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Loyal Customers & Switching Cost
Since I was 15, I have been dealt with the City bank. My father also has transacted account with City Bank. Once I dealt with the bank, I found that it is very difficult to change the bank, even if other banks suggest higher interest or sometimes better services. Because my current main bank don’t charge commission when we use ATM (Automatic Teller Machine) after office hour due to credibility our family built. They also know how our financial situation is and offer best services for us.
Many of my friends go to church which is very far from where they live. They said they can’t simply change the church because they formed great relationship with people in that.
In management term, people call this “Switching cost”.
People tend to stick to use what they chose for the first time. They rarely switch the product or companies even though new companies offer better products or services. Therefore, companies try to pre-occupy the market prior to any other competitors. So switching cost could be working as barrier in Porter’s model.
We can find that many companies try to increase switching cost. I found that there are two ways of applying switching cost, offering incentives or causing difficulties. For example of offering incentives, Airplane company offer mileages to their customer to make them keep using their plane. For professional business men who often fly, it could be very economical and the airline companies can grab these big spenders. As an example of causing difficulties, we can think of
Windows. Many people including me are fascinated by fantastic interface of Mac. However, because of compatibility issue, majority of people keep using and buying Windows. We love interface of Mac OS but we are afraid that we have to give up lots of software that we are familiar with and pay for new software that we don’t know.
I think business is not just offering good products or services with reasonable price. We also think about how to grab secure our customer group even though the competitors offer better quality of products or services. To achieve this goal, the concept of “switching cost” could be applied in many different and practical ways.
Many of my friends go to church which is very far from where they live. They said they can’t simply change the church because they formed great relationship with people in that.
In management term, people call this “Switching cost”.
People tend to stick to use what they chose for the first time. They rarely switch the product or companies even though new companies offer better products or services. Therefore, companies try to pre-occupy the market prior to any other competitors. So switching cost could be working as barrier in Porter’s model.
We can find that many companies try to increase switching cost. I found that there are two ways of applying switching cost, offering incentives or causing difficulties. For example of offering incentives, Airplane company offer mileages to their customer to make them keep using their plane. For professional business men who often fly, it could be very economical and the airline companies can grab these big spenders. As an example of causing difficulties, we can think of
Windows. Many people including me are fascinated by fantastic interface of Mac. However, because of compatibility issue, majority of people keep using and buying Windows. We love interface of Mac OS but we are afraid that we have to give up lots of software that we are familiar with and pay for new software that we don’t know.I think business is not just offering good products or services with reasonable price. We also think about how to grab secure our customer group even though the competitors offer better quality of products or services. To achieve this goal, the concept of “switching cost” could be applied in many different and practical ways.
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