CHAPTER 2 LITERATURE REVIEW
2.3 Switching costs with e-services
國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
13
The major difference between e-services and general services is the face-to-face encounter, which plays a key role in building relationships with onsite customers (Zeithaml et al., 2000) and does not exist in e-services, where the customers interact with e-platforms. As a result, Internet customers pay more attention to Website aesthetics and ease of use than onsite customers. Internet customers also become more aware of personal data and behavior in response to the frequency of cyber-attack and phishing than onsite customers in a physical location. Therefore, security and privacy become more important when evaluating e-service quality.
E-services are based on Web technology, which enables e-service providers to offer more stable service to a larger group of customers simultaneously without the limitations of operating hours and location. However, this feature brings with it a potential threat that e-service may be interrupted due to system crash. Thus, system design is not only one of the key service-quality dimensions of e-platforms but also an additional dimension that distinguish them from general services. A good system design can also provide e-services at a high delivery speed in a short response time, which is appreciated by the customers of e-platforms.
2.3 Switching costs with e-services
Singh (1988) suggested that customer dissatisfaction leads to customer complaints, which can be expressed through voice, private, or third-party responses.
Maute and Forrester (1993) also proposed that customers reveal their dissatisfaction through three types of behavior: exit, voice, and loyalty. To retain existing customers, businesses should continuously monitor and enhance their service quality. However, studies have also noted that customers will stay with defective service providers.
Increasing the switching cost is the underlying concept for these retention strategies.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
14
2.3.1 Definition of switching costs
Customers who are dissatisfied with their current service provider tend to experience switching intention and search for new providers. However, not all dissatisfied customers switch, largely due to switching barriers. According to Jones et al. (2000), switching barriers are elements that make it difficult or costly for customers to switch providers. Fornell (1992) defined switching barriers as financial, social, or psychological burdens perceived by customers contemplating a new provider. Some research has even considered switching costs to be a stronger influence than satisfaction on customer repurchases intention (Burnham et al., 2003;
Patterson and Smith, 2003). As Jones et al. (2000) showed in their research, switching barriers can help businesses recover from the effects of short-term poor service quality and reduce customers’ intention to change providers. In a nutshell, building up various switching costs can help a business reduce customer defection.
2.3.2 Types of switching costs
Ping (1993) proposed that there are three types of switching barriers: relationship investment (refers to the time, money, and effort invested in developing a relationship with a provider); switching cost (such as money, time, and personal relationship loss) associated with changing to another provider; and attractiveness of alternatives (superior reputation, image, and service quality of replacing providers). Jones et al.
(2000) also classified switching barriers into three types: strong interpersonal relationship (the strength of the relationship between customer and provider), high switching cost, and lack of attractive alternatives.
Both Ping (1993) and Jones (2000) mentioned switching cost as a barrier.
According to previous research, switching cost is the customers’ perceptions of the non-recoupable time, money and effort expended when switching to another provider.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
15
Some researchers have also defined switching cost as the customers’ perceived risk resulting from potential losses of benefits, money or personal relationship after defection. Previous research has also suggested that switching cost includes not only an economic aspect, but also psychological and emotional aspects (Burnham et al., 2003; Jones et al., 2002; Sharma and Patterson, 2000; Yang and Peterson, 2004).
Fornell (1992) identified some types of switching costs, including search costs, transaction costs, learning costs, loyal customer discounts, customer habits, emotional costs, cognitive costs, and financial, social and psychological risk. Furthermore, Burnham et al. (2003) reviewed the literature and found eight facets of switching costs: economic risk, evaluation, learning, setup, benefit loss, monetary loss, personal relationship loss and brand relationship loss. These were then classified into three types: procedural, financial, and relational switching costs.
Previous research (Burnham et al., 2003, Jones et al, 2002, Klemperer, 1987, Rusbult et al., 1986, Ping, 1993) has revealed numerous types of switching barriers that can help businesses retain their customers. However, previous research has often focused on the supply chain of a physical product, which is very different from services, especially e-services. Some types of switching costs may not even exist on some e-platforms—for instance, money spent on installing equipment to use the service. This switching cost does not appear on the Internet. Therefore, we reorganized these switching costs proposed in previous research (as shown in Table 3), and formed our proposition.
‧
Table 3. Types of Switching Barriers and Hypothesis
Switching cost Burnham et al.
(2003)
(2007) Case analysis Hypothesis
Uncertainty cost
Economic risk cost
Service
uncertainty cost Uncertainty cost
switching cost switching costs Switching cost Time and effort
I don’t know whether other service will be better or not.
(H1) existing risks resulted from uncertainty of alternatives’
quality.
