Competitive Strategies for Network Economies MGT 523

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

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

3. 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

4. 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

5. 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

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

7. 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

8. 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

9. Keep Your Options Open • Establish a 2nd 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

10. 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. Managing Lock-In - May Chern Huang

11. Questions?