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Use “Switching Costs” to Your Marketing Advantage

By: Dave Berkus


Know the cost to move from your existing platform, and estimate the switching costs for moving from a competitor’s product or service to yours. Offer incentives to existing customers to stay, and for competitor’s customers to switch. Protect your base with incentives to stay that are intangible—such as membership in an insider’s club, access to special deals not available to others, and attention from the executives at the top.

The momentum from an old decision that took lots of effort to implement is worth something to a marketing professional. To keep an existing customer, even if by offering discounts, is much less expensive than the cost of attracting a new one. To reduce switching cost from a competitor is to lower the barriers to a quick decision that might have been otherwise much harder to make.

Increase the barriers to your customer’s switching, not just with excellent service, but with some form of personal touch. Recognizing a longstanding customer with an appropriate gesture from the top is best of all.

Recently, I received a hand-written letter from two co-CEOs of a company I had helped out with a few hours of time. They accompanied the letter with a customized gift of their product that contained the logo and name of the college where they knew I was a trustee.

First, I have not received a hand-written letter other than a greeting card from any business associate in what feels like decades. I was in such shock, I did not respond in kind. What should I do? Pull out a piece of stationery that had been sitting unused for over a decade and write in longhand? You aren’t supposed to respond using a less personal vehicle than the original one. So email was out. A phone call might have done it, but not with the elegance of the original correspondence. Now, every time I turn from my desk to the credenza behind, I see that letter and gift. I am not willing to just file the letter or put the gift on the shelf. That’s the power of a great outreach from the top.

And that’s a lesson for all of us in marketing. Find the right way to reach existing customers that stands out from the usual. Find an offer that makes switching easy for others. Pay attention to opportunities to differentiate yourself from the rest.

Someday I will file the letter and put away the customized gift. In the meantime, those two guys got many more miles from a relatively simple gesture than I would have thought possible.

This article was originally published by Berkonomics

Published: October 1, 2014

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Dave Berkus

Dave Berkus is a noted speaker, author and early stage private equity investor. He is acknowledged as one of the most active angel investors in the country, having made and actively participated in over 87 technology investments during the past decade. He currently manages two angel VC funds (Berkus Technology Ventures, LLC and Kodiak Ventures, L.P.) Dave is past Chairman of the Tech Coast Angels, one of the largest angel networks in the United States. Dave is author of “Basic Berkonomics,” “Berkonomics,” “Advanced Berkonomics,” “Extending the Runway,” and the Small Business Success Collection. Find out more at Berkus.com or contact Dave at dberkus@berkus.com

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