Change is NOT the only constant – Cost of Change / Switching Barrier

In the late 1800s, there was no standard pattern for the arrangement of letters on the typewriter keyboard. The problem was that when people became expert on these typewriters and started typing fast, the keys started jamming and this caused lots of damage to the typewriters. In 1873- Christopher Scholes came out with a new layout. The layout is known as “QWERTY”, after the letter arrangement of the first six letters in the top row (see your mobile / laptop keyboard).

Now you will be wondering how this would have solved the problem. This slowed down the typing speed as commonly used alphabets were kept far off from each other and reduced the speed of typing. When Remington Sewing Machine Company started producing this on mass scale (1904) QWERTY became a default industry standard.

When electric typewriters and later on computers were launched the Jamming problem became irrelevant. DSK (Dvorak’s Simplified Keyboard) developed simplified keyboard, which reduced the distance between commonly, used alphabets and reduced the distance by 50%. Typing speed went up by a substantial percentage. Still these keyboards could not replace the complex and old keyboard – QWERTY. If they were complex and not relevant, then why the simplified DSK could could not replace them?   

Perhaps the concept of “Cost of Change or Switching Barrier” will explain and answer this question. The simplest definition of Switching Barrier is the cost associated with switching suppliers. QWERTY was being used by every manufacturer and DSK had to take a massive initiative of changing the market and habits of users that the cost associated with it would have been huge.

How can you apply this concept to your business?

1. People resist change and the advantages and disadvantages associated with it. They don’t want to change the status quo. Therefore, a new, improved product, no matter how great it is on its own merit, must be significantly better than what the consumer is currently using before he will switch. You can create barriers and increase the dependency of your customers on you through service and engagement that they find this Switching Cost high.

2.  Different people have different reference points. For some availability, for some service and for some quality will be the reference points. The best way is to identify them and use them to create barriers for your customers to switch.

3. People exhibit loss aversion. The pain of giving up a benefit is much more significant than the pleasure of gaining that benefit. For example the cost of giving up QWERTY is much higher than the benefit of adopting the simple DSK keyboard. This can be easily used by you to create barriers for your customers to shift. I remember one distributor used finance as a barrier to keep his customers from shifting.