Switching Costs Definition

Switching costs are the barriers to customer defections. They can be either financial or psychological in nature, and often times, they are both. Financial switching costs include things like early termination fees, while psychological switching costs include the perceived hassle of making a switch.

In order to keep customers from leaving, businesses need to make sure that the costs of switching are high enough that it’s not worth it for customers to leave. This can be done by offering lower prices than the competition, or by providing unique products or services that aren’t available elsewhere.