Customer Switching Costs Research Articles

A Model for Explanation of Customer Satisfaction Consequences in Banking Industry: Evidence from Iran

In recent years, customer satisfaction has come to be used not only as a performance indicator for individual firms but also an aggregate for economic analysis. In particular, it has been reported that changes in customer satisfaction are a leading, positive indicator of other financial and economic indicators such as GDP growth and customer spending. In our research, we have examined consequences of customer satisfaction by analyzing the relationships among variables such as customer complaints, loyalty, trust, switching costs, and corporate image. A sample of 551 respondents took part in this study. A cluster-sampling plan was used to collect data from estimated sample. Findings indicate that customer satisfaction appears to be linked to customer loyalty. Findings also indicate that customer satisfaction has a positive and significant impact on customer trust and complaints. In addition, as trust increases, the switching costs decreases. Similarly, when customer complaints decrease, the customer loyalty will increase. Finally, corporate image and switching costs have a significant impact on customer loyalty. Key words: Customer satisfaction; Loyalty; Trust; Corporate image; Switching cost

Multi-dimensional analysis of perceived switching costs

The creation of switching costs for customers is an important aspect of strategic planning in today's competitive environment. These costs enable firms to address variations in customer preferences and competitor influence in attempting to gain their customers' loyalty. Although the recognition of the importance of such switching costs has long existed in a variety of contexts, the conceptualization and measurement of the construct is lacking in clarity and consistency. This study proposes that perceived switching costs (PSC) constitute a higher-order construct made up of six dimensions that reflect the customers' perception of the time, effort, and money involved in the switching process. The study also proposes that each of the six dimensions has a distinctive set of antecedents and outcomes. The test of the model is an empirical study in the Spanish insurance sector. The results confirm the validity of the higher-order formative construct of PSC and provide insights for specific strategies to address the perceptions of various customers with regard to switching costs.

Role of switching costs in the service quality, perceived value, customer satisfaction and customer retention linkage

PurposeThe study attempts to chart out the role of switching costs in the interrelationships between perceived value, perceived service quality, customer satisfaction, and customer retention. The mediating role of switching costs as well as its direct impact is explored among customers of mobile telephone service providers in India.Design/methodology/approachThe conceptual model is developed based on the existing literature and then the model is validated through the analysis of data collected from customers of mobile services in India.FindingsThe mediating role of switching costs is found to have adequate statistical support and the other direct linkages are also found to be valid. The findings suggest that service firms may benefit from pursuing a combined strategy of increasing customer satisfaction and switching costs both independently and in tandem, depending upon the product‐market characteristics.Originality/valueThe study extends the knowledge about customer retention by bringing in switching costs as a part of the network of relationship involving perceived value, perceived service quality, and customer satisfaction.

Suppliers' willingness of customization, effective communication, and trust: a study of switching cost antecedents

PurposeThis study seeks to extend current research by testing a framework for understanding the impact of perceived suppliers' willingness for customization, effective communication, and trust regarding perceived switching costs.Design/methodology/approachResearch data were collected from electronics firms in Taiwan; 281 questionnaires were collected. Structural equation model (SEM) analysis was applied to the data.FindingsThe study suggests that perceived trust contributes to perceived switching costs. The perceived willingness of a supplier to customize for a buyer can indirectly impact on perceived switching costs by way of perceived trust toward the supplier. Furthermore, analysis of the direct and indirect effects reveals that effective communication plays a dominant role and has a significant influence on trust and perceived switching costs.Originality/valueWhile recent research increasingly examines customer switching costs in terms of antecedents, this study provides greater insight into switching costs from the trust‐forming perspective to ensure customer retention.

Exchange-rate Misalignments in Duopoly: The Case of Airbus and Boeing

We examine the effect of exchange-rate misalignments on competition in the market for large commercial aircraft. This market is a duopoly where players compete in dollar-denominated prices while one of them, Airbus, incurs a large fraction of its costs in euro. We estimate price elasticities for big aircraft, and construct a simulation model to investigate how companies adjust their prices to deal with the effects of a temporary misalignment and how this affects profit margins and volumes. We conclude that, due to the duopolistic nature of the aircraft market, Airbus will pass only a small part of the exchange-rate fluctuations on to customers. Moreover, due to features specific to the aircraft industry, such as customer switching costs and learning-by-doing, even a temporary departure of the exchange rate from its long-run equilibrium level may have permanent effects on the industry.