Search and
evaluation cost Evaluation cost Search and evaluation cost
Pre-switching search and evaluation cost
I have used this service for a long time. I don’t
want to waste time on searching for another one. (H2) search and evaluation costs
Learning cost Learning cost Learning cost
Post-switching behavioral and cognitive cost
learning costs It is troublesome for me to learn the payment
process of the new e-commerce platform. (H3) learning costs Setup cost Setup cost
Transfer cost
cost Benefit loss cost Benefit loss cost Lost
I gain lots of free space from Dropbox by finishing “get free space” task. I don’t want to lose them.
(H5) loss of benefit or reward provided by current provider
Although there are a little displeasure, but it is convenient and still be good at other functions, it is not bad enough to make me want to leave.
(H6) it is not bad enough to make
Even though having these defects, I think Google search is still the best search engine.
(H7) service quality of
alternatives is worse than current provider
If I want to update my Microsoft Office, I need to
go to the official website of Microsoft. (H8) lack of alternatives Service
recovery Service recovery I think the provider of the game is sincere in
solving the problem.
(H9) the provider is sincere in solving the problem
Scale cost Youtube has more users than other online
videosites.
(H10) current provider has more users than alternative providers Social
relationship Most of my friends are on the Facebook. (H11) numerous of friends are
using this service Quality of core
service
Although the design of interface is not attractive, the news on it is rich, so I still read news on it.
(H12) quality of the core service is still great
Package cost
I still use Yahoo.com because I also use the e-mail and e-commerce service that Yahoo provides.
(H13) customer also use other services provided by this provider
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
17
Before they switch to new providers, customers sometimes do not know the service quality of the new provider. Therefore, there is a risk that the service quality of the new provider will be worse than that of the current provider. According to previous research, three types of losses may arise if the service quality of the new provider is not better than the current one: performance loss, money loss, and convenience loss (Burnham et al., 2003, Ray et al., 2012). With a paid account for online storage service, for instance, a customer usually has insufficient information about which functions are actually provided, whether the interface is friendly, the operational process is smooth, or the new provider inflates the service quality or price before enrolling and paying for the paid member. For this reason, customers may perceive uncertainty cost when they have switching intentions. This forms our first proposition, as follows:
P1: Customers tend to stay with their current providers when they perceive risks that may result from uncertainty about alternatives’ quality.
Search and evaluation cost means the time and effort that customers spend searching for alternative providers and comparing these alternatives with current providers in order to make a switching decision (Jones et al., 2002, Burnham et al., 2003, Ray et al., 2012). Since there are numerous identical services on the Internet and the information about the services and their providers are usually dispersed, it is complicated for customers to choose the most suitable provider. If we take e-commerce service for example, when customers want to sell something on the Internet, they need to compare numerous aspects of each e-commerce service provider, such as charging method, number of visitors, extent of customization, and security.
Therefore our second proposition is:
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
18
P2: Customers tend to stay with their current providers since there are search and evaluation costs associated with alternative options.
In general service, learning costs include the time and effort that customers have to spend to adapt to the new service (Jones et al., 2002; Burnham et al., 2003; Ray et al., 2012). Even though there are numerous identical services on the Internet, the functions each provider offers and their layouts may still be different. The knowledge that customers acquire from current service providers often cannot transfer to alternative services (Klemperer, 1987). There are many online music service providers on the Internet, and when customers transfer from one provider to another, they must spend time finding out the place of each function and learn the process of each operation, such as building up playing lists or uploading music. This leads to our third proposition, as follows:
P3: Customers tend to stay with their current providers in order to eliminate the learning costs of alternative options.
After customers switch to new service providers, setup costs will arise in order for the customers to use the new service effectively. Setup costs will also appear when a customer terminates a service and starts a new one with another provider. Setup costs can be time, effort, and money that a customer spends for installation or preparation, which include costs of installing required equipment, refilling forms, and communicating with the new provider (Jones et al., 2002, Burnham et al., 2003, Ray et al., 2012). On e-platforms, there is no cost of installing equipment, but there may be a cost of installing required software. There is also a cost of preparation. For example, when customers change e-mail service from one provider to another, they need to rebuild the contacts in their new e-mail account. Even though the service may have an
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
19
auto-complete function, customers still need to type in the address the first time. In addition, the time and effort spent on adapting the appearance to meet the customer’s habits is also part of the setup costs. This leads to our fourth proposition, as follows:
P4: Customers tend to stay with their current providers because of the setup costs of switching providers.
Some service providers offer their customers some reward programs to encourage repurchase or revisit, such as frequent-flyer programs, special treatment, reward credits, and discount coupons for next-time purchases. These benefits will of course be lost if customer discontinues the relationship with current provider.
Dropbox, for example, offers its customers free space as a reward to encourage frequent use. If one customer leaves Dropbox and switches to another service provider, those spaces he or she received from Dropbox would not continue in the new service. This leads to our next proposition, as follows:
P5: Customers tend to stay with their current providers because changing providers may lead to loss of benefits or rewards provided by the current provider.
