Question

could a business use it information technology to increase switching costs and lock in its customers and suppliers? Use business examples to support your answer

Answer 1

Yes, a business could use Information Technology (IT) to increase switching costs and lock in its customers and suppliers:

Firstly, there are many costs which customers incur, and one among them is the switching costs. Customers become liable to these switching costs when they switch from one supplier to another, change brands, competitors, services, or products. These switching costs could be of nature- monetary, psychological, effort-based, and/or time-based. It, in general, is more difficult for customers to switch between or amongst their suppliers, brands, or products. Hence, the switching costs frustrate customers.

There is definitely the importance of a business using IT to increase switching costs and the business uses different ways to raise switching costs. Businesses use IT, as it is a new, booming, famous, beneficial industry, is an advanced development, and a competitive strategy or weapon. Hence, several competitive strategies the businesses use, apply and carry out use IT to support the same.

These technologies help businesses in reducing costs; promoting the business' growth in terms of revenue, reputation, etc.; innovating and differentiating in its products, services; locking-in customers, client companies, partners, consumers, home users, end-users, or simply users, and suppliers; increasing hurdles to entry; creating and building up alliances and related network; generating and increasing switching costs, and leveraging the business' investments in IT resources. IT supports businesses for them gaining competitive advantages in their relationships with competitors, customers, partners, consumers, home users, suppliers, any and all new entrants, and the substitute products producers or manufacturers.

In the process, the business integrates flexible and rigid solutions. This is all good done by the business or the company if they are providing a right, good, useful, helpful, beneficial, convenient, cost-effective, flexible, and other positive factored solutions, products, services, etc. In fact, they would not even have to increase the switching costs to retain their customers in a crook way. Their products and services produced manufactured, and delivered using IT with new innovations that no other competitor provides or offers, should itself retain their customers even when the business has decreased the switching costs or there are no switching costs at all.

The increase in the switching costs occur as the competitors also produce, manufacture, deliver, market, and sell the same products or services using the same set of IT, what makes the original business to lock-in their customers increasing the switching costs.

Any business using IT would lock in its customers, suppliers, and other competitors creating new effective business relationships between them. IT solutions in the products and services which a business offers to them, in turn, provide timelier, accurate, precise, reliable, and useful information. These good services would make a business' customer not leave them breaking or canceling the contract, subscription, business, etc.,

A business adopting to IT and its related tools will help them increase their familiarity, reputation, business, in turn, revenue, even bring in more customers through recommendations with their customers and let allow them to tune and tweak their information resources making them flexible to their customers' needs through their personal customizations.

Business examples to support the answer:
An example of a business' increasing switching costs, and the customers incurring the same. There used to be several cellular phone carriers charging their customers such as home and business users too much of cancellation fees to cancel the customers' contracts with the business, so thinking and hoping their existing customers would not be able to afford for the high switching costs to switch to another carrier, thus preventing and even stopping them from doing so.

An example of IT coming into the picture because of which switching costs are increased:
Intuit Inc. offers bookkeeping software solutions (which uses IT to the most extent) to their customers, which is a unique product, service, or solution with few substitutes or alternatives for the customers to choose from in the market. Customers are required to put their high effort to learn the technology, get educated on its specification, configuration, installation, working, and usage of its applications. Also, it takes a considerable amount of time, effort, and training costs to use the applications. This could be because of the complex IT involved in it or at least made to look like a complex one to their customers. This factor is considered as an important and used in increasing high switching costs which the company can levy on their customers. Hence, maybe very few of their customers would switch to another competitor available in the market providing the same solution (if at all they have the same solution), or customers will end up buying similar solutions with fewer features and benefits.

The one-stop E-Commerce or online shopping "Amazon" uses almost all the new IT tools, types of equipment, appliances, products, and services providing its customers, consumers, and other businesses with their ordered package tracking information, blogs, reviews feedbacks, statistics, of products, sellers, suppliers; pricing and availability, personal recommendations and customizations, flexibility of choosing types of product and letting them know how long it will take for their purchased products to reach them tracking the delivery. Doing this, any company can dominate in the market locking in its customers and suppliers. Effective, efficient, and convenient communication networks amongst its customers, suppliers, other businesses, and sellers would help the original business is subject to be at the top of the supply chain.