ISSN: 3031-4208
Journal of Marketing Management and Innovative Business Review.
Vol.
No.
Desember 2024 DOI: 10.
63416/mrb.
Correlation Between Switching Costs and Customer Loyalty: Integration of AI in Theoretical and Practical Approaches Aden Gunawan1*.
Syamsul Rijal2.
Mukhtar Galib3.
Maulana4 Faculty of Economics and Business.
Bosowa University.
Makassar.
Indonesia Kalla Institute of Technology and Business.
Makassar.
Indonesia Lasharan Jaya College of Management Sciences.
Makassar.
Indonesia E-mail: adengunawan@universitasbosowa.
Corresponding author Abstract: This study explores the relationship between switching costs and customer loyalty, as well as how the integration of artificial intelligence (AI) can influence customer retention strategies.
The findings suggest that high switching costs can enhance customer loyalty, particularly in industries that rely on long-term relationships.
However, the loyalty that is formed tends to be calculative rather than affective, indicating that high switching costs do not always result in sustainable loyalty.
The use of AI in customer management has proven to be more effective in managing switching costs and enhancing loyalty by offering more personalized experiences and reducing the negative perception of switching costs.
The practical implication of these findings is that companies can leverage AI to develop more effective retention strategies that not only rely on switching costs but also on better customer experiences.
This study contributes to the literature on the use of AI in retention strategies and customer loyalty.
Keywords: Switching Costs.
Customer Loyalty.
Artificial Intelligence.
Retention Strategies.
INTRODUCTION
Customer loyalty has become a primary focus for many companies across various High levels of loyalty not only reflect customer satisfaction with the products or services offered but also contribute significantly to the long-term sustainability of businesses (Strenitzerovy & GaOa, 2.
In a highly competitive business environment, retaining existing customers is more effective than acquiring new ones (Payne & Frow, 2.
Therefore, it is crucial for companies to understand and manage the factors that influence customer loyalty.
High loyalty can result in increased revenue, reduced customer acquisition costs, and improved brand reputation.
Loyal customers are more likely to make repeat purchases, provide positive recommendations, and act as brand ambassadors without additional costs.
In this context, companies need to develop strategies that not only attract new customers but also retain and enhance the loyalty of existing ones (Lucouw.
A holistic and integrated approach to building customer loyalty is essential to achieving these goals.
Over the years, traditional approaches to building customer loyalty have often focused on marketing aspects, such as promotional campaigns, loyalty programs, and effective communication with customers.
While marketing strategies play an important role in shaping loyalty, these approaches often overlook other Financial management, for example, plays a crucial role in setting competitive prices, offering strategic discounts, and managing switching costs (Honka.
Therefore, in order to build sustainable customer loyalty, companies must adopt a more comprehensive approach that integrates various business aspects, including financial management and technology.
Switching costs, or the costs that customers must incur when switching to another service provider, also play a critical role in maintaining customer loyalty.
Customers who perceive Gunawan.
et al.
Correlation Between Switching Costs and Customer Loyalty: Integration of AI in Theoretical and Practical Approaches DOI: 10.
63416/mrb.
switching costs as too high tend to continue using the same services or products, even when presented with more attractive offers from competitors (Pick & Eisend, 2.
These switching costs can encompass various factors, such as the time and effort required to switch, the loss of benefits already gained, or the need to adjust to a new system.
By understanding and managing switching costs, companies can more effectively retain customers and enhance their Technological advancements, particularly in the field of Artificial Intelligence (AI), have opened new opportunities in understanding and managing customer loyalty.
AI enables companies to analyze customer data more deeply and accurately, identifying behavioral patterns that may not be visible through conventional methods (Galib & Rijal, 2.
Through sophisticated data analysis, companies can understand customer preferences and habits, as well as anticipate their future needs.
This allows companies to design more personalized and relevant strategies for each customer, enhancing satisfaction and fostering long-term relationships between the company and its customers.
Furthermore, by leveraging AI, companies can optimize financial management and marketing strategies to improve customer satisfaction and loyalty.
