Information technology has dramatically reduced this component of consumer search costs - price quotes and product specs are only a click away. We've identified seven categories that switching costs fall into. The most potent lock-in causes switching costs to rise over time. Suppose you have a library of data on Zip disks. When you get your next computer, you'll be inclined to buy another Zip drive to avoid converting the existing data to a new format.
Conversion takes time and requires the purchase of a new batch of disks.
Anticipating this, Iomega discounts its drives, expecting to earn substantial profit margins on subsequent sales of its proprietary media. This story is as old as giving away the razor to sell the blades, but it's cheaper to switch razors than disk formats. Razors and blades are complements, but blades wear out and disks don't. Databases are not only durable, their size and value also tend to grow with time. Loyalty programs are arrangements, like frequent-flyer programs, that reward repeat and intensive users.