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    Switching Costs I:: Importance of Customer Loyalty

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    Anonymous 3v1z9l
    The document discusses the importance of preventing customer switching and reducing switching costs. It provides examples showing that customers are often unprofitable initially after being acquired and that customer churn rates have increased over time in the German mobile market. Switching costs arise from investments customers make in frequent flyer programs, software/hardware, printers, and phone networks that make changing providers difficult. Maintaining existing customers is beneficial since it is better to retain them than acquire new ones.

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    Switching Costs I:: Importance of Customer Loyalty

    Uploaded by

    Anonymous 3v1z9l
    23 views10 pages
    The document discusses the importance of preventing customer switching and reducing switching costs. It provides examples showing that customers are often unprofitable initially after being acquired and that customer churn rates have increased over time in the German mobile market. Switching costs arise from investments customers make in frequent flyer programs, software/hardware, printers, and phone networks that make changing providers difficult. Maintaining existing customers is beneficial since it is better to retain them than acquire new ones.

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    Strat 2

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    M1L2

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    The document discusses the importance of preventing customer switching and reducing switching costs. It provides examples showing that customers are often unprofitable initially after being acquired and that customer churn rates have increased over time in the German mobile market. Switching costs arise from investments customers make in frequent flyer programs, software/hardware, printers, and phone networks that make changing providers difficult. Maintaining existing customers is beneficial since it is better to retain them than acquire new ones.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    23 views10 pages

    Switching Costs I:: Importance of Customer Loyalty

    Uploaded by

    Anonymous 3v1z9l
    The document discusses the importance of preventing customer switching and reducing switching costs. It provides examples showing that customers are often unprofitable initially after being acquired and that customer churn rates have increased over time in the German mobile market. Switching costs arise from investments customers make in frequent flyer programs, software/hardware, printers, and phone networks that make changing providers difficult. Maintaining existing customers is beneficial since it is better to retain them than acquire new ones.

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    You are on page 1of 10

    Module 1

    Switching Costs I:
    Importance of
    Customer Loyalty

    Why Prevent Switching? (I/IV)


    Keeping your old customers is better than gaining new ones

    because often customers are not profitable immediately!

    Why Prevent Switching? (II/IV)


    Example: Annual profit per customer after acquisition
    Car insurance
    US $ 200

    Credit cards

    3 4 5

    100

    4 5
    3
    2

    0
    2

    -100
    -200
    -300

    Wholesale

    5
    4
    2 3

    Why Prevent Switching? (III/IV)


    Example: Churn in German mobile telephony market

    Customer churn: Customers leaving firms

    Increase in average quarterly churn rate from 0.9% in 1999


    to 2.3% in 2009

    Why Prevent Switching? (IV/IV)


    Churn
    (in 1000)

    1000
    900
    800
    700
    600
    500
    400
    300
    200
    100
    0
    1998Q4

    E-Plus

    O2 Germany
    T-Mobile
    Vodafone
    2001Q2

    2003Q4

    2006Q2

    2008Q4

    What Are Switching Costs? (I/IV)


    Example: Airlines

    Cause of Switching Costs:


    Frequent flyer program

    What Are Switching Costs? (II/IV)


    Example: Operating systems (Windows, iOS, Linux)

    Cause of Switching Costs:


    Investment in software / hardware
    Training of employees

    What Are Switching Costs? (III/IV)


    Example: Toner cartridges for printer

    Cause of Switching Costs:


    Investment in printer

    What Are Switching Costs? (IV/IV)


    Example: Telephone network

    Cause of Switching Costs:


    Administrative costs
    Number portability

    Advanced Competitive Strategy


    Tobias Kretschmer
    Professor of Management, LMU Munich

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