Why look to reduce customer switching costs?
Switching costs are the costs or difficulties associated with customers changing suppliers. They keep customers locked into a particular company. If you are a firm that has locked-in customers, switching costs are an advantage – they result in customers continuing their subscriptions or continued purchases with your firm. If on the other hand, you are a new entrant or a competitor, you may want to help reduce these switching costs – helping customers to change suppliers so that they are able to move to your offerings.
Customers may also want to be wary of switching costs – getting locked into a particular company can prevent you from shopping around for alternative options. There may be benefits to having the ability to easily change suppliers.
Approaches for reducing customer switching costs
The specific approach to reduce customer switching costs may vary by industry, but some common aspects include:
Software to help customers migrate
It may be possible to provide software to help in the transition process. For example, moving from a particular cell phone operating system to another (i.e., Andriod to iOS or vice versa) may be easier if there is an app provided to move your contacts and other settings from one device to the other. Similarly, on transitioning databases, it may be possible to provide a service that converts one format to another – helping smooth the transition for customers.
Another aspect that may help reduce switching costs is greater compatibility between products. At the extreme, if products or services are entirely interchangeable, then it is easy for customers to move from one firm’s products to another.
Training to help manage the switch
Another pain point that customers or companies may have in switching suppliers is the need for training on the new system. Individuals may be reluctant to make the leap onto a new platform that they are not familiar with, and companies may be concerned by the training cost to transition employees to a new way of working. Providing support to help this transition can help reduce the switching costs – potentially online portals or individualized training to help overcome issues.
Final thoughts: Understand what the customer difficulties switching
While it is often easy to identify some of the switching barriers,s it is also useful to speak to the customers, including the customers of your competitors, to understand specific hesitancies and resistances to move suppliers. Identifying the specific pain points, and ways of removing these difficulties can help attract such customers to your company