Question

A large software manufacturer attempts to lock in customers by making it difficult for them to substitute their software with one from another company. The strategy used by the company is referred to as ________.
A. consumerist strategy
B. low cost operation strategy
C. standardization strategy
D. switching costs strategy

Answer 1

Answer:

D. Switching cost strategy

Explanation:

The software manufacturer has incorporated the use of switching cost strategy by making it difficult for customers to substitute their software product for another.

Switching costs: it is also known as switching barrier. This is a the cost incurred by the customer as a result of changing brands, product, services or suppliers.

The higher the cost of switching; the lesser a customer would be willing to switch between brands, the lower the switching cost; the higher the customer would be willing to switch between brands.

Switching cost includes:

• Psychological cost: This is the cost of a customer deciding whether the new product or services would be better than the old product

• Effort-based cost: This refers to the effort a customer will put in while switching brands such as the paperwork involved.

• Time cost: The amount of time used while a customer is switching product

Strategies used by firms to discourage its customers from switching

1. Charging a high cancellation fee for service cancellations.

2. Adopting a lengthy cancellation process for service cancellations.

3. Requiring significant paperwork for service cancellations.