Harvard Business

Bottle the energy of your customers, you can become a Billionaire By Robin Trehan, B.A, MIB, MBA electronic business We all want to retain customers. We know the high cost associated with making new customers. But sometimes... [more]

Bottle the energy of your customers, you can become a Billionaire

By Robin Trehan, B.A, MIB, MBA electronic business

We all want to retain customers. We know the high cost associated with making new customers. But sometimes customers do switch and here comes the concept of “Switching cost.” Switching cost has negative effect both for the switching company and also for the customers. In case of customer, switching costs encompass all the costs incurred from signing a new contract, establishing new relationship and building on it. There are at least three types of switching costs:

1. Transaction costs are costs that transpire to start a new relationship with a provider and sometimes also include the costs necessary to cease an existing relationship.

2. Learning costs represent the effort required by the customer to reach the same level of comfort or facility with a new company product or service as they had for an old company.

3. Artificial switching costs are created by deliberate actions of firms (loyalty rewards). In addition to these explicit costs, there are also implicit switching costs associated with decision biases and risk aversion.

Companies can create concept of “lock-in” effect to reduce switching. This notion refers to the capability of a business model to prompt users to engage in repeat transactions. Lock-in can be enabled by creating switching costs that customers would face if they were to switch to a different service provider. Switching costs are created through loyalty programs, by providing transaction safety and creating the perception of trust, through familiarity with the site, and also through customization and personalization of product and services.

Lock-in prevents the migration of customers and strategic partners to competitors and is manifested as switching costs. A firm’s strategic assets, such as its brand name, the design proprietary standards, loyalty programs and buyer–seller trust, both contribute to lock-in effect.

In the past a companies were the boss. Today company must partners with their customers. Companies should act as host and customer as guest invited to a party. It should be the job of the company to make customer experience a little better each and every time. This will help to retain the customers and reduce switching.

All companies have to always driven, determined and always remain insecure to remain competitive. Stay hungry with passion to bottle your customers. Be the code maker and code breaker and stay ahead of your competitors. Treat your customers as king and word of mouth spreads faster than any marketing efforts. Bottle your customers and you will be Billionaire.


Robin C. Trehan can be reached at robin@tafunds.com