GUÍA DE OBSERVACIONES PARA REALIZAR INSPECCIONES

2.6.2.1Descriptive Literature

As noted, literature has suggested various types of switching costs. Table 2-3 (below) provides a summary of the descriptions of these costs found in the literature. The first descriptive study that theoretically differentiated customer switching costs into several dimensions was that by Klemperer (1987). He classified switching costs as: (a) transaction costs; (b) learning costs; and (c) artificial (or contractual costs). Another descriptive study was carried out by Guiltinan (1989). Based on meta-analysis of previous literature, he further theoretically classified customer perceived switching costs into: contractual costs, set-up costs, psychological commitment costs and continuity costs. In addition, Klemperer (1995) descriptively divided perceived

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switching costs into six different categories based on the kind of cost or loss involved: technology compatibility costs, transaction costs, learning costs, risk costs, contractual costs and psychological costs.

Although Fornell (1992) utilises the label switching barriers, it is clear that he is referring to issues related to switching costs. His list includes

“search costs, transaction costs, learning costs, loyal customer discounts, customer habit, emotional cost, cognitive effort and financial, social and psychological risk” (p. 10). He argues that aside from customer satisfaction, other means of retaining customers are through the management of these costs, which reduce the likelihood of customers leaving the service provider, although certain factors like below-average service performance may encourage such. Fornell (1992) also notes that “a direct measure of switching barriers is difficult to obtain (because) all costs associated with deserting one supplier in favour of another constitute switching barriers... Any attempt to measure all of them [switching barriers] would be an overwhelming task” (p. 11).

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Table 2-3: Descriptive Consumer Switching Cost Research

Author Switching Cost Types Description / Examples

Klemperer (1987)

Transaction costs, learning costs, artificial (or

contractual costs)

Different switching costs will have a different impact on customers’ choice. Switching costs can be created through customers’ investment in firms or through investments set up by firms

Guiltinan (1989)

Contractual costs forgone

The switching opportunity forgone

Loss of loyalty benefits like cumulative volume discount and continuing premium Set-up costs

Cost incurred in initiating new relationship

Initiating fees, purchase of auxiliary equipment, cost of learning new procedures and search costs

Continuity costs

Psychological costs of switching

Result from:

Norms for consistency

Psychological commitment costs The opportunity costs related to reduced performance Due to: Specialised knowledge of customers History of satisfactory performance Fornell (1992) Cognitive effort, Emotional costs, Learning costs,

Loyal customer discounts, Risks (financial, social and psychological),

Search costs and Transaction costs

One of the first scholars to appraise customer switching costs together with satisfaction in cultivating customer loyalty. He contends that switching costs is amongst the many crucial factors influencing customer satisfaction and customer loyalty. While he did not specifically measure each type of switching cost, he descriptively provided a list of potential types.

Klemperer (1995) Technology-compatible costs, Transaction costs, Learning costs, Risk costs, Contractual costs, Psychological costs

This article summarises various studies on customer perceived switching costs during that time.

Sources: Guiltinan (1989, p. 218); Gremler (1985, p. 79); Burnham (1998, p. 106)

2.6.2.2Empirical Literature

There have been only a small number of empirical attempts to classify and measure customer perceived switching costs as multifaceted constructs.

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These attempts mainly adopt the traditional offline perspective of perceived switching costs. The first study is the work of Gremler (1995), who examined the influence of this construct on customer loyalty in a highly contractual (retail bank) and high touch (dental surgery) offline service settings. While Gremler proposed switching costs composed of six lower-order constructs (habit/inertia, set-up costs, learning costs, contractual costs and continuity costs), empirical support was found for only three of the dimensions (Figure 2-5). The research confirmed the hypothesised relationships, whereby switching costs were significantly related to service loyalty to dental surgery and retail banks.

Another leading study measuring offline switching costs as a multidimensional construct is that of Jones and colleagues (2002). They

Perceived Switching Costs Continuity / Learning costs Contractual Effort

Figure 2-5: Dimensions of Perceived Switching Costs in Gremler (1995)

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examined the constructs in relation to hair salon and banking clients. They offer the first comprehensive and valid multidimensional service switching cost scale, consisting of six unique underlying facets of switching costs associated with changing these service providers (Figure 2-6). They found that consumer switching behaviour in the two service contexts decreases as these costs increase.

