increases in sales of both products. In 1902 King Camp Gillette developed razors and at the same time sold the disposable razor blades patented by him . With this, he drove the lock-in effect to the optimum, because single-use products with constant demand ensured constant demand. American Airlines' Robert Crandall brought the effect to his industry in 1981 when he introduced the frequent flyer program. He recognized that 40% of sales were generated by just 5% of customers.
Although the lock-in term implies that the activities for customer loyalty originate from the manufacturer, it can also be triggered by the customer himself through preferences for the provider or his product.
Change barriers
The aim of the provider is to bind its customers to the company or product through technical, physical or other dependencies in order to maximize profits . This customer loyalty makes it difficult or even impossible for customers to switch to other providers or products. The reason for this are the obstacles that arise when switching, which can consist of quantifiable switching costs and other barriers to switching. In the case of complementary goods, the latter includes their mutual technical or physical dependencies (e.g. DVD player and DVD , operating program and computer ). For all complementary goods, a system change is not worthwhile if the change costs would exceed the marginal utility resulting from a system change . Psychological barriers to change are habituation and personal preferences of the customer ( customer satisfaction ). There are switching costs that are determined by companies themselves in order to make it more difficult to switch providers (e.g. connection fees , contractual penalties , volume discounts ) and switching costs that only arise when switching to other providers or products ( e.g. notary fees when transferring real estate liens as part of a Loan repayment ). Switching costs can be used on the part of the provider in a targeted manner in order to bind consumers to their own product and to build up barriers to market entry . The level of switching costs determines the extent of a lock-in effect.
strategy
Consumers are tied to a provider or a group of providers through financial investments in certain products (such as the operating system or runtime environment ) or through investment in time (such as an insurance broker who knows the personal situation through long-term cooperation). This causes a manufacturer dependency known as vendor lock-in .
The aim of the provider is therefore that the customer perceives the benefits of a product to be more valuable than the lock-in costs. Therefore the provider tries z. For example, by personalization options and discount offers the customer value to increase to the extent that he still "voluntarily" goes to the lock-in situation. The providers can create an artificial lock-in effect even where none normally exists by giving away bonus or loyalty points. Examples are discount stamps , bonus miles , certain credit card and telephony offers, all of which can only be used with the original company and expire when switching to a competitor. Particularly in the online sector, due to the great competition and market transparency, the establishment of barriers to change is more difficult and can hardly be implemented without appropriate beneficial measures. The customer may even benefit from this constellation.
causes
- contractual commitment: a participant is bound by a contractual agreement; non-compliance threatens a contractual penalty .
- Training and learning : The customer builds up product or technology-specific knowledge . In the event of a change, this learning process would have to be repeated. The learning effort to be carried out is comparably large, so that the barriers to change are correspondingly high.
- Search costs : When leaving a system, search costs arise, which the participant wants to avoid.
- Loyalty costs: A game participant can lose benefits from a standard if he wants to leave it.
- The individualization of products with regard to the wishes of the customer deepens the relationship between the business partners. The more specific investments a customer makes, the higher the switching costs. Switching to a competing product is becoming increasingly unlikely.
- There may be a direct dependency on complementary products . For example, the manufacturer of a medical device sells the computer for data processing at the same time; a standard device , however, can not be used due to modifications to the interface .
- Based on the specific knowledge, creating a habituation of the customer to the product or the seller. The convenience of not wanting to accept changes here also leads to lock-in.
Modeling
The game theory models lock-in effects as being bound by a player in a system, although next to a superior system exists. Bound means that the change from an inferior standard to a superior form is only possible with extremely high effort. The game participant should research possible alternatives before being tied to a system and consider the critical mass of possible substitutes .
Examples
Razor blades
The first major commercial success after this lock-in model was King C. Gillette's Gillette razor in 1902 . Instead of the then common razors that could be sharpened, Gillette sold a patented blade holder that fitted disposable safety blades that were cheap to manufacture and sold permanently to the owners of the blade holders at high margins .
Credit institutions
The credit business of the credit institutions , especially when credit collateral has been provided, makes it difficult for borrowers to switch to other credit institutions. These are factual preferences that can prevent customers from switching. In the case of fixed interest, there are serious obstacles during the fixed interest period due to an impending early repayment penalty (switching costs); after the fixed interest period has expired, there may still be hurdles for follow- up financing because the new lender is initially obliged to check the creditworthiness and can prevent a switch by rejecting it (other switching barrier) . Loan collateral (such as mortgage liens ) trigger switching costs when they are transferred to another lender.
Health insurance
Private health insurances try to keep some of the accrued reserves for the insured person ( aging reserve ) for themselves if they want to switch to another insurance company. An attempt is made to keep the costs of the policyholder as high as possible when changing insurance. The competition between insurance companies can thus concentrate on young people.
