Requiring significant paperwork for service cancellations.Incorporating a lengthy or complex cancellation process for service cancellations.Charging a high cancellation fee for service cancellations.There are a number of strategies employed by companies to increase the switching costs incurred by consumers. If the individual needs to exert significant effort and time into switching to the cheaper phone plan, the individual may not choose to switch phone plans to save $5. Recall the example above regarding an individual switching to a cheaper phone plan. If a company is able to cause consumers to incur higher costs, it is considered a competitive advantage for the company. Let’s see now how companies formulate strategies to increase switching costs for consumers to dissuade the latter from switching brands, products, services, or suppliers. To consumers, the higher the cost, the less value the consumer is deriving from switching to another brand, product, service, or supplier. Switching costs can be “high” or “low.” The higher the cost of switching, the less likely an individual will be willing to switch brands, products, services, or suppliers. Effort-based costs: Whether the individual must exert significant effort to switch phone plans (i.e., whether a lot of paperwork must be completed).Psychological costs: Whether the new phone plan would be better than the existing phone plan (i.e., whether the new phone plan offers better city-wide signal coverage).Time costs: Whether a significant amount of time must be used to switch phone plans (i.e., driving to the store or waiting for an available store representative).However, there are a number of costs to consider, such as: In the example above, the individual will save $5 if she switches phone plans. The individual notices that another service provider is providing the same phone plan for a monthly cost of $45. Other costs include psychological, time, and effort-based costs.įor example, consider an individual who currently pays $50 per month for her phone bill. However, it is important to note such costs also include non-financial costs. Switching costs commonly refer to the financial costs incurred by a consumer when they switch brands, products, services, or suppliers. Switching cost is also known as switching barrier. Switching costs are costs that a consumer incurs from switching brands, products, services, or suppliers.
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