The first dimension, called loss performance costs, refers to customer perception of losing certain benefits and privileges in switching service

Continuity costs Learning costs Perceived Switching Costs Uncertainty Search & evaluation Loss performance Behavioural & cognitive Set-up Sunk

Figure 2-6: Dimensions of Perceived Switching Costs in Jones et al. (2002)

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provider. Some examples of these benefits are frequent flier miles, discounts based on volumes or priority seating in a restaurant (Jones et al. 2002). The second dimension refers to uncertainty costs. These are customer perceptions of the probability of diminished service performance when switching to a different service provider. Search and evaluation costs refer to customer perception of time and effort needed in finding and gathering information on any new appropriate service provider when switching. Behavioural and cognitive costs, on the other hand, are the perceptions of time and effort in learning and understanding a new service provider after the switching has taken place. Set-up costs are also associated with time and effort costs, i.e., to relay the needs and information to a new service provider after the switching. Finally, sunk costs refer to customer perception of all costs already incurred, whether the costs are in terms of time, effort or money, or in establishing and maintaining relations with the current service provider. According to Jones (2002), all previous costs discussed will become sunk after switching has taken place.

Burnham et al. (2003) provide a highly applicable typology of customer perceived switching costs developed and tested using respondents from an offline credit card company and a long-distance telephone service provider. They divide the construct into three broad categories (Figure 2-7), which somewhat encompass the types of costs discussed earlier by other

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researchers. The term Procedural costs refers to the extent to which switching service providers is associated with the expenditure of time and effort in analysing information to make choices, initiating new relationships and learning to understand and use a new service provider effectively. Financial costs, on the other hand, involve economic cost arising from loss of accumulated benefits and/or monetary cost associated with financial outlay in starting a new relationship (e.g. deposits, initial fees or assets that need to be replaced). Finally, relational costs are emotional or psychological losses encountered by customers with the breaking of bonds with the existing service provider. These costs may also consist of brand or personal relationship losses (Caruana 2004) (see Figure 2-7).

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All three representative offline studies confirming the multidimensional nature of switching costs focused on offline service sectors that are either contractual (financial services, telecommunication services, etc.) or high-touch in nature (hairstylist services, dental services, etc.) (see again Table 2-1, p. 44). As previously mentioned, this research investigates the influence of switching costs on loyalty in e-retailing, an environment that is highly transactional in nature.

Higher-order Dimensions Lower-order Dimensions Relational Costs Procedural Costs Financial Costs Risk Perceived Switching Costs Evaluation Learning Set-up Benefit loss Monetary Loss Personal Relationship Loss Brand Relationship Loss

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2.6.2.3The Online Market

Research into online switching costs is relatively scarce (Balabanis et al. 2006; Chen and Hitt 2002; Goode and Harris 2007). The conventional belief that the online market environment creates a ‘level playing field’ for retailers, large or small, has led to the notion that switching costs are almost negligible in the online market context (Bakos 1997). Indeed, it is argued that a rival company is ‘just a click away’ (Friedman 1999) and that the open structure of electronic markets leads to the reduction of supplier power and entry barriers. This, in turn, leads to the lowering of customer perceived switching costs (Bansal et al. 2004; Chang, Jackson and Grover 2003; Chen and Hitt 2002; Porter 2001).

Furthermore, as previously noted, the researcher contends that the switching cost is most critical to the service sector (Zeithaml 1981) and in relational exchanges (Gremler and Brown 1996; Guiltinan 1989), rather than in the internet market, which is more transaction-based. Past research found empirical evidence that switching costs have a negligible influence on customer loyalty towards the online retailer, and hence, can be regarded as unimportant in the online market (e.g., Holloway 2003).

Nevertheless, recent literature has found evidence of continuing customer loyalty to websites with which they are familiar and which they have been patronising for an extended period (e.g., Johnson, Moe, Fader,

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Bellman and Lohse 2004; Murray and Haübl 2007). Moreover, Porter (2001) asserted:

“When people talk about the ‘stickiness’ of websites, what they are often talking about is high switching costs.” (p. 7)

Recent researchers also argue that the internet is particularly useful in building lasting relationships with customers and has given rise to the building of new switching costs. For example, in comparison with customer relationship management (CRM) in the offline market, the technology used for online CRM of many online services allows retailers to collect and analyse customer information efficiently and effectively. This permits them to market/work towards customised and personalised offerings that lead to greater switching costs on the internet (Rust and Kannan 2003).

As previously mentioned, perceived switching costs include monetary and non-monetary costs such as time and effort (Gremler 1995). Therefore, perceived switching costs are highly salient in the e-commerce environment, where customers are mainly co-producers of the majority of services they receive.

Although the importance of switching costs has been repeatedly recognised and investigated in the offline environment (especially in the service industry), the influence of such costs on retention has received scarce

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attention in the online market literature, leaving several issues unresolved. It is for this reason that more research on this construct is needed.

The following section discusses the concept of alternative attractiveness, the second component of switching barriers studied in this research project.