Mark et al. (2007) discovered that “lack of a critical incident” is one of the important reasons that influence customers to stay with current service provider. In their research, they used in-depth interviews and a mail survey, and they discovered that numerous relationships between customers and providers were close to the brink but continued because “the final push” did not occur. We also found in our case analysis that many customers stay with their current service providers because they feel it is not bad enough to make them switch even though they have dissatisfaction.
For instance, some customers who are dissatisfied with the messy interface of
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
20
Yahoo.com still use the site because they think design of the interface is just a tiny issue and not serious enough for them to stop using Yahoo.com. Therefore, we include this as one of our proposition:
P6: Customers tend to stay with their current providers because the service is not bad enough to make customers want to switch.
According to the investment model of interpersonal relationships of Rusbult (1980), customer satisfaction of current service and alternative service are important variables that will affect a customer’s decision about whether to continue the current relationship. There is also research that has revealed that customer satisfaction has a strong relationship with service quality (Cronin and Taylor, 1992). A high quality of service will retain customers, while poor service quality may raise the switching intentions of customers. In P1, we assume that the uncertainty of an alternative service provider’s service quality may influence a customer’s switching behavior.
Then in P6, we suppose that customers will stay with current service providers since they already know that the service quality of the alternative is worse than that of the current service provider. This leads us to our seventh proposition:
P7: Customers tend to stay with their current providers because the service quality of alternatives could be worse than that of the current provider.
Many customers of official Websites feel they are forced to use this service because the official Website of the company is the only provider of the service they need. This phenomenon can also be found on other types of e-platforms in our case analysis. Mark (2007) found that not only uncertainty about alternatives and knowing that alternatives are worse than the current provider are the factors that make dissatisfied customers stay with current service providers, but also a lack of
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
21
alternatives is one of the factors that influence customers’ switching behavior. This leads us to our eighth proposition:
P8: Customers tend to stay with their current providers because there are no alternatives.
No service provider can avoid making mistakes, and for this reason service recovery actions taken by service provider may influence customers’ perception of the provider. Mark et al. (2007) considered service recovery as one of the affirmatory factors that encourage customers to stay with current service provider. In Mark’s research, service recovery means customers’ complaints as well as problems are handled well. In our case analysis, we also found that some customers choose to stay with their current service provider because they feel the attitude of their service provider toward solving problems is good. This leads us to our ninth proposition:
P9: Customers tend to stay with their current providers because they think the service provider is sincere in solving their problems.
Since there are some e-platforms that have very large numbers of visitors, such as Facebook and Google, it is important to investigate the amount of influence that this has over customers’ switching behavior. Even though scale factors have not been mentioned in previous research on switching costs, we still put it in our proposition to test whether dissatisfied customers choose to stay with current service providers due to the fact that there are large numbers of visitors. This leads us to our tenth proposition:
P10: Customers tend to stay with their current providers because the number of users of the current provider is more than that of alternative providers.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
22
In previous studies of switching costs, numerous researchers have mentioned that the cost of the relationship is one of the factors that will influence customers’
switching behavior (Burnham et al., 2003; Ray et al., 2012; Jones et al., 2002; Ping, 1993; Mark et al., 2007). However, previous research only has involved two types of relationship: personal relationship, which means a relationship between customer and employee; and brand relationship, which means a relationship between customers and their preferred service brand. Social relationships among customers and their friends has not been included. With the emergence of social networking, some customers choose to use one social network site because lots of their friends are using it. This situation makes us want to know whether the number of friends who use the service also influences customers’ switching behavior. Therefore, we include it in our next proposition, as follows:
P11: Customers tend to stay with their current providers because they have numerous friends using the service.
In our case analysis, we found that not all dissatisfaction occurs based on the core of the service. For example, we discovered that some customers were dissatisfied with the layout and level of customization of the online news site they use, which were not the core service of the site. This phenomenon stimulates us to wonder whether customers choose to stay with current service provider because the thing they are dissatisfied with is not part of core service and the quality of the core service is still acceptable. This leads us to our twelfth proposition:
P12: Customers tend to stay with their current providers because the quality of the core service is still acceptable.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
23
We also found that some customers use more than one service of the same provider, which may influence their switching behavior when they are dissatisfied with one of the services. For instance, some customers were dissatisfied with Yahoo’s portal service, but since they also use the e-mail service, e-commerce service, and online news service of Yahoo, all of which can be accessed on Yahoo’s portal site, they decided to keep on using the portal service of Yahoo even though they were dissatisfied. This leads us to our thirteenth proposition:
P13: Customers tend to stay with their current providers because they also use other services provided by this provider.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
24