It seems somewhat obvious, but firms benefit from generating a long-term relationship with their customers. It is much less costly to retain an existing customer than to attract a new customer (e.g. see here). However, some firms take this to the next logical step - locking their customers into buying from them. That might be through long-term contracts that have penalties for switching to an alternative seller. Or it might be as simple as making the process of switching difficult or cumbersome. Or, as in the case of mobile phones, the customer just doesn't buy a new one very often, so they are locked in (for a while at least) once they have a new phone.
Once they have customers locked in, firms can then benefit from setting a higher price than they could get away with if their customers were not locked in. This is why mobile phone companies give away phones for free, or heavily subsidised, or why you can sometimes get a few months free on a new broadband internet connection (if you sign up to a 24 month contract). Alternatively, firms can benefit from selling complementary goods or services. Elevator companies may install elevators in new high-rise buildings for a low cost, because they know that they will benefit from 75 or more years of elevator maintenance fees (either by doing the maintenance themselves, or by having accredited services do the maintenance, and then charging for the accreditation).
A related example comes from mobile phones and repair services, as Ritesh Chugh (Central Queensland University) described in The Conversation last week:
If Apple and other tech companies have their way, it will only become harder to have our phones and other devices repaired by third-party businesses.
Smartphones and many other tech devices are increasingly being designed in ways that make it challenging to repair or replace individual components.
This might involve soldering the processor and flash memory to the motherboard, gluing components together unnecessarily, or using non-standard pentalobe screws which make replacements problematic...
The right to repair refers to consumers’ ability to have their products repaired at a competitive price. This includes being able to choose a repairer, rather than being forced by default to use the device manufacturer’s services.
But it seems Apple doesn’t want its customers to fix their iPhones or Macbooks themselves. The company has lobbied against the right to repair in the United States and has been accused of deliberately slowing down iPhones with older batteries.
Opposition against the right to repair from tech companies is to be expected. Cornering consumers into using their service centres increases their revenue and extends their market domination.
In its defence, Apple has said third-party repairers could use lower quality parts and also make devices vulnerable to hackers.
It also defended its battery warning indication as a “safety” feature, wherein it started to alert users if their phone’s replacement battery hadn’t come from a certified Apple repairer.
Apple can scream 'protecting our customers from hackers and unsafe practices' as much as it likes. This is a clear case of locking customers into buying repair services only from Apple, or accredited repairers. And as if to illustrate this point further:
Apple has hiked its repair charges for iPhone 12 by more than 40%, compared with the iPhone 11. It is charging more than A$359 to fix an iPhone 12 screen outside of warranty and A$109 to replace the battery.
There can be nothing better than selling complementary services to locked-in customers, and charging them a premium price for the privilege. No one would argue that Apple isn't a savvy business operator - extracting the maximum value from Apple customers is their business strategy.
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