An Alternative Model of Brand Loyalty

There are two different types of brand loyalty, and they work in different ways. Our study shows that loyalty created by switching costs, such as proprietary standards, data frictions, or restrictive interfaces, has very different market consequences from loyalty created by preference shifts, where repeated use makes customers genuinely prefer a product’s design or features. Although both increase retention, switching costs protect incumbents, soften competition, raise prices, and reduce consumer and social welfare. Preference shifts can have the opposite effect; they can lead to a reduction in differentiation between rival products, intensify competition, lower prices, and under some conditions, improve welfare by better aligning products with what customers want. The managerial message is clear; investments in user experience, reliability, and product design are not strategically equivalent to investments in lock-in. The policy message is equally important; regulators should not treat all customer stickiness as harmful. Remedies, such as interoperability, data portability, or limits on proprietary standards, are best targeted at switching barriers, not loyalty created by genuine product improvement.