Switching Costs, Low Upside Likely Reduce Interest in Switching Service Providers

Nobody would be surprised if told that, in general, consumers will switch products and suppliers for a better price or better value.

But consumers also intuitively understand that some savings are more important than others. In other words, there might be limits to the amount of effort most consumers will put into comparing connectivity service offers. 

Put another way, there is only so much a consumer can save by aggressive shopping for connectivity services. So it appears many do not bother. Some studies suggest that typical churn rates now are fairly low in many markets, for many services. Contracts and high prices, as well as intensity of usage, are some drivers of higher churn, as you might guess. 

source: Researchgate 

While Australians are happy to switch for a better price or customer experience, almost 50 per cent of surveyed respondents admit to doing either no research or a basic level of research before choosing their internet provider (47 per cent), according to Commonwealth Bank research.  

Switching barriers seem to exist. Some 60 percent say they worry competitive offers will be the same, or perhaps worse. That is probably much more true for experienced consumers who have had multiple suppliers in the past. 

Not to be discounted: there is a learning curve with any new provider. Once a customer has become familiar, switching barriers increase, which is why 42 percent of those surveyed say they are comfortable with their existing providers. 

Once a customer has figured out that a current provider supplies the expected value at a reasonable price, with acceptable customer service, account longevity actually is a good predictor of future “low churn” risk. 

Issues with service quality, in contrast, are a very good predictor of high churn risk. 

source 

The point is that although consumers are expected to prefer “saving money,” the incentives to research alternate providers are low, relative to search effort. Most consumers likely perceive a zone of reasonableness where value and price are concerned.

Most consumers rightly perceive that offers from competitors most often tend to be equivalent in many respects. 

“The common perception is that changing Internet providers is more hassle than it’s worth,” More CEO Andrew Branson says. 

Most consumers likely see switching costs in the form of new gear that has to be purchased or leased, set-up charges, possible contract requirements, bundling with other services that might also have to be changed, and uncertainty about intangibles such as customer service ease, signal quality and consistency.

At any given point in time, perhaps 90 percent of consumers are probably satisfied enough that unhappiness is not driving them to consider switching connectivity providers. In the U.S. mobile market, for example, fewer than eight percent of consumers say they are “likely” to switch service providers at any given point in time. A smaller percentage actually do so. 

source: Bain 

Switching behaviors for products that have little switching cost are robust, one might argue.  

For fixed services, much switching behavior is related simply to a household move from one area to another that also requires switching service providers.