Exchange costs

Exchange costs or exchange costs are those that the consumer faces when changing product, supplier or brand.

The exchange costs are not only monetary, there are also psychological, effort and time costs. They can manifest themselves in various forms such as: cancellation penalties, the need to learn how to use a new product or technology, face the risk of habitual operations being interrupted or the risk that the change will not satisfy us.

Exchange costs can arise naturally from the process of change or they can be artificially generated by companies. For example, the time needed to find an alternative provider is a cost of the change process. In contrast, contracts that impose high penalties for terminating the service may be artificial costs that seek to discourage the change of provider.

Types of exchange costs

  • Penalties:some contracts impose penalties for terminating the service.
  • Search costs:time that the consumer must devote to find a good substitute.
  • Learning costs:the time that must be invested to learn how to use the new product or service.
  • Equipment costs:the cost of acquiring new equipment that is necessary to use the new product or service.
  • Installation costs:the cost of installing the new product, technology or service.

Example of exchange costs

Before there was numerical portability, which allows mobile phone users to maintain their number when changing providers, consumers faced high exchange costs.

For example, in addition to the costs of searching and learning to use a new device, consumers faced the cost of having to inform all their friends, colleagues and family of the new assigned number. In addition, given the possibility of missing important calls (for example from job offers or official bodies), many consumers preferred not to change providers.

by Abdullah Sam
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