Switching costs
Switching costs are the money, time, effort, disruption or risk associated with changing supplier, system or offering. They can arise from retraining, migration, lost compatibility, contractual arrangements or relationship-specific investment. They influence customers’ choices and can contribute to lock-in, but need not make changing impossible. Compare future costs and benefits rather than assume staying is best because past expenditure was large.
Worked example
A company compares a cheaper software subscription with the cost of migrating data, training users and managing service disruption. Those future transition costs affect the decision; the original purchase price is a separate sunk cost.
Common mistake
Do not count every past payment as a future switching cost or assume a lower annual price guarantees a better overall choice.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | SBL | Supporting | September 2026–June 2027 |