In many service markets - like telecom, energy and finance - consumers do not switch providers very often and service providers are having trouble activating these potential customers. Even though some consumers might want to switch due to an interesting offer from a new provider, often they still don't act.
In most cases, perceived switching barriers are preventing consumers from switching to another provider. Consumers believe that switching would mean they incur certain inconveniences or difficulties. A well-known example is the fear of consumers in telecom markets that the switching process between providers may lead to a loss of service for a period of time!
Determining barriers and the effects of reassurances
In order to attract consumers, you as provider can offer attractive services, cheap rates, promotions and other benefits. To break through inert consumer behavior caused by switching costs, you offer what we like to refer to as 'reassurances'. Before switching, consumers may have certain doubts, and you need to reassure consumers to overcome these. Such reassurances can take the form of additional information, switching services, or even money to cover the costs of switching.
To better understand this passive behavior and the effects of these reassurances on the switching decision we undertook a study in the Dutch telecom market. The study consisted of two parts: The first determined which factors are most important to consumers in the switching decision. Secondly, we studied the effect of reassurances on switching barriers and thus the switching decision itself.
"Consumers are more likely to stay at their current provider because of perceived switching barriers than because of a high level of satisfaction"
It is possible to lower barriers by using reassurances
Unsurprisingly, we found that the most important driver of choice is the attractiveness of your product offer, determining the largest part of the predicted choice. However, we also found that the perception of time and effort required to make the switch has a very strong negative influence on the switching decision. This is mainly caused by the uncertainty about the quality of a new provider. As consumers often have doubts about the quality of other providers, they need to put extra time and effort in comparing product offers.
When investigating the effect of reassurances, we found that services such as 'free installation by a mechanic' and a 'never out-of-service guarantee' greatly reduced some of the perceived barriers related to the hassle of switching. Although the uncertainty about quality can't be fully overcome, switching intention can be increased by addressing these perceived barriers.
Another clear barrier was the relationship with the current brand: the stronger the relationship, the less likely people are to switch. This may be one of the most difficult barriers to overcome, as the relationship is a very subjective thing related to a brand's positioning. What is of particular interest though is that we found that consumers are more likely to stay at their current provider because of perceived switching barriers than because of a high level of satisfaction.
Make sure your products are attractive
These study results show us that it is important for you as service provider to first determine what consumers consider attractive alternatives; without doing so, you’ll never even be considered. Secondly, reassurances should be added to get consumers to actually take action, focusing mainly on uncertainty and then on the hassle of switching.
In order to retain customers, the relational barrier can be a powerful tool, as the relational barrier is the most difficult to remove by means of reassurances of a competitor.