Classroom Companion: Business

particular product and estimate the costs of later switching to another supplier.
5
The entrenchment phase is entered when the customer chooses a particular 
brand. The strategy for the supplier is to build in mechanisms or incentives that 
gradually increase the switching cost of the customer. Note that a competitor 
can always compensate for pecuniary switching costs as explained above. There-
fore, the most efficient lock-in mechanisms are those associated with irrecover-
able loss (real or imagined) of assets such as information.
5
In the lock-in phase, the customer switching cost has become substantial, dis-
couraging the customer to switch to another supplier.
The suppliers may use the lock-in cycle as a tool in strategic analysis and planning. 
Decisions taken at each stage of the cycle may influence the growth of the future 
customer base and revenues. In the brand selection and sampling stages, it is impor-
tant to attract lucrative customers and avoid customers that generate insignificant 
revenues. In the entrenchment phase, the supplier must build in mechanisms that 
discourage the customer to switch to another supplier, for example, making the 
customer dependent of information and procedures that cannot be provided by the 
competitors.
The diagram may then be used to visualize how path dependence occurs and 
traps the customer in different lock-in states.
12.5 
 Network Effects and Lock-In Cycle
Network effects, as explained in 
7
Chaps. 
9
and 
11
, are among the strongest lock-
in mechanisms, often resulting in de facto monopolies. This is usually not a vendor- 
controlled lock-in, but one that is caused by natural, strong positive feedback from 
the market in favor of a particular service or technology (e.g., Facebook vs 
Myspace).
The most prominent example of a company benefitting from strong network 
effects is Facebook. Facebook has grown into a monopoly because of strong net-
work effects associated with the proficiency of effective formation of groups of