Causal Relationships Among Perceived Risk, Satisfaction, Switching Cost and Loyalty in Outpatient Health Services

Purpose: The purpose of this study was to examine the causal relationships of perceived risk, satisfaction, switching cost and loyalty in outpatient health services. Method: A survey using a structured questionnaire was conducted with 393 hospital outpatients. The analysis of data was done with both SPSS Win 17.0 for descriptive statistics and AMOS 18.0 for structural equation model. Results: The causal model yielded Chi-square=31.44 (p=<.001), df=4, GFI=.98, AGFI=.87, CFI=.97, RMSR=.04, NFI=.96, IFI=.97 and showed relatively good fit indices. Perceived risk had a significant direct effect on customer satisfaction. Customer satisfaction, financial switching cost and relational switching cost had significant direct effects on customer loyalty. Perceived risk and customer satisfaction had significant indirect effects on customer loyalty. Conclusion: These results suggest that we should decrease the perceived risk and improve the customer satisfaction and switching cost to retain loyal customers. Further study with both a larger sample from various hospitals and a longitudinal design is necessary.

Building TQM by integrated strategies for B2B industry: Next-generation lighting technology in Taiwan

When petroleum prices rose markedly, light emitting diode (LED) products gradually garnered increased attention as they are as energy efficient as solar energy and wind power. The LED industry follows the B2B model. The B2B model involves the marketing characteristics of high customer loyalty, high customer switching cost, specific marketing channels and distinct enterprise image (brand cognition). Taiwan accounts for more than 20% of the global market share for LED products. However, increasing the gross profit rate is difficult owing to insufficient R&D capabilities and poor integration methods. By improving business effectiveness to build total quality management (TQM) via integrated strategies, Taiwan can create enterprise excellence, and thereby expand market share. This study discusses the implementation and effects of integrated strategies from the perspective of value chains. Internal strategies of production and technology focus attention on production efficiency, and external strategies of supply and marketing emphasise firm cooperation and alliances. However, no absolute distinction exists between internal and external strategies. Analytical results can be used for forecasting industry trends and formulating business policy.

An empirical study of employee loyalty, service quality and firm performance in the service industry

Taking an operational perspective on the relations between employee loyalty and business performance, we examine the relationships among employee loyalty, service quality, customer satisfaction, customer loyalty and firm profitability, and the contextual factors influencing these relationships. We developed a research model grounded in the service-profit chain notion of Heskett et al. (1994) and empirically tested the model by conducting a survey of 210 high-contact service shops in Hong Kong. Using structural equation modeling (SEM), we observed that employee loyalty is significantly related to service quality, which in turn impacts customer satisfaction and customer loyalty, ultimately leading to firm profitability in high-contact service industries. Using multiple-group analysis of SEM, we found that the effect of employee loyalty on firm profitability through service quality, customer satisfaction and customer loyalty is robust under different scenarios of employee–customer contact level, market competitiveness, and switching cost in the sampled shops. This finding supports the generalizability of the observed relationships in various operating contexts.

The diffusion of internet-based distance education technology among US associate colleges

This paper analyzes the diffusion of internet-based distance education technology (NETDE) among the US associate colleges. The study finds that an institution with experience in using an earlier generation distance education technology is more likely to adopt NETDE than an institution without such an experience. The finding supports the view of Cohen and Levinthal (1990) that an organization's ‘absorptive capability’ plays a significant role in its innovative activities. Institution size also facilitates the adoption of NETDE. We relate this size effect to market power because the size effect is partly caused by customer switching costs present in the NETDE market. Finally, we find that, among public institutions, the presence of close competitors motivates an institution to adopt NETDE earlier.

Consumer perception of interface quality, security, and loyalty in electronic commerce

Customer interface quality, perceived security, and customer loyalty are critical factors for success of an e-commerce website; however, the relationships among them are not fully understood. We proposed a model for testing the relationships among them and the important outcomes of the site: switching costs and customer loyalty. Data was collected to test the model using a web-based survey, and empirical analyses were performed using SEM. The analytical results demonstrated that customer interface quality and perceived security positively affected customer satisfaction and switching costs, and thus customer loyalty to an e-commerce website. Specifically, our study showed that switching costs positively moderated the effect of customer satisfaction on customer loyalty; this moderating effect is discussed.

Switching factors of mobile customers in Korea

This paper investigates factors affecting the switching behavior of customers in the Korean mobile industry. It has been known that four factors such as customer satisfaction, switching cost, alternative attractiveness, and customer loyalty have influences on the switching behavior. An empirical study of mobile subscribers in Korea confirms that customer satisfaction significantly affects customer loyalty. It has found that switching cost directly affects customer loyalty, but does not play the moderating role in the customer satisfaction — customer loyalty relationship. However, alternative attractiveness has no impact on customer loyalty directly and no moderating role in the customer satisfaction — customer loyalty relationship.

