The power of switching costs

8 Nov 2024 · 1 min

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In this brief talk, the speaker explains how increasing switching costs by layering multiple services for a client makes it harder for them to leave, turning a potentially "icky" relationship into a sticky one that boosts customer lifetime value (LTV) and retention. He illustrates the concept with a case study involving Amazon, where his agency provided paid media, Alexa‑related SEO, and other services across three divisions. Despite delivering strategic value, the client ultimately left because the agency could not offer enough additional services, highlighting the importance of a comprehensive service suite to maintain long‑term relationships.

Chapters

The key thing that we have are the power of switching costs, meaning that the more services we can layer on, the more of a pain in the ass it is for them to cancel. The icky turns into sticky. That's right. Yeah. So you want to have multiple services and you want to do a pretty good job, obviously. And then that grows the lifetime value of the customer. The retention goes up a lot more. We used to have Amazon before and we just helped them with paid media. We helped Amazon run ads. We helped with their Amazon Alexa, not the Echo, but they had an SEO software and we helped with another division, 3 divisions that could have expanded into something really big. But at the end, they left and they're like, dude, we love you guys and we love all the strategic thinking you have, but you just don't have enough services.