Sometimes, certain companies that provide technological services use strategies that can influence the decision-making of their clients to ensure they remain dependent on them. For example, telephone companies might require a minimum sign-up time. It means that clients are effectively tied to a provider. This phenomenon is known as the lock-in effect.
Dependence on suppliers is apparent in many sectors. There are some general ones, such as the implications of either being a user of an iPhone or an android. There are also e-commerce issues. For instance, the decision of certain entrepreneurs to sell their products on marketplaces instead of having their own websites.
Why the lock-in effect can be harmful
When users are dependent on a specific technology or service developed by a vendor, they’re victims of cognitive lock-in or vendor lock-in.
This type of dependency occurs when a customer must continue contracting the services of a specific company. It’s due to the difficulty of choosing other options or because changing providers would entail great cognitive effort. It’s possible, thanks to certain techniques employed by companies to make it impossible for customers to easily switch to competing services.
Therefore, these companies ensure that customers depend on their platforms. In fact, if they want to look for other alternatives, it has costly and tedious repercussions for them. This directly affects their decision-making. That’s because these techniques make it possible for them to continue acquiring services that aren’t necessarily satisfactory but are more familiar and accessible.
The lock-in effect in coffee marketplaces
One example that demonstrates the negative effects of the lock-in effect is the great popularity of markets dedicated to the sale of coffee online. They’re also known as marketplaces. The philosophy of these digital spaces is to bring small roasters closer to a target audience looking for specialty coffees.
Many producers are carried away by the fear of facing the digital world by having their own websites since they can initially be rather difficult to set up. Therefore they decide to make their presence on the Internet via the marketplaces. However, if they had their own online stores, they’d have the added value of avoiding intermediaries. In addition, they’d be able to give advice to their customers on the particularities of coffee. For example, the method of preparation, the degree of grinding, and the roasting of the grain.
This insecurity leads small producers to end up accepting conditions that don’t benefit them. Moreover, they prevent them from increasing their commercial presence in the market. Nevertheless, they’ve been convinced of the supposed advantages of selling their coffee on these digital platforms. They’re persuaded that they have a greater digital reach and can increase their sales, and obtain new customers. That said, behind these alternatives lies a great abuse of power and access to the market.
Those who most benefit from marketplaces are the owners. That’s because they have the power to control all the ratings, the algorithms that display the products, and the customer data. Unfortunately, this can lend itself to dishonest situations. This is because roasters can’t communicate with their clients outside the marketplace to finalize any future business. Indeed, when producers give up their own databases, it generates a great lock-in effect.
The main consequences
When you have the freedom of being able to decide between the multiple alternatives that the market offers you, you can choose your best option wisely. But, if you’re forced by the lock-in effect to remain with a specific provider, you usually run certain risks that may have consequences in the future.
In fact, relying on a single platform, service, or solution is an inflexible decision that results in a loss of control over business data, infrastructure, and security. This forces customers to completely trust their providers and their compliance with the service-level agreement (SLA).
Another major consequence of the lock-in effect is how expensive it can be to switch from one provider to another. For example, if you’re a PlayStation or Xbox user and you already have a large number of video games, changing consoles can represent a high financial investment. It’s the same if you change from Windows to Mac or vice versa.
How to avoid the lock-in effect
Understanding the impact of the lock-in effect is important if you want to make smart decisions right from the start. For example, analyzing the information landscape of the possible alternatives that you have is crucial. You should also have an exit strategy planned, in cases of disagreement or non-compliance with the conditions.
In addition, as far as possible, you shouldn’t depend on a single provider. That’s because you’re forced to accept all of their conditions even if they don’t completely suit you. Therefore, in terms of technology, it’s better to use open standards and free software.
Finally, when purchasing a new service, make sure you read the contract and policies of your provider carefully. Also, ask about the tools they provide in case you want to change to another provider. This will allow you to make free decisions to benefit your business. More importantly, you won’t be manipulated by the lock-in effect of digital monopolies.
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