How to Make Switching Costly

Customer switching costs have emerged as one of the fundamental drivers of customer retention. Although the consequences of these costs have been well documented in the literature, research on the determinants of switching costs remains limited. The present study seeks to address this issue by investigating the extent to which switching costs are influenced by marketing variables—price and advertising—and relationship characteristics. The authors develop a conceptual framework about the drivers of switching costs and test the framework empirically in the mobile phone industry using a hierarchical Bayes approach. The empirical results show that by using price and advertising—both service and brand advertising—firms are able to make switching costly for customers. Moreover, relationship characteristics significantly contribute to explaining consumers’ differences in the cost of switching. Finally, this study illustrates the key role played by competitors’ marketing actions in affecting the cost of switching for customers of the focal firm. Implications for decision makers are discussed.

Exchange-Rate Misalignments in Duopoly: The Case of Airbus and Boeing

We examine the effect of exchange-rate misalignments on competition in the market for large commercial aircraft. This market is a duopoly where players compete in dollar-denominated prices while one of them, Airbus, incurs costs mostly in euros. We construct and calibrate a simulation model to investigate how companies adjust their prices to deal with the effects of a temporary misalignment, and how this affects profit margins and volumes. We also explore the effects on the long-run dynamics of competition. We conclude that, due to the duopolistic nature of the aircraft market, Airbus will pass only a small part of the exchange-rate fluctuations on to customers through higher prices. Moreover, due to features specific to the aircraft industry, such as customer switching costs and learning-by-doing, even a temporary departure of the exchange rate from its long-run equilibrium level may have permanent effects on the industry.

The Driving Forces of Customer Loyalty

In this study we examine the driving forces of customer loyalty in the broadband market in Hong Kong. We developed and empirically tested a model to examine the antecedents of customer loyalty towards Internet service providers (ISPs) in Hong Kong. Structural equation modeling (SEM) was used to evaluate the proposed model. A total of 737 valid returns were obtained through a questionnaire survey. The results show that customer satisfaction, switching cost, and price perception are antecedents that lead directly to customer loyalty, with customer satisfaction exerting the greatest influence. Although we found that service quality significantly influences customer satisfaction, which in turn leads to customer loyalty, we did not find a direct relationship between service quality and customer loyalty. Our results also reveal that corporate image is not related to customer loyalty. Our empirical investigation suggests that investing huge resources in building corporate image can indeed be a risky strategy for ISPs.

The impact of customer interface quality, satisfaction and switching costs on e-loyalty: Internet experience as a moderator

Customer interface quality has been confirmed to critically influence the success of electronic commerce, and there has been extensive discussion about the effects of customer interface quality on consumer behavior. However, few studies have examined how customer interface quality affects e-loyalty. Furthermore, although satisfaction and switching costs are expected to be antecedents to customer loyalty, few studies have systematically examined how these elements are related to customer interface quality. This study proposes an integrating theoretical framework for testing the relationships among customer interface quality, satisfaction, switching costs, and e-loyalty. Moreover, this study argues that the relationships among these constructs are moderated by Internet experience. Empirical analyses are performed using structural equations modeling analysis. The findings confirm that customer interface quality, including customization, interaction, convenience and character, contributes to generating e-loyalty. Particularly, the results show that convenience directly enhances e-loyalty. Additionally, this study finds that customer interface quality positively influences switching costs for customers with higher Internet experience, a phenomenon that has not previously been explored.

Internet use, customer relationships and loyalty in the Vietnamese travel industry

PurposeThe purpose of this paper is to investigate how small and medium‐sized travel agencies as business customers perceive the benefits and barriers of Internet use that related to the development of a positive relationships and loyalty with their service suppliers.Design/methodology/approachRelevant hypotheses were constructed and a self‐administered questionnaire survey was conducted in the travel industry. Factor analysis and regression analysis were used to test these hypotheses.FindingsThe major benefits of Internet use were interactional and transactional benefits. The main barriers of the Internet use were organizational weaknesses, poor IT infrastructure, mistrust of the Internet system and legal issues. While the benefits positively contributed to the service and social bonds, the barriers negatively impacted the development of these bonds. The interactional benefits play a major role to increase switching costs. The customer relationships and switching costs concurrently enhanced the customer loyalty.Research limitations/implicationsCross‐sectional data were used to explore customer relationships while these bonds are basically a dynamic phenomenon that evolves over time. The travel industry in one country was examined in this study. This limits generalization to other contexts.Practical implicationsGuidelines for practical solutions to reduce the barriers to create business customer value and strengthen customer relationships and loyalty through the Internet were proposed.Originality/valueThis paper improves the understanding of the impact of benefits and barriers of the Internet use on customer relationships and loyalty in the travel industry.

