Obviously switching costs are greater the more valuable your product.
But even with an undifferentiated product, in a competitive market, it's still possible to keep customers from moving to objectively better products. These extra special switching costs fall into 3 categories:
1. Financial (termination and setup fees)
2. Procedural (time and effort learning and integrating a new process)
3. Relational (loss of business relationships, discomfort moving away from familiarity, risk of uncertainty)
Note: it’s unethical and foolish to artificially maximise switching costs. This can really backfire, burning prospective customers and souring churned customers.
The best switching costs?
- When switching costs are a natural byproduct of the product's functionality, they are more likely to be accepted by customers. Focusing on enhancing features that inherently create switching costs can be a strategic move.
- The more a customer has invested into a new product by integrating their data and logic, the stronger the switching costs. Paradoxically, products that allow easy data export and integration prevent customers from holding back, and lead them to commit more to a new product.
- Switching costs increase with the number of people who rely on the product. Large organisations are much less likely to switch to new products.