Management Glossary

  Search Results: switching cost
switching cost
The cost that a customer will incur to change from one supplier to another. If, for example, a manufacturer would have to completely retool its factory to use parts from a different supplier, that manufacturer has high switching costs for those parts.

Customers who face high swithcing costs tend to be very loyal. Thus, raising switching costs may be a very profitably business strategy. An example might be a company that develops and gives away a sophisticated ordering system that greatly reduce its customers' administrative costs, but which can only be used to order from the company that developed the software.
Contributed by: ManagerWise Staff

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