Cameras
The photography industry provides a good example of lock-in methods. The lenses of many cameras can be changed. The lenses are an important addition to the camera and often cost more than the camera housing itself. Manufacturers have patented the fastening systems for interchangeable lenses since at least the 1930s. This ensured that the camera manufacturer had a monopoly on lens sales for the duration of the patent . In addition, electronics have often been built into interchangeable lenses since 1989. Manufacturers also try to lock-in outside of the patent by not releasing necessary information and competitors either paying license fees for it or having to find out the information themselves. The same is true with other camera accessories such as B. Batteries are done, so changing brands is often a complicated and costly affair.
A similar approach was briefly attempted by Sony in the field of digital cameras with the storage medium used: The memory stick was a proprietary flash memory , the specifications of which were not published by Sony. The storage media were two to three times as expensive as products of other standards with a comparable capacity. When the digital camera was changed to another manufacturer, the storage media could no longer be used. The situation only changed when compatible products appeared on the market.
computer
Vendor lock-in is pronounced in the computer and electronics industries and is mostly related to the compatibility of the elements. The computer industry tries to impede interoperability at all levels with both hardware and software : with proprietary operating systems , application programs and file formats . When it comes to operating systems and microprocessors, there is a clearly dominant manufacturer that can achieve a monopoly . The disability is rarely absolute, but just so high that the customer has an advantage if he prefers the product range of the provider.
Microsoft Windows
The European Commission quotes in its decision on Microsoft's business practices published on March 24, 2004 in paragraph 463 Microsoft's manager for C ++ development Aaron Contorer from an internal Microsoft note for Bill Gates dated February 21, 1997:
- "The Windows API is so broad, so deep, and so functional that most ISVs would be crazy not to use it. And it is so deeply embedded in the source code of many Windows apps that there is a huge switching cost to using a different one operating system instead ... "
- “The Windows API is so broad, so deep, and so functional that most independent software vendors would have to be crazy not to use it. In addition, it is so deeply integrated into the source code of many Windows applications that there would be high switching costs if you wanted to use a different operating system instead. "
- "It is this switching cost that has given the customers the patience to stick with Windows through all our mistakes, our buggy drivers , our high TCO , our lack of a sexy vision at times, and many other difficulties [...] Customers constantly evaluate other desktop platforms, [but] it would be so much work to move over that they hope we just improve Windows rather than force them to move. "
- "It's the cost of switching that gave customers the patience to stick with Windows despite all of our bugs, faulty drivers, high total cost of ownership , lack of a sexy vision every now and then, and many other difficulties ... customers keep trying other desktop platforms, but it would be so much work to switch that they hope we can just improve Windows instead of forcing them to switch. "
- "In short, without this exclusive franchise called the Windows API, we would have been dead a long time ago."
- "In short, without the exclusive franchise rights called Windows API, we would be long dead."
Another example is the Austrian Wienux project, which was aimed at the Microsoft Windows operating system by a KDE system with Debian - Linux to replace basis. However, because the learning software "Clever", developed by Microsoft, which is supposed to help language acquisition in kindergartens, only supports Internet Explorer, the reason alone was to switch three quarters of the computers that had already migrated to Linux back to Windows. The “Microsoft Smart Mice Initiative” started in Austria in September 2006, while the Wienux project started in 2005. Munich, on the other hand, already planned in 2003 to save costs in the city administration with the help of LiMux , and initially carried out the project consistently despite a few problems. However, this required expensive retraining measures and a new software procurement strategy. For example, browser-based software and a self-programmed template system called WollMux were used. At the end of November 2017, the Munich City Council decided to end the project and convert all computers to Windows by 2020.
Apple
Until March 2009, music files based on DRM , encrypted with Advanced Audio Coding , were available in the iTunes Store . These files could only Apple - iTunes -Mediaplayer on Macintosh and Windows and a few other instruments are played. After a US district court recognized Apple's monopoly in this in September 2005, the major labels decided in January 2009 to remove the DRM format.
Agriculture
Complete packages for agricultural arable farming with coordinated and interdependent transgenetically modified and thus patentable plants, pesticides, weed killers and fertilizers bind farmers to manufacturers of agricultural preliminary products. With the terminator technology (a genetic procedure to restrict use ) an attempt is made to deprive farmers of the possibility of producing their own seeds.
Coffee machines
Since the introduction of coffee pods / capsules in 1986, providers of such systems have had the opportunity to “form communities” through the lock-in of a machine buyer in a special pad or capsule standard. The binding of the machine to a pad / capsule standard forces the customer to purchase the associated pads or capsules from the same manufacturer. It is therefore dependent on the pricing of the pad / capsule provider.
