Switching costs are the costs that a customer incurs as a result of changing brands, suppliers or products. Although most prevalent switching costs are monetary in nature, there are also psychological, effort- and time-based switching costs. A switching cost can manifest itself in the form of significant time and effort necessary to change suppliers, the risk of disrupting normal operations of a business during a transition period, high cancellation fees, and a failure to obtain similar replacement of products or services.
Breaking down ‘Switching Costs’
Successful companies typically try to employ strategies that incur high switching costs on the part of consumers to dissuade them from switching to a competitor’s product, brand or services. For example, many cellular phone carriers charge very high cancellation fees for canceling contracts in hopes that the costs involved with switching to another carrier will be high enough to prevent their customers from doing so. However, recent offers by numerous cellphone carriers to compensate consumers for cancellation fees nullified such switching costs.
Switching costs are the building blocks of competitive advantage and pricing power of companies. Firms strive to make switching costs as high as possible for their customer, which lets them lock customers in their products and raise prices every year without worrying that their customers will find better alternatives with similar characteristics or at similar price points.
Example of Low Switching Costs
Companies that offer products or services that are very easy to replicate at comparable prices by competitors typically have low switching costs. Apparel firms have very limited switching costs among consumers, who can find clothing deals and easily compare prices by walking from one store to another. The rise of Internet retailers and fast shipping made it even more easier for consumers to shop for apparel at their homes across multiple online platforms.
Example of High Switching Costs
Companies that create unique products that have few substitutes and require significant effort to master their use enjoy significant switching costs. Consider Intuit Inc., which offers its customers various bookkeeping software solutions. Because learning to use Intuit’s applications takes significant time, effort and training costs, few users are willing to switch away from Intuit. Also, many of Intuit’s applications are interconnected, which provides additional functionalities and benefits to users, and few companies match the scale and usefulness of Intuit’s products. Small businesses, which are the primary buyers of Intuit’s bookkeeping products, can incur disruption in their operations and risk incurring financial error if they decide to move away from Intuit’s software. These factors create high switching costs and stickiness of Intuit’s products, allowing the company to charge premium prices on its products.
Gharama za kubadilisha ni gharama ambazo mteja hupata kama matokeo ya kubadilisha bidhaa, wauzaji au bidhaa. Ingawa gharama za kawaida za kubadili ni za kifedha kwa asili, pia kuna gharama za kisaikolojia, jitihada na wakati wa kubadili. Gharama ya kubadilisha inaweza kujitokeza katika fomu ya muda na juhudi kubwa zinazohitajika kubadilisha wauzaji, hatari ya kuvuruga shughuli za kawaida za biashara wakati wa kipindi cha mpito, ada ya juu ya kufutwa, na kushindwa kupata bidhaa au huduma zinazofanana. Kuvunja ‘Gharama za Kubadilisha Makampuni yenye mafanikio kwa kawaida hujaribu kutumia mikakati ambayo huathiri gharama za kubadili kwa upande wa watumiaji ili kuwazuia kutoka kubadili bidhaa, chapa au huduma za mshindani. Kwa mfano, waendeshaji wengi wa simu za mkononi wanatoza ada ya juu sana kwa kufuta mikataba kwa matumaini kwamba gharama zinazohusika na kubadili kwa mtoa huduma mwingine zitakuwa za juu vya kutosha kuzuia wateja wao kufanya hivyo. Hata hivyo, matoleo ya hivi karibuni ya waendeshaji wengi wa simu za mkononi ya kulipia watumiaji ada za kufutwa kwa huduma yaliondoa gharama hizo za kubadili simu. Kubadilisha gharama ni vitalu vya ujenzi wa faida ya ushindani na nguvu ya bei ya makampuni. Kampuni zinajitahidi kufanya gharama za kubadili kuwa juu iwezekanavyo kwa wateja wao, ambayo huwawezesha kufunga wateja katika bidhaa zao na kuongeza bei kila mwaka bila kuwa na wasiwasi kwamba wateja wao watapata mbadala bora na sifa sawa au kwa bei sawa. Mfano wa gharama za chini za kubadili Makampuni ambayo hutoa bidhaa au huduma ambazo ni rahisi sana kuiga kwa bei zinazolingana na washindani kwa kawaida huwa na gharama za chini za kubadili. Kampuni za nguo zina gharama ndogo sana za kubadilisha kati ya watumiaji, ambao wanaweza kupata mikataba ya nguo na kulinganisha bei kwa urahisi kwa kutembea kutoka duka moja hadi lingine. Kuongezeka kwa wauzaji wa mtandao na usafirishaji wa haraka kulifanya iwe rahisi zaidi kwa watumiaji kununua nguo nyumbani kwao kupitia majukwaa mengi ya mtandaoni. Mfano wa gharama za juu za kubadili Makampuni ambayo huunda bidhaa za kipekee ambazo zina mbadala chache na zinahitaji juhudi kubwa ya kusimamia matumizi yao hufurahia gharama kubwa za kubadili. Fikiria Intuit Inc., ambayo inatoa wateja wake ufumbuzi mbalimbali wa programu ya uhasibu. Kwa sababu kujifunza kutumia Intuit'matumizi inachukua muda mkubwa, juhudi na gharama za mafunzo, watumiaji wachache ni tayari kubadili mbali na Intuit. Pia, wengi wa Intuit'matumizi ni interconnected, ambayo hutoa utendaji wa ziada na faida kwa watumiaji, na makampuni machache mechi ukubwa na manufaa ya Intuit 'bidhaa. Biashara ndogo ndogo, ambazo ni wanunuzi wa msingi wa bidhaa za uhasibu za Intuit, zinaweza kusababisha usumbufu katika shughuli zao na hatari ya kusababisha makosa ya kifedha ikiwa wataamua kuondoka kutoka kwa programu ya Intuit. Mambo haya kuunda gharama za juu kubadili na stickiness ya Intuit's bidhaa, kuruhusu kampuni ya kushtaki bei premium juu ya bidhaa zake.