There is ongoing debate over the role of switching
costs in the Internet environment, where switching costs are often referred to as
friction. According to Hax and Wilde II (2001), the networked
environment has altered the nature of competition by amplifying the relationship between customers
and suppliers. While switching costs are not a new force, they argue that the combination of a
common digital language and the reach of the network make switching costs more strategic and
powerful in the new economy. They state that “the Internet is all about bonding,” and that as a
result we can expect more friction, or switching costs, not less in the new economy. Shapiro and
Varian (1999) argued that frictions do not disappear in the Internet environment, they just mutate
into new forms. This enables firms to convert traditional markets into lock-in markets by creating
information-enabled or synthetic switching costs, for example loyalty programs. Firms are also
expanding their reach and providing more personalized information and products. In addition, while
switching costs based on equipment tend to decline as equipment wears out or superior performing
equipment comes along to replace it, switching costs based on information (such as Amazon.com’s
customer databases or its filtering tools or the shopping masks allowing “one-click shopping”)
never wear out. In fact, they tend to strengthen over time given that the more information a
company has about the client, the better the company can serve the client and thus further increase
switching costs. In an empirical study by Amit and Zott (2001), switching costs are found to play
an important role in e-businesses’ ability to create value. The authors carry out multiple case
studies on U.S. and European firms and conclude that the four value creators of e-business are: (1)
efficiency, (2) novelty, (3) complements, and (4) lock-in. Their data reveal that firms achieve
lock-in as a result of switching costs and network externalities, and that the strategies
implemented to manage lock-in include loyalty programs, establishing dominant design proprietary
standards, establishing trustful relationships, learning, customization and personalization, and
virtual communities. It is important to recognize, however, that not all of the changes in the new
economy are leading to an increase in switching costs. The same changes in technology that provide
firms with opportunities to create new switching costs are enabling customers and competitors to
reduce traditional ones. For example, the traditional trade-off between richness (depth and detail
of information) and reach (number of customers firms can reach and number of products they can
offer) is being blown up (Evans & Wurster, 1999). These authors explain that
information is being separated from things and that this information is now accessible to millions of people
who are communicating through universal, open standards. This connectivity is critical, they argue,
because key strategic elements such as brand identity, customer loyalty, and switching costs all
rely on various types of information. They argue that traditional value chains will deconstruct
because better informed customers will find it easier to switch suppliers, thus reducing
traditional advantages such as vertical integration (one-stop shopping) or established
relationships. The blow-up of the tradeoff between richness and reach leads to several important
changes — reductions in search costs, reductions in transaction costs, reductions in interaction
costs, reductions in asymmetries of information, and an increase in choice. Each of these changes
causes bargaining power to shift from sellers to buyers (Bakos, 1997; Butler
et al., 1997; Evans & Wurster, 1999; Porter, 2001). New
infomediaries, navigators, and online communities further promote this shift in power by providing
customers with more detailed, timely, and objective information, and allowing larger numbers of
buyers and sellers to interact with one another (Armstrong & Hagel III, 1996; Evans &
Wurster, 1999; Hagel III & Singer, 1999). Hartman and Sifonis (2000) go so far as to say that
in today’s competitive environment traditional customer relationship management is out because it
is the customer who now manages the relationship. Therefore, customers must be listened to and
valued, and if the business does everything right, only then might the customer agree to be served.
Shapiro and Varian (1999) recognize that new technologies can shift bargaining power by reducing
search costs and enabling sellers to send out more messages and reach wider audiences. But they
caution that switching costs may remain prohibitive because customers still have to filter through
and evaluate all of the offers. Yoffie (1999) provides an additional message of caution to the
frictionless proponents by claiming that because of the bewildering pace of the Internet, the
traditional core elements of competitive advantage — such as leadership, innovation, quality,
customer lock-in, and switching costs — may become even more important. Brynjolfsson and Smith
(2000) support Yoffie’s claim in a study on Internet price dispersion among commodity goods. The
authors found that while many dimensions of friction do decline in the Internet environment, other
friction creating factors such as trust, brand, and awareness may even become more important on the
Internet. In this section we have shown that customer switching costs take on an increasingly
strategic role in the expanding networked environment. Some of the researchers reviewed here claim
that switching cost opportunities are declining, while others argue that switching costs are
actually increasing in variety and strength as a result of the Internet. We believe that both
arguments are valid. On the one hand, several traditional sources of switching costs have been
reduced or in some cases even eliminated because of the characteristics of the networked
environment. At the same time, some new switching cost opportunities have been created and certain
traditional ones have become much more powerful in the changing environment. Because both increases
and decreases in switching costs are taking place, and because of their potential impact on firm
performance, recognizing and understanding these changes is critical for successful strategic
decision making in today’s competitive environment.
Following this approach we here discuss a dynamic model of customer loyalty for a digital
environment, where: perceived usefulness, perceived ease of use and Web site usability, perceived
simplicity of Web site design and Web site complexity, best perceived customer service and positive
perceived feeling with the Web site (we will refer to those variables as the 5Ps) are seen as
antecedents of the independent variable of the model, the customer perceived feeling of
positive switching cost stemming from the Web site. As well we
hypothesize that positive perceived switching costs are strongly correlated with a deeper customer
satisfaction stemming from the online shopping experience, with a stronger repurchase intention and
finally with a greater cognitive and behavioral loyalty. Moreover, we propose that customer
satisfaction stemming from the online shopping experience and cognitive loyalty is likely to be
related to cognitive lock-in strategies; whereas repurchase
intention and behavioral loyalty are likely to be related with behavioral
lock-in strategies.
Figure 16-1: Positive Switching
Costs’ Model: Its Antecedents and Its Consequences
Perceived switching costs are consumer perceptions of the time, money, and effort associated
with changing service providers. Such costs may entail search costs resulting from the geographic
dispersion of service alternatives, as well as learning costs resulting from the customized nature
of many service encounters (Guiltinan, 1989). As the perceived costs of an activity increase, the
likelihood of consumers engaging in such behavior should diminish. Switching costs by making
customer defection difficult or costly are important because they may generally foster greater
retention. Interestingly, although numerous studies support the importance of customer satisfaction
in the retention process, the relationship between these variables often evidences considerable
variability. As just one example, Anderson and Sullivan (1993) found t-values for the satisfaction-repurchase intention relationship ranging
from 1.1 to 13.1. Such variability highlights the possibility that: (1) retention may depend on
additional factors such as switching costs, and (2) the relationship between satisfaction and
retention may be contingent on switching costs arising in the
context. The current study develops and tests a model of customer cognitive loyalty that
incorporates such contingencies between customer satisfaction and switching barriers. Particularly
we hypothesized and tested whether the 5Ps are likely to be possible antecedents of the customer
perception of positive switching costs online. Before discussing the results of our empirical
analysis, we would like firstly to introduce the 5Ps, switching costs of the Web site.Is Web Site Usability a Switching Cost: The Role of WebSite’s Elements to Generate Switching Barriers