One
of the most successful strategies developed in business is to keep your
customers captive through your products or services.
The clearest example is that of printing equipment. The business is not just in selling the equipment but in the consumables (ink cartridges injectors, spare parts) and after-sales service (repairs, maintenance).
Of course there are many more examples in other industries. From Guillette´s razors that actually make their profit rather selling blades than razors themselves. Same thing happened to cell phone companies which slowly understood that the business was in the sale of prepaid cards rather than the sale of mobile handsets.
In English, the term is known as "locked-in" and is widely used in the technology industry. The clear and convincing example is undoubtedly that of Microsoft, as the default operating system for PCs, it requires you to renew the license or the same operating system to a newer version. This has caused undue Microsoft capitalize on its dominant position in the market for operating systems, which has a platform for users who are hundreds of millions, to be charging extra for the new version of their product.
Some companies take this practice to the very end. It is said that the Amazon Kindle Fire retails at a price even lower than that of his own manufacture (though this may seem absurd) because Amazon gains mostly from the sale of content which can be accessed by purchasing the device.
The latter can be seen in a company like Google where many of its products on its platform are free because the income come from other sources (advertising sales) via products offered on the platform. In this case the apps are mere vehicles for reaching a mass market that will produce revenue through other means (advertising sales).
It is certainly an interesting strategy, especially in industries that minimize costs through economies of scale. However, the scenario should be thoroughly analyzed and the ability of the company to bear the costs with the aim of bringing long-term strategy to fruition.
The clearest example is that of printing equipment. The business is not just in selling the equipment but in the consumables (ink cartridges injectors, spare parts) and after-sales service (repairs, maintenance).
Of course there are many more examples in other industries. From Guillette´s razors that actually make their profit rather selling blades than razors themselves. Same thing happened to cell phone companies which slowly understood that the business was in the sale of prepaid cards rather than the sale of mobile handsets.
In English, the term is known as "locked-in" and is widely used in the technology industry. The clear and convincing example is undoubtedly that of Microsoft, as the default operating system for PCs, it requires you to renew the license or the same operating system to a newer version. This has caused undue Microsoft capitalize on its dominant position in the market for operating systems, which has a platform for users who are hundreds of millions, to be charging extra for the new version of their product.
Some companies take this practice to the very end. It is said that the Amazon Kindle Fire retails at a price even lower than that of his own manufacture (though this may seem absurd) because Amazon gains mostly from the sale of content which can be accessed by purchasing the device.
The latter can be seen in a company like Google where many of its products on its platform are free because the income come from other sources (advertising sales) via products offered on the platform. In this case the apps are mere vehicles for reaching a mass market that will produce revenue through other means (advertising sales).
It is certainly an interesting strategy, especially in industries that minimize costs through economies of scale. However, the scenario should be thoroughly analyzed and the ability of the company to bear the costs with the aim of bringing long-term strategy to fruition.
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