So what, you ask? Well, consider this. If Tesco decides to stop selling Marmite – a move analogous to Apple blocking the distribution of Twitter’s app – then I have six supermarkets within a mile of my home who do sell Marmite, and I simply drive to another. I don’t incur what economists call a switching cost. Six years ago Tesco did just this, objecting to Unilever’s profit margins by pulling Marmite and other products from their shelves. The supplier caved.
Noooo. For is the supplier caved then Tesco had power over the supplier. Therefore the switching costs must have been high. If people would just gain their ~Marmite from any of the other 6 supermarkets then Unilever’s sales would not fall, Tesco would have no power over Unilever and so Unilever would not have caved…..
We could surmise that those switching costs were objectively small – possibly – but they were obviously sufficient.
BTW, Tesco has an own brand yeast extract. Not too shabby either.