OK the final way a company can go about building a sustainable competitive advantage is integrating
high switching costs into their business switching costs or expenses or disruptions a customer will
encounter when switching from one product or service to another is beneficial for companies to create
high switching costs as doing so can help them retain customers.
Cell phone service providers for example can lock in customers because of their high switching costs
to change providers a customer might need to terminate an existing contract and purchase a new phone.
Both of which can be costly as such customers might be less motivated to switch providers even if they're
dissatisfied with their current service.
You see how well a company is doing is determined by its ability to maintain its customer and supplier
base regardless of how fierce the competition is.
When a company provides a customer with a product or service that is difficult to break away from in
terms of cost time or convenience it's far more likely to hold onto that customer over the long term.
And this makes competition more interesting because if the company's competitors want to gain more market
share they must offer an extremely attractive price or performance alternative to entice consumers to
switch from their current provider.
Their competitors will have a very difficult time taking market share away because of these cumbersome
switching costs.
You know in many cases customers just aren't interested in dealing with the fees or aggravation involved
in making the switch regardless of how appealing a competitor's offering is.
Not only does this fact allow the company to maintain a strong customer base.
It even makes it possible for them to incrementally raise their user prices over time in order to consistently
increase their profits.
That is to say when a company is able to establish itself in an industry it can have higher pricing
power over its competitors.
And this is something that will help it survive over the long run.
So as a value investor make sure you look for businesses that are industry leaders and they know how
to integrate high switching costs into their operating and marketing practices.