The integration of AI into the analysis of switching costs provides deeper insights into the critical factors influencing customers' decisions to remain loyal or switch to another service provider.
AI can identify more effective switching costs and provide tailored recommendations to reduce those costs, such as offering special discounts or other incentives (Grewal et al.
, 2.
Thus.
AI not only helps in understanding customer behavior but also in designing the right interventions to retain customers and increase their loyalty.
The integration of AI in financial and marketing management will be key to creating more adaptive and responsive business strategies in response to market changes.
This research will examine the correlation between switching costs and customer loyalty from both theoretical and practical perspectives, with the aim of providing a more comprehensive understanding of the factors that influence customer loyalty.
The study is also expected to offer recommendations for companies in developing effective strategies to enhance customer loyalty through better financial management and the utilization of AI technology.
LITERATURE REVIEW
Concept of Switching Cost Switching costs are a crucial factor in a customer's decision to remain loyal or switch to a different service provider.
These costs represent the barriers faced by customers when considering a switch, which can include financial, procedural, and relational aspects.
Matzler et al.
, .
categorize switching costs into three main types:
financial, procedural, and relational.
Financial costs include direct expenses that customers must incur, such as contract termination fees or reinvestment in new services.
Procedural costs, on the other hand, emphasize the administrative complexities, time, and effort required to learn new systems or policies of the new service For example, in the banking industry, customers who wish to switch to another bank must go through the process of re-administering documents and adjusting to a new service system, which can become a significant barrier.
Relational costs, on the other hand, play a crucial role in maintaining customer loyalty because they are tied to psychological and emotional factors (El-Manstrly, 2.
Customers who have established long-term relationships with a particular service provider often face emotional especially if they feel a personal attachment to the brand or the services they use.
In service-based industries such as telecommunications or digital platforms, relational costs may involve the loss of transaction history, established usage habits, or even the loss of benefits from accumulated loyalty Additionally, the perception of risk and uncertainty regarding a new service can exacerbate switching costs, as customers may feel uncertain about whether the experience they will receive will be equal to or better than the service they previously had.
Customer Loyalty Customer loyalty refers to the tendency of customers to continue using products or services from the same provider, even when alternatives are available in the market.
According to Zikien et al.
, .
, customer loyalty consists of four stages: cognitive, affective, conative, and action.
In the cognitive stage, customers become aware of the quality of a product or service.
In the affective Journal of Marketing Management and Innovative Business Review (MARIOBRE) Vol.
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December 2024 DOI: 10.
63416/mrb.
stage, customers develop positive feelings towards the service provider.
The conative stage is where customers form the intention to continue using the product or service.
Finally, in the action stage, customers follow through with their intention and take actions, such as repeat purchases or recommendations.
customer behavior and identify critical factors that influence the decision to switch.
By integrating AI into switching cost analysis, companies can gain more detailed insights into customer decisionmaking processes, enabling them to design more effective interventions to reduce switching costs and, ultimately, enhance customer loyalty.
With AIAos ability to forecast customer actions and tailor strategies accordingly, companies can maintain stronger customer relationships and improve long-term retention (Galib et al.
, 2.
The Relationship between Switching Costs and Customer Loyalty Previous studies have shown a significant relationship between switching costs and customer loyalty.
When switching costs are high, customers tend to be more loyal because the perceived costs of switching to another provider are considered too high.
For example, research by Blut et al.
, .
found that high switching costs could increase customer retention in service Additionally, research by Li et al.
demonstrated that switching costs had a significant impact on customer loyalty in the telecommunications sector.
These studies suggest that when customers face substantial barriers to switching, they are more likely to remain loyal to their current provider, even if there are attractive alternatives available in the market.
Previous Research A number of studies have explored the relationship between switching costs and customer loyalty across various industries.
ElManstrly, .
found that customers with high switching costs tend to exhibit higher retention rates, even though their satisfaction with the service may not always be optimal.
