Competitive Strategies for Network Economies MGT 523 Managing Lock-In Buyers ’ Strategies Presented By: May Chern Huang

Managing Lock-In - May Chern Huang Tug of War Between Buyers & Sellers (Slide 1 of 3) Sellers Hope to profit from locked-in buyers.

Managing Lock-In - May Chern Huang Tug of War Between Buyers & Sellers (Slide 2 of 3) Buyers Seek to strengthen bargaining position by keeping their options open.

Managing Lock-In - May Chern Huang Tug of War Between Buyers & Sellers (Slide 3 of 3) Is the lock-in cycle a zero-sum game?

Managing Lock-In - May Chern Huang Lock-In Strategy for Buyers Everyone experience some degree of lock-in. Strategies to arm yourself in order to minimize lock-in and avoid monopoly exploitation.

Managing Lock-In - May Chern Huang Lock-In Strategy for Buyers 1. Learn how to identify and measure switching costs. 2. Structure your relationship to maximize your options later in the lock-in cycle. 3. Bargain hard before you become locked-in. 4. Keep your options open.

Managing Lock-In - May Chern Huang Bargain Hard Before You Become Locked In (Slide 1 of 2) Best time to bargain is before you become locked in. Your bargaining position will become weaker once you make sunk, supplier- specific investments. Think ahead to the entire lock-in cycle as you negotiate. Be wary of vague commitments!!

Managing Lock-In - May Chern Huang Bargain Hard Before You Become Locked In (Slide 2 of 2) Tactics to extract the best possible deal Emphasize the switching costs you need to incur in selecting a new vendor. Establish that you will make substantial follow-on purchases. Highlight your influence as a customer. Convince seller that you will bear very high switching costs later in the lock-in cycle.

Managing Lock-In - May Chern Huang Keep Your Options Open Establish a 2 nd source of supply. Gain leverage via partial switching. Watch out for creeping lock-in. Demand compensation each commitment. Centralize information systems decisions? Retain rights to information on your relationship with the seller.

Managing Lock-In - May Chern Huang Lessons Bargain hard for initial sweeteners. Don ’ t be anxious. Depict yourself as an attractive customer. Seek protection from monopolistic exploitation. Keep options open via dual-sourcing. Watch out for creeping lock-in.

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