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Recently I decided to shift a domain name that I’ve parked for years from one of the largest name registrars to a smaller one. The reason was a major price difference of $25/year – the larger one charged $35/year, the smaller one $10/year.

So why have I waited so long to switch? The answer is simple: inertia and sloth. I had convinced myself that it was worth spending $25/year more to avoid the pain of moving the name, a complex and annoying process. But it was finally time to do what I had put off for so many years.












Well lo and behold, as I was half way through the switching process, having already signed up and pre-paid the new registrar, the incumbent registrar suddenly pops an offer for me to retain them for $10/year, the same price I would pay at the new registrar.

Nice try, but it was too little too late. Since in order to renew and take advantage of this sudden lower price, I would need to revoke the prepayment to the new registrar, which would then need a call to the credit card issuer to halt the payment.

This entire episode illustrates bigger operating paradigms at work here: when does it pay to really charge for inertia, what is the value to the customer in the short and longer terms, and what is the value of the sudden promotion to retain business?

At Abbey Road Associates we recognize there is real value to switching barriers, and businesses should leverage them. However, over-stretching them is a real risk to the long-term retention of customers. In the case of the incumbent name registrar, had they charged $15/year instead of $25/year, it is unlikely many people would have considered switching: $5/year is just not enough incentive to go through the hassle.

Flashing a last minute offer of $10, is whiff of desperation and a blatant admission of overcharging guilt. This gives rise to our view of when and how to use switching barriers. Below are a few rules, among many more which are situation dependent:

1. Use high switching costs if there is a harvesting strategy in place; there is no doubt that short-term inertia is your friend. But over time, undifferentiated services with high prices will ultimately lose enough share to no longer remain viable.

2. Switching barriers are best paired with long term contracts.

3. Do not use high switching barriers when a customer has multiple lines of business, as once they’ve decided to switch, they will learn to switch all product lines. Conversely, for large, episodic purchases such as a large ERP system, switching barriers make more sense.

4. If prices are very public, switching barriers make less sense. No one wants to be frequently reminded that their provider is overcharging.

5. Last minute offers can be viewed as pathetic, and denigrate the higher pricing position which hopefully is built on a reputation of quality/service.

6. Switching barrier premiums can range dramatically based on each situation, but premiums should not exceed 35%-50%.

For more thought on the value of switching barriers, call us at +1.203.514.0515

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