Many of the organizations base their greater and lasting protection strategies for their market on advantages based on cost and, therefore, the final price.
For example, even though GEICO spent decades to become one of the largest insurers in the American market, its enormous advantage over other insurers was based on the reduction of its costs, by eliminating intermediaries and selling insurance directly to consumers. This made the company worth around $50 billion according to Warren Buffett's company. Berkshire Hathaway.
Firms with a cost-based market advantage can create various types of trade barriers for competitors or to protect their customer network, differentiating these advantages in focus according to consumer psychology.
Exchange Cost
Switching costs refer when a company sells a product that its customers need or with a service that they trust too much to switch providers.
A company with a low switching cost can raise its prices (and profits) as long as the cost to the customer does not exceed the cost of switching to a competing provider.
Even in cases where the cost outweighs the cost of switching, stickiness (especially in enterprise products) can help defend this trade barrier for your customers.
Linked costs
Linked cost deposits appear when there is a large or frequently repeated initial one-time payment by a customer. The initial one-time payment is large enough to deter that customer from moving to a competitor later.
In this case, a consumer's perception of "choice" is limited by the initial investment they have already made in a product, creating a customer lock-in (and an accompanying barrier of protection and loyalty).
Reduced prices
Reduced Prices for customers appear when companies develop more efficient manufacturing or distribution and use them to offer lower prices than competitors.
The power of this type of loyalty barrier depends largely on the ability to continue lowering internal costs in line with the scalability of demand. If a company can continually lower prices as demand grows, it can create a massive self-perpetuating circle of growth.
Exchange Cost
For more than 50 years, IBM maintained a competitive advantage built on uncertainty. Vendors explained to potential customers that they would never be questioned about staying with IBM, and that peripherals might not work with a non-IBM mainframe. This strategy set clients apart from competitors and loyalized them to IBM.
Exchange Cost
ADP has become indispensable for thousands of companies in the world mainly because it handles two of the most critical aspects in an organization: payroll and taxes. Companies that rely on ADP to handle their most sensitive documents are more resistant to change than they would be with a less critical step.
Exchange Cost
Businesses use Slack to organize internal communications, manage projects, communicate with clients, and other functions. This breadth makes switching from Slack to an alternative tool difficult. Teams have to sacrifice their usual workflow, message history, and chat channels while spending time and money learning a new system. This increases the
threshold between any potential benefit of the change versus the burden of money and time it generates.
linked cost
When Gillette began selling its safety mechanism razors, it was the beginning of a business model, built on the principle of linking cost. People who buy cheap Gillette razors tend to continue to buy the blades that are associated with the company's holder. Over time, those customers continue to generate high-margin revenue through repeat purchases and have a built-in tendency to stay attached to the company.
Reduced prices
Early on, GEICO found that approaching consumers directly, rather than through agencies, gave the company a significant amount
of leverage on the price. The decision to go directly to the consumer propelled GEICO to become the fifth largest auto insurer in the United States.
Reduced prices
AWS benefits from scale. The more servers under Amazon's control, the cheaper its own computing and storage, and thus the cheaper it sells to customers. Over time, AWS has expanded to encompass more and more services. Being both low-cost and high-capacity, Amazon's position has gained a noticeable advantage in the cloud computing industry.
Reduced prices
Walmart is one of the largest retailers in the world by offering lower prices than the competition. This advantage and loyalty of customers has been achieved by using of regional networks of stores for bulk purchases to achieve large-scale efficiencies. Now the company is leveraging this network along with investments in e-commerce, supply chain infrastructure, and warehouse automation to defend its customer base.
