L5 LOCK-IN AND SWITCHING COSTS Flashcards
What is the definition of lock-in?
Lock-In is making customers dependent on them for products and services by making it hard to switch to a competitor without substantial costs.
Why are customers reluctant to switch from existing choices?
Because the costs of switching are greater than the gains from switching.
Why do customers want to avoid regarding lock-in?
Customers want to avoid lock-in as decisions made today limit future options.
Why are captive customers considered the greatest asset for sellers?
Because they are reluctant to substitute one product or vendor with another due to high costs of switching
What is the behaviour of loyal customers in marketing?
Loyal customers exhibit increased purchase frequency and amount, reduced price sensitivity, and increased engagement in repeat patronage.
Why is lock-in more crucial in digital markets compared to traditional markets?
Because digital companies use data-driven advertising models, and losing users means losing valuable user data.
What are the implications of high switching costs in digital markets?
Once users are locked in, they are less likely to move to smaller competitors due to high switching costs related to privacy concerns and often inferior service quality.
How do open information and lower search costs affect user loyalty in digital markets?
They reduce the barriers for users to explore alternatives, making them less likely to remain loyal to a single app.
What types of costs are included in switching costs?
Switching costs include financial costs and non-financial costs, such as psychological discomfort, time, and effort-based costs.
How does Apple’s brand strategy contribute to customer lock-in?
Apple’s iPhones are associated with a high-end design and a tightly integrated ecosystem.
What are the types of lock-in strategies that have become more prevalent with digital technologies?
Contractual commitments, brand-specific training, information and databases, search costs, and loyalty programs.
How do contractual commitments affect switching costs?
Contractual commitments often have explicit or implicit damages that decrease over the duration of the contract.
How do automatic renewals impact customer behavior?
They reduce the likelihood of users canceling their subscription, especially if they benefit from convenience or discounts.
What is a potential downside of automatic updates and renewals?
They can reduce customer surplus when they lead to inadvertent payments for unused services.
How do digital services facilitate customer lock-in?
Digital services do not require a response or action from customers, making it easier to lock in customers.
