Switching Costs

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DEFINITION of 'Switching Costs'

The negative costs that a consumer incurs as a result of changing suppliers, brands or products. Although most prevalent switching costs are monetary in nature, there are also psychological, effort- and time-based switching costs.

BREAKING DOWN 'Switching Costs'

Sustainable companies usually try to employ strategies that incur some sort of high cost in order to dissuade customers from switching to a competitor's product, brand or services. For example, many cellular phone carriers charge very high cancellation fees for canceling a contract. Cell phone carriers do this in hopes that the costs involved with switching to another carrier will be high enough to prevent their customers from doing so.

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