Switching costs encompass the time, money, and effort a customer incurs when changing from one brand, product, or service provider to a competitor.
Keeping shoppers around is harder than ever. According to McKinsey’s 2025 State of the Consumer report, 79% of shoppers worldwide actively trade down to cheaper alternatives or store brands to manage their household budgets. To defend your market share against lower-priced competitors, you need incentives that make leaving your brand inconvenient or costly.
Learn how switching costs work, examine the three main types that affect customer retention, and discover practical strategies to protect your existing customer base while winning shoppers away from competing brands.
What are switching costs?
A switching cost is what a customer pays to replace their current provider with a new one. That toll is not always financial; it often comes in the form of lost time, extra effort, or sheer hassle. When a customer buys an alternative product or a client signs on with a new supplier, they deal with real-world trade-offs.
They spend hours researching alternatives, learning how to use a new system, risking a dip in service quality, or paying penalty fees like a cancellation charge. When a company builds natural barriers that make leaving inconvenient, it creates a buffer that defends market share and gives the business steady pricing power.
High switching costs
High switching costs happen when leaving a brand requires a big commitment of cash, time, or energy. Facing big hurdles, customers stick around even if another company offers a lower price or a cheaper product.
Hardware-software pairings are a prime example of a category with substantial switching costs. An Apple Watch works seamlessly with an iPhone. If an iPhone user decides to switch to an Android device, they have to replace their watch, move years of personal data between systems that do not easily talk to each other, and repurchase paid apps.
Because of the heavy financial implications and time-consuming setup, the buyer stays put. This dynamic helps give the company a reliable competitive advantage and a loyal customer base.
Low switching costs
Low switching costs occur when trying an alternative takes no extra effort, zero setup, and no penalty fees. In a low-switching-cost industry, buyers move back and forth between brands based on minor price differences or temporary promotions. Common examples of low-switching-cost products include consumer packaged goods (CPG) like snacks, cleaning supplies, and cosmetics.
According to the Salesforce 2024 State of the AI-Connected Customer report, the top factors pulling customers toward a new brand are:
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Better deals and lower prices (45%)
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Better selection or higher product quality (24%)
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Greater purchasing convenience (23%)
When products are easy to swap, keeping customers loyal comes down to delivering consistent value and dependable customer service.
Types of switching costs
Switching friction usually falls into three main categories: procedural, financial, and relational. Here’s how they compare:
Procedural
Procedural switching costs cover the time, energy, and mental focus required to learn, configure, and get used to a replacement product. Examples include the friction of researching options, learning new workflows, and moving data over during a transition.
For example, in a business-to-business (B2B) setting, migrating a team from one inventory management platform to a new system can take days or weeks of employee retraining and manual data entry. Even if the new provider offers a 15% discount, the hours and effort required to get the new software up and running may wipe out the savings.
Financial
Financial switching costs are the direct out-of-pocket expenses a customer pays to walk away from one brand and start with another. Examples include money spent on new equipment, sunk costs on gear they can no longer use, or contractual exit fees.
Consider a home fitness company that pairs a stationary bike with an ongoing monthly workout membership. Once a member pays $1,500 for the hardware, quitting the subscription leaves them with an expensive, non-functional machine. That initial cash outlay disincentivizes canceling.
Relational
Relational switching costs—also called psychological or emotional costs—involve the personal attachment built with a brand and the hesitation that comes with trying an unproven option. This could include the brand trust, familiarity, and peace of mind built up over years of positive interactions.
For example, a small business owner who has worked with the same local print shop for 10 years might decide to move to a lower-priced online print site. However, this means walking away from a team that already knows their brand standards, which introduces anxiety around print errors or missed deadlines.
Ways to reduce customer switching
- Lock in commitment with paid memberships
- Pair hardware or accessories with ongoing subscriptions
- Save customer preferences to streamline reordering
Holding onto your customer base comes down to delivering ongoing value that makes staying the easiest, most rewarding choice:
Lock in commitment with paid memberships
Give customers a clear reason to stay invested by asking for an upfront commitment. Paid membership programs—such as an annual VIP club or priority delivery tier—give buyers immediate skin in the game. On Shopify Masters, Paul Chambers, CEO of the Subscription Trade Association (SUBTA), pointed to Amazon Prime as an example of how monetary commitments prevent customer churn.
Once a customer pays for an annual membership, psychological and financial switching costs are established; they shop with the brand they paid for first before looking at a competitor. “It’s about building so much value they’ll never leave, and they’ll never want to cancel,” Paul says.
To put this into practice, add a recurring membership tier with Shopify Subscriptions or dedicated loyalty software. Pack it with concrete perks like free expedited delivery, member-only discounts, and early access to new product releases so members see immediate value every time they shop.
Pair hardware or accessories with ongoing subscriptions
When your business model combines physical equipment with a digital or consumable service, the initial hardware purchase creates a powerful financial barrier against canceling.
