Barriers to Exit
Barriers to Exit
The real drivers of sustainable business and value creation
Businesses often focus too much of their reliance on strategies to re-inforce barriers to entry into their market space by believing they will sustain "monopoly" pricing in the long term if they focus their activities on the "shoring-up" market entry barriers. These barriers are created from superior products or services and IT systems in conjunction with IP and patents. They are a competitive advantage in a point in time in a dynamic market. They can lead to a false sense of security and sentiment within the company as the focus is on their pricing power at the expense of customer satisfaction.
In time competitors can leverage customers away, as without customer focus, these barriers usually only provide temporary market dominance as a combination of rapidly changing technology, advanced communications systems and shifting consumer demands, substantially reduce the product life cycles of existing products and provide new real alternatives that compete with your market dominance albeit at a better value proposition. By trying to constantly “shore-up” the barriers to entry, one of the real targets of a company’s activities- namely enhancing existing customer satisfaction, is ignored at the peril of the company.
Barriers to Exit- How are they created?
Customers focus comes from ensuring that your products and services offered to customers are embedded into the customers systems and culture. To achieve this position, you need to build an interdependent relationship to a point where you are critical to the customers and their success. This relationship provides important "value-adds" which support your pricing policies and ensures repeat sales are achieved at significantly lower marketing cost! It sustains the business and you can now grow the customer base as the need to put "fingers in the barriers" to stem the "customer leaks" is dramatically reduced!
For the customer to change to a new supplier at this point incurs a large corporate dislocation- time, effort and resources and for an uncertain gain! It is a Barrier to Exit.
Barriers to Exit create a focus on the customer and make it very difficult decision to change once you are established within their business. To ensure that you reach that position a company must
1. Provide a high grade quality offering after the initial contract is won!
2. Over deliver and under promise on services and contract requirements- actions and support are paramount!
3. Keep the customer at the technical edge of your offering by providing upgrades regularly at competitive pricing.
4. If problems occur – fix them and leave the blame game to others! Respect the customer's time.
5. Partner, if needed, with them by sharing risks for new products and systems within your core competencies.
6. Develop professional and ethical relationships at multiple points in the organisation so you can act if issues arise. Be frank and open about issues with fact based reasons for relationship problems and tackle them directly.
7. Understand their culture; management and business model- develop a "play-book" on key customers.
In short, develop an inter-dependency with them that makes the Barriers to Exit to insurmountable. Wrap "management- blanket" around them a give the customer a corporate cuddle so they know you care and support their business.
Barriers to Exit are the real drivers of sustainable business and value creation as they underpin your performance.