Another bank offers you a savings account with a better interest rate. On ₹2 lakh, you’d earn about ₹2,000 more a year.
You think about it. Then you think about your salary being credited to the old account. The EMI that auto-debits from it. Two SIPs. The electricity bill on autopay. The UPI ID your friends already have. The app you finally know your way around.
You stay. Not because your bank is better, but because leaving is work.
What’s going on
These are switching costs: everything it costs a customer to move from one product to another, beyond the price of the new one.
They come in a few flavours:
- Money. Exit fees, cancellation charges, buying new accessories.
- Time and effort. Filling forms, moving data, setting everything up again.
- Learning. Getting used to a new app, tool or way of working.
- Losing history. Your chats, photos, playlists, points and reviews.
- Risk. The old thing works. The new thing might.
Think of moving house
The new flat might be bigger, brighter and cheaper. But moving means packing every room, changing your address everywhere and finding a new kirana store.
Most people stay a little longer than they should. Not because they love the old flat, but because of the boxes.
Why it matters
For a business, switching costs are a moat. A rival can offer a lower price or a better feature, and customers still won’t move, because the gain isn’t worth the hassle.
That’s why software companies want you to store your files with them, why phone makers build ecosystems where your watch, earbuds and photos all work together, and why loyalty programmes reward you for staying a little longer.
When the moat disappears
Before 2011, changing your mobile operator in India meant changing your number. That single switching cost kept millions of unhappy customers loyal.
Then mobile number portability arrived across the country. Overnight, leaving got easy, and operators had to compete on price and service instead.
The lesson: customers kept only by switching costs aren’t really loyal. They’re waiting for leaving to get easier.
How to use it
If you’re building a product, create switching costs by becoming useful: hold the customer’s work, learn their preferences, fit into their routine.
Don’t create them by making leaving painful on purpose. Hidden exit fees and hard-to-cancel plans win the next quarter and lose the customer for good.
The best switching cost is a customer who has no reason to look.
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