They argued that loyalty formed due to switching costs is more calculative, where customers stay not due to emotional attachment, but because financial, procedural, or relational barriers prevent them from switching.
A similar finding was reported by Li et al.
, .
in the telecommunications industry, where high switching costs were a key factor in retaining customers, particularly in services with long-term contracts or exclusive packages that make switching to another provider These studies suggest that companies often use strategies to increase switching costs as a way to retain customers, but this does not necessarily improve their satisfaction with the On the other hand, some research highlights that the impact of switching costs on customer loyalty is not always positive.
Blut et al.
, .
found that when switching costs are too high, customers may experience a "lock-in effect," which can lead to long-term dissatisfaction and even damage the brandAos image.
Customers who feel trapped in a service with no attractive alternatives may become frustrated, ultimately increasing their intention to switch as soon as the barriers are lowered.
Research by Kaur & Soch, .
also emphasized that customer loyalty is influenced not only by switching costs, but also by factors such as satisfaction, trust, and emotional attachment to the brand.
When customers remain loyal merely because of switching barriers, they are more likely to actively seek alternative providers and may switch as soon as these barriers are reduced.
The Use of AI in Financial and Marketing Management Advances in AI technology have had a significant impact across various fields, including financial and marketing management.
AI enables companies to analyze customer data more deeply, identify behavior patterns, and design more personalized strategies.
For example, research by Helo & Hao, .
showed that AI can be used to optimize pricing, manage financial risks, and improve operational efficiency.
Furthermore.
AI helps in understanding customer preferences and As AI technology continues to evolve, its applications in business operations, such as pricing strategies and customer increasingly valuable.
Integration of AI in Switching Cost and Customer Loyalty Analysis Recent research highlights the integration of AI in analyzing switching costs, which offers deeper insights into the factors influencing customer loyalty.
For instance, a study by Cao et , .
demonstrated that AI can predict Gunawan.
et al.
Correlation Between Switching Costs and Customer Loyalty: Integration of AI in Theoretical and Practical Approaches DOI: 10.
63416/mrb.
Furthermore, research by Bergel & Brock, .
shows that the impact of switching costs on customer loyalty can vary based on contextual factors, such as industry type, customer preferences, and market competition.
In industries with high levels of innovation, such as technology and digital financial services, customers are more likely to overlook switching costs if they perceive greater added value from other services.
This finding is supported by Park, .
, who revealed that in the digital economy, service personalization and customer experience have a greater influence on loyalty than switching costs Therefore, although switching costs remain an important factor in customer retention, a more effective approach involves enhancing the perceived value for customers through service innovation, attractive loyalty programs, and satisfaction-enhancing strategies to create more sustainable loyalty.
The data analysis in this research is carried out using thematic analysis, a method aimed at identifying, analyzing, and interpreting patterns or themes within qualitative data (Morgan & Nica, 2.
Data collected from various documents and literature are coded and grouped based on relevant themes, such as customer switching barriers, the role of AI in enhancing loyalty, and company strategies in managing switching costs.
The analysis process is conducted iteratively to ensure that each emerging theme accurately reflects the data.
With this approach, the study aims to offer deeper insights into the relationship between switching costs and customer loyalty, as well as how AI plays a role in optimizing customer retention strategies.
RESULTS AND DISCUSSION
Research Findings Based on document analysis of various studies and industry reports, this research identifies several key findings regarding the relationship between switching costs and customer loyalty, particularly in the context of AI The main findings are as follows:
METODE
This study adopts a qualitative approach to analyze the relationship between switching costs and customer loyalty, specifically in the context of integrating artificial intelligence (AI) into business strategies.
A qualitative approach was chosen because it allows for an in-depth exploration of complex and subjective phenomena, including customer experiences and the psychological factors that influence their decisions to remain loyal or switch services (Creswell, 2.
This method is also suitable for understanding how companies implement AIbased strategies to manage customer loyalty across various industries.
Thus, the research not only focuses on quantifying the relationship between variables but also delves into the underlying factors that shape this relationship.
