Paul G. Patterson and Tasman Smith

The mathematics of retaining an existing customer as opposed to acquiring a new one are now well understood. Customer retention however, can be achieved in two basic ways. First, true attitudinal and behavioral loyalty might be established. Second, is to erect switching barriers such that the costs (financial, time and psychological) of changing to an alternative provider act as disincentives or obstacles to defection.

In this study we examine the important and often underestimated role that switching barriers play in the decision to stay with a focal service provider. Three services types (with different industry characteristics – travel agents, medical services and hairdressers) were studied across two diverse cultures – Australia (Western, individualistic culture) and Thailand (Eastern, collectivist culture). Most of the variance between customer's behavioural intention to stay with a service provider is explained by sSix potential switching barriers were identified: search costs; loss of a quasi-social relationship; need to re-educate and explain personal needs and preferences to a new provider; functional risk; attractiveness of alternatives, and loss of special treatment benefits.

The results show switching costs capture a very substantial amount of the explained variance in the dependent variable - propensity to stay with a focal service provider. Furthermore we demonstrate using interaction terms that these switching costs appear to be somewhat universal across West-East cultures. However significant variations were found across industries. Then, using a hierarchical regression procedure, we add a satisfaction variable into each model. They incremental gain in variance explained is small yet significant, and satisfaction has the highest individual parameter estimates in each model. Nonetheless the significant impact of switching barriers alone gives rise to the identification of a new type of service loyalty, which we term "captive loyalty".

Our results show the switching barriers most strongly associated with retention are: for travel services (a medium/low contact, experiential service) it is the loss of special treatment benefits and need to explain personal preferences. For medical (high contact, credence service), it is loss of special treatment benefits and loss of a friendly relationship; while for hairdressing (high contact, experiential service) it is loss of a friendly interpersonal relationship and loss of special treatment benefits (before including satisfaction in the model).

Perhaps it is not surprising that the loss of a friendly and comfortable relationship is a powerful explanatory variable in all industries given that all three services are either high or medium contact services, where quasi-social relationships are apt to develop between individual service personnel and customer. As noted above, it is especially high impact in high contact services (e.g., medical, hairdressing, physical therapy, some vacation experiences, psychotherapy, adult education) which often involve intimate contact of a moderate to lengthy duration, and physical proximity. In terms of marketing strategy, firms need to train and even reward frontline staff who personalize a client greeting, genuinely make them feel welcome, and gradually get to know them such that they feel comfortable, welcome and even enjoy the social interaction. These quasi-friendships add value to the relationship for the client, and not only become a source of satisfaction with the overall service, but also act as a disincentive to switching because clients have made a psychological investment in the relationship. To avert the danger of a customer following a service employee should that employee move to a competitor or be relocated, customers could be introduced to and served alternately by say two employees on different occasions. In other words in could be company policy to develop social bonds with more than one employee.

As both parties have made an investment in the relationship it is perhaps not surprising that the potential loss of special treatment benefits is also a powerful explanatory variable across all models. Firms might consider implementing a policy that empowers front line staff to offer regular clients, on a discretionary basis, special deals, appointments at short notice, urgent attention when needed, service over and above what is typically expected.

It is interesting to note that across all models, the risk perceptions that an alternative service supplier might not perform to the standard of the current supplier were not significant. This finding is interesting in that it tends to challenge conventional wisdom and the views of scholars (although not empirically tested) who assert that because of the intangible and heterogeneous nature of services, remaining loyal is a strategy for risk reduction (e.g., Zeithaml 1981). In summary, our results show across two diverse cultures, that a firm's relationship marketing strategy needs to seriously factor in strategies and tactics for erecting switching barriers for key customers, as well as retaining a focus on delighting customers. A word of caution is in order however. If customers are unable to easily defect (due to the switching costs involved), they may in fact resent it and restrict their spending and even spread negative word of mouth. This is more likely to be the case when financial switching barriers are involved (which was not the case in the current study).