Switching Costs

Pros & cons of attracting customers in an existing category.

On one dimension any business looking to gain new customers is going to have to do one, or both, of:

  • attract customers who are already buying from another provider in the category.
  • attract customers who are not already buying in the category.

The first of these options involves customers switching from another business. Switching from eating a Bounty bar on Wednesday to choosing a Mars bar on Friday isn’t a big psychological deal (at least not for me). But Switching from Apple to Samsung mobile phones, or EE to O2 for mobile phone service or even Costa to Starbucks is a bit of a “deal” for many of us.

When it’s a bit of a “deal” for customers to switch to you then they are considering much more than just the difference in price. They are to some extent having to consider “I got this a bit wrong, I chose the wrong provider”.

So if you are trying to attract new customers off existing providers then on the plus side you aren’t going to have to educate them about the product or service (at least not so much as defining a completely new category), but on the negative side you need to provide a very compelling reason to overcome their internal narrative of “I’m a Costa / Apple / EE etc type of person”.

Just think of the hundreds of thousands of UK customers remaining with their sub-optimal energy providers for years.

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