Creating Client Loyalty Through Switching Costs

Creating Client Loyalty Through Switching Costs
Creating Client Loyalty Through Switching Costs One of the most powerful principles that dictate client loyalty is what we call "switching costs".

Switching costs are any real or perceived costs, risks or losses that your clients may incur as a result of switching from you to one of your competitors (another supplier of your product / service).

There are two main types of switching costs:

1. Naturally occurring switching costs, such as these:

  • Excellent service

  • Price increases

  • Losing rapport

  • Convenience

  • Lost contact

  • Corporate hospitality (e.g. take to a football game)

For example, the switching cost from one hairdresser to another might be convenience of another salon being closer, having to set up a whole new relationship, risk of a bad haircut etc.

2. Enforced switching costs, such as: contractual obligations to stick with a current supplier. When mobile phones were first launched, there was a very strong switching cost which was that you could not take your current telephone number from one provider to another. Likewise, today if you break your mobile phone contract, you have to pay out the rest of your plan. That acts as a deterrent from switching from one provider to another.

So it's your job as a marketer to increase the switching costs for your clients. Do remember, it is also your job to lower the switching costs when you are trying to attract and convert new clients from your competitors.

So how do you increase switching costs?

There are many ways to increase either natural or enforced switching costs. We're just going to focus on natural switching costs here.

Activity 1

Write down five ways you can use Natural switching costs in your business

Activity 2

List five ways you can introduce Intentional switching costs

Author: Daniel Rechnitzer, founder of ChildsPlay Marketing - Simple Ways To Succeed in Business. See