Exchange costs

Change costs or change costs are those faced by the consumer when changing a product, supplier or brand.

Exchange costs

The switching costs are not only monetary, there are also psychological costs, effort and time. They can manifest themselves in various forms such as: cancellation penalties, the need to learn how to use a new product or technology, face the risk that normal operations will be interrupted or the risk that the change will not leave us satisfied.

Thus, these costs can arise naturally from the change process or can be artificially generated by companies. For example, the time required to find an alternative supplier is a cost of the change process. On the other hand, contracts that impose high penalties for terminating the service can be artificial costs that seek to discourage the change of provider.

Exchange cost types

Among the types of costs that exist, it is worth highlighting:

  • Search costs: time that the consumer must spend to find a good substitute.
  • Penalties: some contracts impose penalties for terminating the service.
  • Learning costs: the time that must be invested to learn how to use the new product or service.
  • Equipment costs: the cost of acquiring new equipment that is necessary to use the new product or service.
  • Installation costs: the cost of having the new product, technology or service installed.

Example of switching costs

Before number portability existed, which allows mobile phone users to keep their number when switching providers, consumers faced high switching costs.

For example, in addition to the costs of searching and learning to use a new device, consumers faced the cost of having to inform all their friends, colleagues and family of the new assigned number. In addition, faced with the possibility of missing important calls (for example from job offers or official bodies), many consumers preferred not to change providers.