SWITCHING COSTS

Switching Costs:

 To succeed in an industry, new entrant must be able to persuade existing customers of other companies to switch to its products. To make a switch, buyers may need to test a new firm’s product, negotiate new purchase contracts, and train personnel to use the equipment, or modify facilities for product use. Buyers often incur substantial financial (and psychological) costs in switching between firms.

When such switching costs are high, buyers are often reluctant to change.

 For example, high switching costs in moving away from Microsoft’s Windows operating systems used in personal computers and corporate servers powered the company’s stunning growth over the past decade in the software industry.

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