When a buyer changes products, suppliers, or vendors, it’s known as switching costs and can carry a substantial impact on any business. Most simply consider the monetary loss involved, but the impact also involves lost time as well as efforts and investments in customer acquisition and retention.
If you had a handful of companies with easily replicated products at comparable prices, then switching costs would be low for any consumer. Those with unique products, on the other hand, often come with significant costs as one lost sale is a high-priced item. So, how can you manage these customer switching costs?
Retention and Acquisition
Properly managing these costs improves both customer retention and acquisition. Retention comes into play when the cost is high, while acquisition comes into play when the cost is low. Knowing the difference can help you boost profits, but keep in mind that acquisition is always harder than retention.
With a high switching cost, better known as a lock-in, there’s more involved for the consumer. It costs your customers a lot of money, time, effort, and comes with a significant amount of risk. They then fall into the retention category because these elements make them think twice before moving on to your competitors.
Lower costs allow you to acquire customers by baiting them away from competitors. By offering a similar product/service that saves them money, offers more flexibility, and delivers better outcomes you entice them to become new customers.
Managing High Switching Costs
Locking-in or retaining your customers is the simpler maneuver with four strategies at your disposal. The first is to improve your field and technical support services. This increases uptime, flexibility, and improves quality.
The second is to focus on the customer experience, building value your competitors simply do not have. With a superior customer value management platform, you can rely on exceptional data and analytics to deliver exactly what your consumers have in mind whether they’re B2B or B2C. Plus, your competition would need the same platform unless they want to spend a fortune duplicating your tactics.
Third is to improve your products. You could make them more user-friendly, increase the production rate, or reduce operating costs. Regardless of your approach, a better product means that high cost to the consumer pays off when the competition might not. Finally, you can always drop the price slightly below a competitor’s, but this is a last-ditch resort.
Managing Low Switching Costs
There are seven strategies at your disposal with this route, all of which attract customers to your brand. Keep in mind that results may vary but can create massive benefits in the long run. The seven strategies are:
- Identify a competitor’s lack of customer service, then provide potential customers with something better.
- Reduce costs through warranties or discount codes. Just make sure your existing customers hear about it first.
- Place increased emphasis on minor differences between your offerings and those of the competition.
- Revamp your website with testimonials from consumers and brand advocates, reassuring potential clientele considering the switch.
- Increase the customer’s perceived value, again relying on CVM tools.
- Highlight features your competitor’s products either do not have or that they do not market.
- Special offers and pricing for customers who do switch, similar to what cell pone companies do.
Since the differences are smaller between offerings, the acquisition is often more difficult. It’s vital that you assess consumer loyalty to your competition before funding these strategies if you want them to pay off. With proper management of switching costs, however, you’ll leave your competition in the dust.
