Switching costs

Switching costs ( english switching costs are) in the economy those transaction costs or disadvantages that a buyer by switching to another vendor arise.

General

Buyers can be companies or private households , sellers are suppliers or subcontractors . Often the sellers have an interest in retaining their buyers in the context of customer loyalty by creating hurdles that should prevent them from switching to the competition . The business relationship should be maintained at all costs. The concept of switching costs first appeared in 1980 by Michael E. Porter , who described it as a one-off cost that the buyer incurs when he or she uses the productone supplier switches to another comparable product. It was later expanded to include switching costs for services .

species

The following switching costs can arise:

• Monetary exchange costs
  • Search costs are the effort required to search for another product, which as information costs are intended to reduce the uncertainty about a new business relationship.
  • Transaction costs in Banking ( prepayment penalty on premature credit repayment , costs of transfer of loan collateral ).
  • Investment costs arise when replacing capital goods for the use of the new product ( sunk costs ).
  • Learning costs are the costs of learning the functions and properties of a new product.
  • Artificial switching costs can be built in, for example the costs of binding contracts ( contractual penalties ).
  • Opportunity costs consist of the lost benefits of the previous product.
  • Loss of credit ( bonus systems such as frequent flyer programs ) or loyalty discounts .
• Non-monetary switching costs
  • Long notice periods prevent the early termination of a continuing obligation .
  • Loss of compatibility with existing equipment (razor and razor blade).
  • Loss of or worsened preferences (personal preferences: trustworthy advice is missing, factual: the utility value deteriorates, temporal: no more short delivery times ).

The lock-in effect results from the switching costs . The higher the switching costs, the more likely the business relationship will not be switched.

economic aspects

Above all, salespeople are interested in their regular customers in retaining them as customers. For example, when changing telephone providers, there are non-monetary switching costs if the old telephone number cannot be used. Switching costs can therefore also be viewed as exit barriers U. distort the market structure . Other providers then try to reduce the exit barriers e.g. B. with subsidy offers to the still bound customers. This is also the case with long-term contractual obligations such as successive or beer supply contracts . A continuing obligation can be assumed for all banking transactions , because the relationship between the house bank and its bank customer is a permanent business relationship in which recurring orders are initiated ( e.g. standing orders ) and the corresponding bank services are provided. All insurance contracts are also continuing obligations because a certain risk is to be insured for an unlimited period of time. As early as November 1953, the Federal Court of Justice (BGH) classified the insurance benefit as “continuous benefit” and the policyholder's obligation to pay premiums as “recurring benefits”.

literature

• Literature on exchange costs in the catalog of the German National Library

Individual evidence

1. ↑ Markus Blut, The Influence of Switching Costs on Customer Loyalty , 2008, p. 2
2. ↑ Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors , 1980, p. 10
3. ↑ Insa Sjurts, Gabler Lexikon Medien Wirtschaft , 2004, p. 341 f.
4. ↑ Kenneth C. Laudon / Jane Price Laudon / Detlef Schoder, Wirtschaftsinformatik: An Introduction , 2010, p. 602
5. ↑ Xuxu He, Control of General Terms and Conditions (AGB) and AGB clause design in banking , 2011, p. 65
6. ↑ Jürgen Prölss , in: Jürgen Prölss / Anton Martin (Eds.), Commentary on the Insurance Contract Act ... , 25th edition, 1992, § 1 VVG, note 2
7. ^ BGH, judgment of November 11, 1953, Az .: II ZR 181/52