Data collection is conducted through document analysis of industry reports, case studies, and relevant academic literature to enrich the understanding of switching cost dynamics across sectors.
This method allows the research to examine trends and strategies that have been implemented by various companies to enhance customer loyalty by managing switching costs.
Additionally, triangulation techniques are applied by combining various data sources to enhance the validity of the findings and ensure that the analysis is comprehensive and credible (Natow.
As such, the study can provide broader insights into how switching costs impact customer loyalty in different contexts.
Switching costs have a significant impact on customer loyalty.
Customers tend to remain with their service providers when switching costs are high, whether these costs are financial, procedural, or relational.
Studies show that the higher the barriers customers face when switching, the more likely they are to continue using the existing service.
Loyalty formed due to switching costs is more calculative than affective.
Customers who remain due to high switching costs often feel compelled to stay, rather than being satisfied with the service In the long term, loyalty based solely on switching barriers may lead to dissatisfaction and even increase the potential for customer churn if another provider offers a more attractive option.
The integration of Artificial Intelligence (AI) into customer retention strategies plays a key role in managing switching costs.
AI is employed by companies to enhance service personalization, predict customer behavior, and optimize retention strategies, such as offering special deals to customers at risk of Journal of Marketing Management and Innovative Business Review (MARIOBRE) Vol.
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December 2024 DOI: 10.
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AI can reduce negative perceptions of switching costs.
The implementation of AI allows companies to alleviate customer dissatisfaction with switching costs by offering more valuable services, such as personalized experiences, timely promotions, and improved interaction quality In the long term, this situation can backfire for companies, as dissatisfied customers become more actively engaged in seeking alternatives and may switch as soon as switching barriers are reduced (C.
-Y.
Li, 2.
For example, in the streaming service industry, customers who remain subscribed to a platform simply because they have invested significant time in building playlists or a viewing collection may switch immediately when a new provider offers similar services at a lower Therefore, retention strategies that rely solely on switching costs are insufficient to ensure sustainable loyalty.
Companies need to create real added value so that customers stay due to satisfaction, not coercion.
Discussion The Impact of Switching Costs on Customer Loyalty The results of the study indicate that switching costs have a significant impact on customer loyalty, particularly in industries that rely on long-term relationships.
This finding aligns with El-Manstrly, 2.
, who stated that the higher the switching costs a customer faces, the more likely they are to remain with their current service provider.
Switching costs can be financial, procedural, or relational, each playing a different role in customer retention.
For instance, in the telecommunications industry, customers are often faced with longterm subscription contracts, which make them reconsider switching to another provider (Thoumy & Abdallah, 2.
In the banking sector, customers tend to be reluctant to switch banks due to factors such as administrative fees, complicated fund transfer processes, and uncertainty regarding the benefits offered by the new bank (Farah, 2.
Additionally, in subscription-based software industries (Software as a Servic.
, customers often struggle to adapt to new systems, creating psychological barriers to switching (Mesak et al.
, 2.
Thus, switching costs can be an effective retention tool for companies, but their effectiveness depends on the industry type and the nature of the services The Role of AI in Managing Switching Costs One of the key findings of this research is how AI can be used to manage switching costs and enhance customer loyalty more effectively.
More & Pothula, .
demonstrated that AI can assist companies in understanding customer behavior patterns, predicting potential churn .
ustomer turnove.
, and developing more personalized retention strategies.
Through indepth data analysis.
AI enables companies to identify customers who are more likely to switch early, allowing them to take proactive steps to prevent churn.
In industries like e-commerce and digital banking, the use of AI in recommendation systems and chatbots has proven to enhance customer satisfaction and reduce their inclination to switch services (Hsu & Lin, 2.
For instance.
Amazon uses AI algorithms to provide strengthening long-term relationships.
Similarly, digital banks like Revolut and N26 leverage AI to analyze customer transaction habits and offer more relevant financial services, making customers feel more comfortable and reluctant to switch to traditional banks.
Thus.
AI not only helps in customer retention but also creates added value that deepens customers' attachment to the services provided.
Loyalty vs.