Typewriters
Earlier had mechanical typewriters the problem is that while writing the most commonly used types into one another interlocked. In 1873, Christopher Latham Sholes developed an arrangement of the letters on the typewriter in which the entanglement rarely occurred. The keyboard layout was created using the so-called QWERTY keyboard. This arrangement was popularized with the mass production of typewriters in 1904 by the Remington Sewing Machine Company and thus became the industry standard. With the development of electric typewriters, the QWERTY allocation was no longer necessary. Engineers developed key arrangements that would have resulted in a time saving of 5 to 10 percent for the typist. However, the standard of the QWERTY arrangement was already so widespread that the new standard did not prevail, since retraining the typists would have involved some effort. The improved system has therefore not caught on. Ergonomic keyboard layouts can be found in the article Keyboard layout # Ergonomic alternative layouts: Ergonomically revised layouts .
Employment relationship
Lock-in effects also occur in the employment relationship between employer and employee , provided that at least one contractual partner has to raise costs in advance or take other measures to retain the other contractual partner (e.g. job search and recruitment costs, non-termination ). The termination of the employment relationship is made more difficult or even impossible for the contractual partners.
literature
- Serge Debrebant: He just wants to play. In: fluter.de, issue 57, March 31, 2007, pp. 40–41. (PDF; 291 kB)
- Avinash K. Dixit , BJ Nalebuff: Game theory for beginners , Schäffer-Poeschel, Stuttgart 1997.
- C. Rieck: Game Theory - An Introduction. Christian Rieck Verlag, 2007.
- Christian Ewerhart, Patrick W. Schmitz: The lock in effect and the hold up problem. In: Munich Personal RePEc Archive. 1997 (release 2008) (PDF; 104 kB)
Individual evidence
- ^ Dominik Georgi, Karsten Hadwich: Management of customer relationships. 2010, p. 14 limited preview in Google Book search
- ^ Dominik Georgi, Karsten Hadwich: Management of customer relationships. 2010, p. 14.
- ↑ Tobias Knoof: Hypnotic Mind - checklists for successful advertising texts. Volume 4, 2013, p. 119 limited preview in Google Book search
- ↑ Tobias Knoof: Hypnotic Mind - checklists for successful advertising texts. Volume 4, 2013, p. 119.
- ↑ Kai Adolphs: Competitive Advantages in Electronic Retailing. 2004, p. 26 limited preview in the Google book search
- ^ Carl Shapiro, Hal R. Varian: Information Rules: A Strategic Guide to the Network Economy. 1999, p. 103 ff.
- ^ Ralf Peters: Internet Economy. 2010, p. 50 f. limited preview in Google Book search
- ^ Carl Shapiro, Hal R. Varian: Information Rules: A Strategic Guide to the Network Economy. 1999, p. 111.
- ↑ Kai Adolphs: Competitive Advantages in Electronic Retailing. 2004, p. 25 ff.
- ^ Avinash K. Dixit, Barry J. Nalebuff: Game Theory for Beginners - Strategic Know-how for Winners. 1997, p. 246.
- ↑ Christian Rieck: Game Theory - An Introduction. 2007, p. 64.
- ^ Vendor Lock-in Definition by the Linux Information Project
- ↑ Commission decision of March 24, 2004 related to the procedure under Article 82 of the EC Treaty (Case COMP / C-3 / 37.792 Microsoft). (PDF; 1.5 MB) European Commission , March 24, 2004, accessed June 17, 2009 .
- ↑ “The reason is that software for performing language tests for kindergarten children only runs in Internet Explorer. According to Ringler, the manufacturer of the software will not make a Firefox version of its product available until 2009. " (online)
- ↑ “Now the problem arose with the kindergarten computers that language test software is currently only available for Internet Explorer and the manufacturer will not port it to Firefox until 2009. The local council should therefore decide tomorrow to migrate these 720 computers to Windows Vista. The Greens in the city council strongly criticize this decision and are of the opinion that the manufacturer could have been induced to carry out the porting faster at significantly lower costs. "
- ↑ "Start of the educational initiative" Schlaumäuse - Children discover language "and opening of the Austrian Smart Mouse Competence Center on September 26, 2006" (online)
- ↑ Stefan Krempl: Final end for LiMux: Munich city council puts the penguin in front of the door . Heise Online . November 23, 2017. Accessed February 21, 2018.
- ^ Patent information ( Memento from June 13, 2008 in the Internet Archive ) GENRES information system of the Federal Office for Agriculture and Food
- ↑ Urs Fueglistaller, Christoph Müller, Thierry Volery: Entrepreneurship: Models - Implementation - Perspectives; with case studies from Germany, Austria and Switzerland. 2004, p. 76.
- ↑ Hans-Ulrich Hensche, Anke Schleyer, Christiane Wildraut: Possibilities and limits of sustainable customer loyalty in the direct marketing of agricultural products in North Rhine-Westphalia. 2006, p. 9.
- ^ Avinash K. Dixit, Barry J. Nalebuff: Game Theory for Beginners - Strategic Know-how for Winners. 1997, p. 226.