Switching costs: A competitive advantage?

We know that one of the ways we hold onto our customers is if there are high switching costs to move away to a competitor.  But how about the other side of the coin?  Do you have an estimate of the cost for a potential customer to switch to your side?  And are you prepared to help with concessions if needed?

Here’s important homework for your marketing effort.

Know the cost to move from your existing platform and estimate the switching costs for moving from a competitor’s product or service to yours.  Offer incentives to existing customers to stay, and for competitor’s customers to switch.  Protect your base with incentives to stay that are intangible – such as membership in an insider’s club, access to special deals not available to others, and attention from the executives at the top.

The costs of replacing a lost customer

The momentum from an old decision that took lots of effort to implement is worth something to a marketing professional.  To keep an existing customer, even if by offering discounts, is much less expensive than the cost of attracting a new one.  To reduce switching cost from a competitor is to lower the barriers to a quick decision that might have been otherwise much harder to make.

Consider increasing the cost of your customer’s switching

Increase the barriers to your customer’s switching, not just with excellent service, but with some form of personal touch.  Recognizing a longstanding customer with an appropriate gesture from the top is best of all.

A personal story to illustrate the point

[Email readers, continue here…]   Recently, I received a hand-written letter from two co-CEOs of a company I had helped with a few hours of time.  They accompanied the letter with a customized gift of their product that contained the logo and name of the college where they knew I was a trustee.

First, I have not received a hand-written letter other than a greeting card from any business associate in what feels like decades.  I was in such shock, I did not respond in kind.  What to do?  Pull out a piece of stationery that had been sitting unused for over a decade and write in longhand?  You aren’t supposed to respond using a less personal vehicle than the original one. So, email was out. A phone call might have done it, but not with the elegance of the original correspondence.  Now, every time I turn from my desk to the credenza behind, I see that letter and gift.  I am not willing to just file the letter or put the gift on the shelf.  That’s the power of a great outreach from the top.

The lesson from extraordinary effort

And that is a lesson for all of us in marketing.  Find the right way to reach existing customers that stands out from the usual.  Find an offer that makes switching easy for others. Pay attention to opportunities to differentiate yourself from the rest.

Someday I will file the letter and put away the customized gift.  In the meantime, those two guys got many more miles from a relatively simple gesture than I would have thought possible.

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1 Response to Switching costs: A competitive advantage?

  1. Harley Kaufman says:

    Hi Dave
    Hope you are feeling well. For years and years my line to my sales staff has been “The best customer we’re ever going to get is the one we’ve already got!” Delighted to see you highlight this basic, yet so simple, concept to your myriad of readers. The other part of your lesson is a bit more tricky. It could wind up a ‘race to the bottom’ (profit wise) if the new customer decides to play you against the ‘other’ again and again. I am not above using incentives to move, but they have to be carefully analyzed.

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