The Moderating Role of Competition in the Relationship between Nonfinancial Measures and Future Financial Performance*

The use of nonfinancial measures in management control systems of firms has generated considerable interest among practitioners as well as researchers. The principal rationale presented to justify the use of nonfinancial measures for performance evaluation has been that nonfinancial measures are leading indicators of financial performance (Kaplan and Norton 1992; Ittner and Larcker 1998b). Most studies that have examined the relationship between nonfinancial measures and financial performance have shown mixed results (Ittner and Larcker 1998a; Banker, Potter, and Srinivasan 2000; Amir and Lev 1996). The mixed results suggest that these relationships may be contextual (Kaplan and Norton 1992; Ittner and Larcker 1998b), which makes it important to understand the factors that moderate these relationships before using them in managerial decision making and incorporating them in management control systems. Lambert (1998) argues that customer purchasing behavior is affected by characteristics of the economic environment such as the level of competition. In this study we extend this argument to show that unless we recognize the competitive environment of business units we cannot understand the true relation between nonfinancial measures and financial performance. Emphasizing nonfinancial measures may make sense in locations with high levels of competition. However, the same may not be true where competition is limited and fewer choices exist for customers to shop and employees to work. This is because the lack of competition may result in higher switching costs for customers and employees who may need to travel a greater distance to transact with a new supplier or employer.1 We assess whether, and under what competitive conditions, the reporting of nonfinancial measures such as employee satisfaction and customer satisfaction is

Switching Costs in the Market for Personal Current Accounts: Some Evidence for the United Kingdom

This paper provides an analysis of the competitive process in the market for personal current accounts in the United Kingdom. Using survey data, we first describe some stylised developments in this market over our sample period (1996-2001). We find a gradual change in the distribution of market shares over time. This contrasts with a marked dispersion in price, which appears to persist through time. Analysing the evolution of market shares, we address two key questions: (i) Are bank market shares responding to price differentials? (ii) If not, which type of imperfect competition best fits the data? Our conclusions point to the existence of customer switching costs as a key determinant of the nature of competition in the market for personal current accounts. The results of this study are therefore broadly supportive of a number of recent initiatives to facilitate switching bank accounts in the United Kingdom.

How switching costs affect subscriber loyalty in the Turkish mobile phone market: An exploratory study

Both academics and practitioners approve of the strategic role of customer switching cost on ensuring customer loyalty. However, there is no consensus on either conceptualisation or measuring customer switching costs. In this context, the aims of this study are (1) to develop a model by using different sub-constructs of customer switching costs to prove this model's reliability and validity (discriminant and convergence) and (2) to analyse relationships among customer loyalty, customer satisfaction, trust and switching costs' sub-constructs in the mobile phone market. To this end, the data were obtained from 1,662 ‘global system for mobiles’ (GSM) users by using a questionnaire. The findings, reached from exploratory and confirmatory factor analysis, show that the model of customer switching costs is reliable and valid, and there are statistically significant relationships among variables as expected.

Customer value and switching costs in business services: developing exit barriers through strategic value management

PurposeThe purpose of this study is to examine the concept of customer value and its role in building switching costs perceptions. The current research develops scales and empirically validates a typology of customer value for business services.Design/methodolgy/approachThrough an extensive literature review, qualitative interviews, and an empirical investigation, the current study identifies three facets of customer value for business services (i.e. economic value, relational value, and core value) and investigates their relationships with buyers' perceptions of switching costs. Structural equation modeling techniques were used to evaluate a measurement model and structural relationships.FindingsThe findings show that economic value and the value obtained from relational and support aspects of a service exert strong positive impact on customers' perceptions of switching costs and thus serve as barriers to exit. Although core service does not seem to have positive impact on switching costs, core value maybe a “hygiene” factor that may promote customers' switching if not properly managed.Research limitations/implicationsThe results of this study are generated from a single industry; additional studies in other industries may strengthen the generalizability of the proposed constructs and framework.Practical implicationsBusiness suppliers need to build exit barriers through co‐creating relational value. Through communications, suppliers may be able to monitor customers' desired value as a proactive action to anticipate changes and to influence positive changes in customer value.Originality/valueThe current study sheds some light on how supplier firms can enhance switching costs, and consequently raise exit barriers by better managing various aspects of customer value perceptions.