Cost Past Customer Satisfaction

An article in this week’s Time magazine bemoans the costs of shoppers switching retailers. “New ways companies are getting us to stick with lousy service,” reads the article title.
     When those “companies” are large retail businesses, the small to midsize retailer has an enhanced opportunity to woo new customers by giving excellent service. We’d like to minimize switching costs for shoppers who want to change from another store to shopping with you. At the same time, we’d like to maximize costs to shoppers who want to switch from your store to another.
     Research findings from Santa Clara University, University of Maryland, and University of Texas-Austin found that switching costs exert a stronger influence than does customer satisfaction on whether a consumer will continue to patronize a retailer. The researchers also identified three sorts of switching costs in retailer-to-consumer and business-to-business sales:

• Procedural. The loss of time and effort. Consumers are uncertain how things will work out with the new retailer. It takes time to gather information and mental effort to analyze it. The end consumer asks, “How difficult will it be for me to change my habits if I shop at the other store?” The business consumer asks, “How hard will it be for me to set up new accounts if I change retail suppliers?” A retailer can increase procedural switching costs by satisfying a broader range of the consumer’s needs. 
• Financial. The loss of money or money equivalents. “Will I lose frequent shopper points, quantity purchase discounts, or deposits if I switch now?” “Are there deposits I’ll need to make to do business with a different retailer?” Financial switching costs are higher when the retailer has multilevel loyalty programs and purchase protection plans. 
• Relational. The loss of a steady identity which comes from association with the retailer. Customers of small to midsize retailers enjoy seeing store staff they recognize and who recognize them, or even call them by name. A barrier to switching is the consumer’s discomfort with having to become acquainted with a new set of store staff. In addition, people often augment their self-identity using the personalities of the stores they frequent. For this reason, changing stores can be psychologically disruptive. If your customer has done business with you for a long time, the relational switching costs are higher. When you continue to offer distinctive products and services, you’re building resistances against your customers abandoning you. 

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Switch Thinking About Switching Costs