Switching Cost

Posted in Marketing and Strategy Terms, Total Reads: 609
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Definition: Switching Cost

The negative cost incurred by a consumer due to her switching from one brand to another is called Switching Cost. Different types of switching costs are as follows: financial risk, social risk, psychological risk, exit fees, information cost, and equipment cost etc.


There are several examples that can be used to explain switching cost.

Baby products is a product category where consumers find switching cost to be high. With baby care being the highest priority, switching from a tried and tested brand or product to another has several psychological risks associated with buyers and physical risk associated with babies.


Another example is that of QWERTY keyboard. Over the years, several other keyboard designs have been introduced in the market but were never accepted widely by customers. Due to widespread existence and use of QWERTY keyboard, using a new keyboard layout would lead to a high learning cost in terms of time and effort by a user. Moreover, for a new keyboard layout to become commonly used, it would require collective switching from QWERTY to the new layout. Achieving this would lead to communication and equipment cost at a large scale.

 

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