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Business Model Inspiration #7:
Next-Level Customer Loyalty: The Lock-In Effect
What is customer loyalty?
Customers are kept and their loyalty is assured by providing value beyond the actual product or service itself. The goal is to increase loyalty by creating an emotional connection or simply rewarding it with special offers. It’s important to note that customers are voluntarily bound to the company, which protects future revenue, e.g., through incentive-based programmes.
We’ve got some examples for you:
American Express offers ‘Membership Rewards’, a programme considered to be one of the most generous reward schemes in the world. For every dollar a customer spends, they will earn at least one point. These points can be spent in a variety of ways, including on flights, hotel rooms, holidays, cruises or even paying bills.
The telecommunication industry has been overwhelming new customers with increasingly favorable offers, while loyal customers have been neglected. Contrary to the trend, T-Mobile designed a campaign in Austria called “Loyal ≠ Egal” (“Loyalty Matters”), offering all loyal customers the same favorable offers that are also advertised to new customers.
The so-called “lock-in effect” raises customer loyalty to the next level by taking matters into its own hands. Customers are locked into a vendor’s world of products and services. Switching to another vendor is not possible without exposing yourself to substantial additional costs. Hence, this strategy protects the company from losing customers to competitors. Ultimately, customer loyalty is beyond all question.
Companies from a broad range of industries make use of the lock-in effect: razor blades, credit institutes, health insurance companies, camera producers, computer companies, agriculture machinery manufacturers, coffee, machines, etc. We’ve collected some examples to give you a better idea. Could your business benefit from the lock-in effect?
Apple devices, such as the Macbook, iPhone and iPad, share common operating systems. On the one hand, this makes syncing data between each device very easy and convenient for the users. On the other hand, by making syncing to third-party-systems such as Android rather inconvenient (or taking the example of the Apple Watch: even impossible), customers are more likely to stay or, ideally, even expand within the Apple ecosystem.
When Amazon launched its Kindle, it not only enabled people to read digital books but also locked them into buying digital books in a proprietary format (i.e., from Amazon). Customer loyalty, therefore, was not a question, but mandatory to use Kindle in the first place.
Gillette launched its Mach 3 razor handles at an attractive price. The profits are being made by selling the matching razor blades at a comparably high price.
As well as HP and other competitors, Canon sells ink printers at fair prices, then charges very high prices for replacement ink cartridges, while ensuring that third-party cartridges are either not applicable or less advantageous.
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