Discussing customer retention, Paul says hardware investments anchor customers to an ecosystem while the ongoing service keeps them engaged. “The hardware has driven one thing, but it’s the experience that they create,” Paul says. “I think that also keeps them around.” Combining dedicated equipment with continuous value makes walking away feel like abandoning both a financial and personal investment.
To apply this strategy, bundle your core service with durable equipment, starter kits, or proprietary refill systems. Even smaller brands can consider offering branded containers, specialized applicators, or custom countertop dispensers to make buying off-brand refills inconvenient.
Save customer preferences to streamline reordering
The more personalized an account is, the harder it is for another store to match the experience. When your site saves vehicle models, measurements, or past order specs, ordering again takes seconds. Starting fresh with a competitor forces the customer to re-enter all that information from scratch.
Brands with customizable or repeat products—like custom skincare lines or roasted-to-order coffee roasters—build retention by saving detailed customer accounts. When a shopper knows their exact roast profile, grind size, or shade match is already dialed in on their account, testing an alternative introduces extra effort and the risk of getting the wrong product.
To put this into practice, use Shopify customer metafields to store fit profiles, skin types, or custom formulas on customer accounts. Add simple, one-click reordering buttons right on their account dashboard so repeat purchasing is friction-free.
Ways to convince customers to switch to your brand
- Remove upfront financial risk with easy entry points
- Break routine habits with educational marketing
- Ease upgrade hesitations with demos and guides
When you want to win customers over from established market leaders, you need to break down the friction keeping them tied to their current routine. Here’s how:
Remove upfront financial risk with easy entry points
When legacy brands trap buyers with pricey setups or expensive replacements, offer modular options that make testing your brand affordable. On Shopify Masters, Phantila Phataraprasit, founder of the sustainable furniture brand Sabai Design, explained that when people want to update their living room furniture, traditional options like professional reupholstering are slow and expensive.
“You can actually buy a new arm from us and extend the life of that product instead of having to get it reupholstered, because that is a really expensive process that not many people are willing to go through. And it’s also quite cumbersome,” she said. To remove that hurdle, Sabai designed flat-packed sofas with swappable components and removable slipcovers, giving customers a budget-friendly route to refresh their space without throwing out their sofa.
To apply this, lower the barrier to entry by offering starter kits, travel sizes, or trade-in discounts that help cover the cost of abandoning an old product.
Break routine habits with educational marketing
In product categories where items feel interchangeable, shoppers stick with big-box brands simply out of habit. To get them to switch, lead with straightforward education showing why their current choice falls short.
On Shopify Masters, Alice Lee, founder and CEO of the children’s vitamin brand First Day, said parents routinely grab heritage gummy brands off grocery shelves because it’s what they know. “Consumers really see these products as frankly interchangeable a lot of the time,” Alice says.
To break that routine, First Day centered its messaging on clinical science, educating parents on the sugar additives and synthetic fillers in standard gummies and contrasting them with First Day’s whole-food ingredients.
To put this into practice, tackle buyer hesitation on your product pages. Use side-by-side comparison tables, ingredient breakdowns, and sourcing details that give shoppers clear, logical reasons to switch brands.
Ease upgrade hesitations with demos and guides
When a customer owns an expensive product that still runs, show them how upgrading will save them time and deliver noticeably better results. On Shopify Masters, Dr. Julie Chung, cofounder of the hair tool brand T3, pointed to a common marketing hurdle in beauty: convincing a consumer to replace a styling tool they have owned for a decade.
Because their dryer still works, buying a new one feels unnecessary. “There’s definitely education in terms of convincing the customer to let go of their perfectly fine, wonderful dryer that they bought 10 years ago,” she says. “How can we then get them to consider upgrading? And that’s always going to be the marketing conundrum.”
T3 overcomes this resistance by sharing side-by-side video demos and tutorials showing how modern heat tech cuts styling time in half, making the upgrade an obvious time-saver.
To put this into practice, provide clear setup guides, quick video walkthroughs, and checklists showing how easily your product fits into a customer’s daily routine. Offer extended 60-day trial periods to minimize the risk of trying something new.
Switching costs FAQ
What is a switching cost example?
An example of a switching cost is moving an online store from one ecommerce platform to another. The business has to transfer product catalogs, customer records, and order history, pay a developer to build a new site design, and train their staff on new order fulfillment steps. The time, operational risk, and setup fees all add up to significant procedural and financial switching costs.
What are high switching costs?
High switching costs occur when leaving a brand involves heavy financial expenses, complicated technical setups, steep learning curves, or cancellation penalties. These barriers make it inconvenient for customers to leave, giving the business steady sales and protection against competitors offering cheaper products.
What does it mean if switching costs are low?
When switching costs are low, shoppers can change brands without spending extra money, wasting time, or learning new systems. In these markets, products are easy to replace, and brand loyalty is thin. Businesses have to stand out with fair prices, fast shipping, and helpful customer support.
