Pattern description

Customers are locked into a vendor's world of products and services. Using another vendor is impossible without incurring substantial switching costs, and thus protecting the company from losing customers. This lock-in is either generated by technological mechanisms or substantial interdependencies of products or services.

Inventive problems

Application examples

Gillette, the American manufacturer of safety razors and personal care products that created the disposable safety razor, was one of the first firms to employ a Lock-in business model successfully. Its first razors with disposable blades were sold in 1904. In line with the principle of this system, only Gillette’s disposable blades match the handles. Customers are obliged to purchase Gillette-brand blades, which carry a higher margin. Control is reinforced by a number of patents that prevent other companies from entering this market with accessory products. The disposable razor blades (consumables) generate recurring revenue with high margins and offset any losses incurred by the initial low-priced offer of the handle.

Lego is a Danish manufacturer of a small brick-based toy system comprising interlocking parts. Lego adopted the Lock-in business model by designing its products and accessories to work only with other compatible components of the patented design. Since it is not possible to combine Lego’s parts with those of its competitors, customers must purchase Lego-compatible products, thus increasing customer retention and revenue for the company.

Nestlé is a past master in the implementation of the Lock-in pattern. Its Nespresso system was invented by a Nestlé employee in 1976. It consisted of a coffee machine and patented coffee capsules, which were sold separately by Nestlé. Customers were obliged to continue purchasing coffee capsules from Nestlé on account of the technological specifications of their coffee machine. Switching to another system rendered that customer’s current machines obsolete, leading to the obligation to purchase a new series. The Lock-in business model can often be usefully supported by appropriate product innovations: Nestlé found that one of the major threats to customer loyalty was if its coffee machines broke down. The critical element influencing the lifespan of Nespresso’s machines was the gaskets built into the machines themselves. Nowadays gaskets are fitted within the capsules rather than the machines in order to lengthen the latter’s lifespan and at the same time delay customers’ decisions to update their systems – another Nespresso or a competing machine. While rather more expensive than fitting the gasket into the machine, this solution significantly extends the lifespan of the machine and consequently improves the Lock-in effect.

References

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