Switching Costs

There are three types of costs associated when a consumer chooses a competitor’s product or service. The first is termed Procedural switching costs, which involves lost time and effort. One thing working in consumers’ favor is the Internet. For example, bank customers use online technology for most routine matters, and most consumers prefer to use this option with their existing banks, rather than learn a competitor’s system. iPhone suffered negative publicity during release of iPhone 3 due to the way users held the phone. It led to dropped calls and reception problems. Even through negative publicity, iPhone users were reluctant to switch products due to procedural switching costs. As another example, retailers try to build consumer loyalty through the use of loyalty cards and programs. However, this rarely truly builds consumer loyalty, other than procedural loyalty (Babin & Harris, 2013).

The second type of cost is Financial switching cost. This is the total amount of money that is spent or invested in learning how to obtain value from the new product. For example, some service providers offer bundled pricing on several service, and therefore, consumers are less likely to purchase each separate product/service from competitors.

Lastly, there are Relational switching costs involved with changing providers. Relational switching refers to the psychological and emotional consequence of changing from one business to another. An example of this is how attached consumers get to their hairstylists and tend to go the same person for years, rather than find a more convenient salon.

Of the three, evidence suggests that the latter is most resistant to marketers’ influence (Babin & Harris, 2013). Just like consumer loyalty card programs, those consumers who are not emotionally attached to a store or brand will likely switch to a competitor if the price is right. Therefore, marketers must try to build an emotional bond with consumers and their product, thereby creating a relationship.