Strategy
Switching costs
The cost or effort for a customer to change supplier.
Last reviewedWhat does Switching costs mean?
Switching costs are the money, time, effort or risk a customer faces when moving to a different supplier, such as moving data, retraining staff or breaking a contract. High switching costs keep customers loyal and make it harder for rivals to win them.
Where does it come up in case interview prep?
- Value chains and profit poolsLesson in How industries work: the toolkit
- Business models: who pays, and for whatLesson in How industries work: the toolkit
- Banking: players, trends, regulation, and how to crack the casesLesson in Retail and commercial banking
- How payments work: cards, real-time payments, wallets, BNPL, and remittancesLesson in Payments and fintech
- Asset and wealth management: players, trends, regulation, and how to crack the casesLesson in Asset and wealth management
- How software and SaaS companies workLesson in Software and SaaS
- Software and SaaS: players, trends, regulation, and how to crack the casesLesson in Software and SaaS
- How internet platforms, marketplaces, and digital ads workLesson in Internet platforms, marketplaces, and digital advertising
Related terms
- Barriers to entryWhat makes it hard for new competitors to enter a market.
- Network effectsA product becomes more valuable as more people use it.
- Economies of scaleCost per unit falls as volume rises.
- Economies of scopeCost falls when related products share resources.
- Competitive advantageWhat lets a firm earn more than its rivals over time.
- Vertical integrationOwning more stages of your own supply chain.
- Horizontal integrationCombining with firms at the same stage, often competitors.
- CommoditizationWhen products become interchangeable and compete mainly on price.