Switching cost and brand loyalty in electronic markets: evidence from on-line retail brokers

The ability to retain and lock-in customers in the face of competition is a major concern for e-commerce businesses. If a firm is able to build a significant amount of switching cost and brand loyalty, then it can benefit from a long-term flow of profits and recover investments in customer acquisition. In this paper, we propose a method to measure the magnitude of switching costs for on-line service providers, which we apply to the on-line brokerage industry. We find a significant variation in calculated switching costs between brokers—on the factor of 2—suggesting that brokers have substantial influence over their switching costs.