Affective Loyalty Although switching costs can increase customer retention, this study also finds that the loyalty formed is more calculative than affective.
Calculative loyalty occurs when customers stay not because of satisfaction with the service, but because they feel trapped by high switching costs.
-Y.
Li, .
revealed that customers who experience calculative loyalty tend to have lower satisfaction levels and may become vulnerable to competition if another provider offers attractive incentives or reduces switching barriers.
Reducing Negative Perceptions of Switching Costs through AI In addition to assisting with retention strategies.
AI also plays a significant role in reducing negative perceptions of switching costs.
Customers who face high switching barriers often feel a lack of control over their decisions, which Gunawan.
et al.
Correlation Between Switching Costs and Customer Loyalty: Integration of AI in Theoretical and Practical Approaches DOI: 10.
63416/mrb.
can lead to dissatisfaction.
However.
AI can address this issue by providing more personalized experiences and relevant incentives for customers showing signs of wanting to switch.
Kumar et al.
, .
demonstrate that AIbased algorithms are capable of detecting at-risk customers and automatically offering incentives or promotions tailored to their needs.
For instance, a telecommunications company can use AI to identify customers who frequently search for information about competitor services and then offer them personalized discounts or service packages better suited to their usage patterns.
this way, customers no longer feel "locked in" to a service merely due to switching barriers, but instead because they perceive greater value from the service.
Effective implementation of AI in customer management can help companies create more sustainable loyalty compared to solely relying on traditional switching barriers.
This strategy can also enhance customer satisfaction, as customers feel that the company understands their needs and is actively striving to offer them a better smoother and more relevant experiences.
AI helps build stronger loyalty as customers feel that the service they are using truly meets their needs CONCLUSION This study explores the relationship between switching costs and customer loyalty, as well as how the integration of artificial intelligence (AI) can influence customer retention The main findings indicate that high switching costs can increase customer loyalty, particularly in industries that rely on long-term However, the loyalty that is formed tends to be calculative rather than affective, suggesting that high switching costs do not necessarily lead to sustainable loyalty.
The use of AI in customer management has proven to effectively manage switching costs and enhance loyalty by offering more personalized experiences and reducing the negative perceptions of switching costs.
The theoretical implications of this research are that switching costs can be considered a critical factor in customer retention, but they are insufficient to guarantee long-term loyalty without the support of better customer This study also contributes to the literature on AI usage in retention strategies, showing that AI not only helps manage switching costs but also creates added value for customers.
From a practical perspective, businesses can leverage these findings to develop more effective AI-based strategies for retaining customers and reducing churn.
However, the limitations of this study include its focus on specific industries and the use of qualitative methods, which do not allow for broad generalization.
Future research could address these limitations by employing quantitative data and expanding the scope of industries to gain more comprehensive insights.
Additionally, further studies could take a longitudinal approach to understand the long-term impact of switching costs and AI usage in customer retention strategies.
Such research could explore whether loyalty built through switching costs is sustainable or at risk of eroding over time.
Another area to explore is the ethical aspects of using AI for customer retention, particularly concerning data privacy and transparency in automated decision-making.
The Role of AI in Creating Experience-Based Loyalty In addition to managing switching costs and reducing negative perceptions of switching barriers.
AI also plays a crucial role in creating experience-based loyalty (Slamet et al.
, 2.
, .
Experience-based loyalty occurs when customers continue to use a particular service because they believe the experience it offers is far superior to that of competitors, rather than simply being hindered by switching costs.
AI can enhance experience-based loyalty by creating more intuitive interactions, providing faster and more responsive services, and delivering more relevant recommendations for For example.
Netflix uses AI algorithms that not only recommend movies based on customers' viewing history but also adjust the visuals and movie descriptions according to individual preferences.
This creates a more personalized experience, which strengthens the bond between customers and Netflix compared to other platforms.
Moreover, in the digital banking industry.
AI is used to provide more interactive financial services, such as virtual assistants that help customers manage their budgets or provide alerts about unusual transactions.
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