Your Own Customer Identity…

ImageConsumer switching costs are a major part of a plethora of industries, from telephones and cellular networks to newspapers and magazine subscriptions to the airlines and travel choices. With a substantial switching costs, companies are often able to assure their customer’s loyalty or perhaps even reduce competition in the industry by providing strict contractual guidelines and locking-in high initial investments.  With the perpetual increase of data in industries small and large, switching costs are becoming more and more of a prevalent discussion, especially as customer data collection becomes more readily available. Companies like Swipely allow merchants and small businesses to use their product in order to interact more with their customers and understand their spending and whom exactly the spending is coming from.  Many companies already have formed their own sort of customer evaluation system, such as when high-end hotels such as the Ritz-Carlton give rewards to their customers for being a loyal guest, or when large department stores like Saks Fifth Avenue give rewards for spending a certain amount of money after a certain amount of time…influencing their customers to stay loyal and continue shopping at Saks rather than let’s say Bloomingdales.  As technology and the ability to evaluate sales with greater detail becomes more and more accessible, it appears that these evaluations may not just be occurring with large businesses like Saks and the Ritz Carlton, but instead with small, local businesses. Stacey Higginbotham, author of Consumers Could Pay Higher Switching Costs in a Data-Driven World, worries that with technological advancements and the influences of a more data-driven world, switching costs will distort the “local goods and services” markets like they never had before.  Instead of a customer perhaps not switching from Verizon to AT&T because of the high switching cost, customers may not eat at the new, local Italian eatery because to them a free large pasta and a glass of wine earned through customer loyalty at a already established restaurant perhaps is more valuable to them than trying out a new restaurant down the block. I worry that this is true as well. Often technology does distort the charm of particular industries and it will be disappointing if it does the same with local goods, driving out local businesses even further and perhaps expanding big boxes. As if chain restaurants did not already have the power to drive out small businesses, with growing data and customer rewards, greater competition and higher difficulty to open local restaurants and stores may become a major result. In conclusion, it does seem that this way of judging customer loyalty with the increase in data makes shopping and consuming much less personal and enjoyable when your name is listed for the amount of money you have spent at the establishment. Sometimes I do think technology pushes its limits, I know the amount of money I personally spend at a place is personal to me and I would not want the shopkeeper to evaluate the likelihood of a purchase based on my prior purchases and money available. This “data-driven world” may cause much less diversity in day to day life, locking customers in to fewer and fewer options for day to day consumptions.

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4 thoughts on “Your Own Customer Identity…

  1. This post does a good job of taking a closer look at an idea that repeatedly come up in class discussion: switching costs. As you clearly establish, companies have a clear motive to establish these switching costs, to maintain a customer’s business and establish customer loyalty. We see this strategy all over the place from the preferred access lane at the airport to, as we said in class, Netflix prioritizing customer service calls based on the amount of business the customer represents.

    I really like the way you examined the double-edged sword of switching costs. It is undeniable that trying prioritizing customers that do more business objectifies them into a dollar amount. Additionally, I can definitely see how switching costs may discourage experimentation in industries where we typically value differentiation, like eating at different restaurants or shopping at a variety of stores. Personally and perhaps optimistically, I think switching costs do not hold such a strong grip on customers. I think that they only serve to ensure customers continue coming back for a specific good or service, like a good hamburger or a streamed movie online. I think preferences are stronger than the switching costs in some regards, but they definitely do lend the stronger advantage to the chains because they have more sources to incentivize customers and ensure they do not switch. This aspect of switching costs does worry me.

    Overall, this is an insightful post on an unfamiliar topic, and it was supplemented well with links, articles, and images.

  2. This was a good post. I really liked how you had several links to articles or companies embedded in the post. These were interesting and helpful for understanding the topic. I agree that it would be disappointing to see small businesses forced out of the market because of high switching costs. Like John said in his comment, this is a good example of the double-edged sword. Obviously loyalty rewards are good, but I’m not sure if it is worth it if it means that smaller companies are driven out of business.

  3. You did a good job on this post. However im not sure that i agree that consumers will be locked into fewer options when it comes to industries such as restaurants and things like that. Industries such as wireless providers,airlines, and other transportation industries have already shown that high switching costs create an incredibly high barrier to entry but this may not apply to everyday businesses.. I believe that individual restaurants and small businesses still hold value for a customer and this makes the problem of switching costs lower than in the transportation industry. you posed a very interesting issue in this post and i think it will be interesting to see how technology effects switching costs in the future.

  4. I don’t think restaurants are locking people in with switching costs from data so much as other companies like amazon or netflix. Those two each keep you around because a person goes through an inconvenience when they switch. If I were to abandon a local eatery I was loyal to I might only lose a cost savings that I can get at the new place over time. Quality would drive me to the best place for food.

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