Competing in a World of Zero Switching Costs and No Barriers to Entry

By: Steve Little, Principal, The Disruption Lab


“In the world of Internet Customer Service, it’s important to remember your competitor is only one mouse click away.” ~ Doug Warner

Remember the “good ol’ days” (right after WWII) when it was hard for a competitor to steal your customers and even harder for a new company to establish itself in the market? Our primary focus was getting new customers. Once we had them, customer loyalty kept them coming back.

I suggest that in those “good ol’ days” companies were much like railroads. It took a significant investment to enter the market (tracks to lay, trains to build, train stations to open), but once in the market, it was all about filling those trains with customers. Obviously, it was difficult for new competitors to enter the market. But it was also difficult for customers to change rail lines: once a trip began, there were few opportunities to do so, and it took a bit of effort. This was a time of high switching costs and high barriers to entry. Good times for established incumbents.

With the advent of new, democratizing technologies (such as personal computers) and new thinking (such as Michael Porter’s Competitive Strategies), barriers to entry and switching costs began to fall. We started focusing on distinctive differentiators to achieve a sustainable competitive advantage. We also began focusing more on retaining customers…creating stickiness. From IBM to Microsoft to Apple, from frequent flyer programs ushered in by the airlines to Amazon Prime, companies have employed various strategies to secure customer loyalty (there are some who would say, “hold customers hostage”). These strategies in part attempted to increase switching costs and barriers to entry.

Take Apple for example. It would be hard to argue that any company has been as successful as Apple at securing customer loyalty, which at its extreme warranted an identifying moniker…Apple Fanboys. Once you entered the Apple ecosystem, it was unlikely that you would leave. Apple products worked together seamlessly. Inspiring design, obsessive attention to detail, and industry leading quality made it a smart choice to become an Apple customer. The brilliance of the strategy is that once you enter the Apple ecosystem, switching costs become very high. While today that’s an advantage, tomorrow it may become a liability.

Which brings us to today. In most industries, switching costs and barriers to entry are rapidly falling. Changing social perspectives (such as being just as comfortable and likely to go to a Minute Clinic as to schedule an appointment with the family doctor), further democratizing technologies (such as AI and blockchain available to all), and more and higher quality startups (especially outside the US, see HBR article) are among the factors contributing to these shifts.

Companies operating under the assumption that their industry will continue to have high barriers to entry and high customer switching costs are ripe for disruption. Once you begin to see evidence of this shift, it will likely be too late for you to respond. Successful companies realize that they must earn each and every transaction. How do you do that?

  • Be the easiest to do business with. No hassles.
  • Every customer experience is remarkable. Delight your customers.
  • Be available anytime, anywhere.
  • Remember Goldilocks and the Three Bears. When it comes to the job your customers are hiring your product or service to do, be the “just right” bed, not too hard, not too soft (i.e., don’t include functions, features, and options your customers aren’t interested in…simple is good).
  • Be price transparent and price competitive.
  • Deliver what you promise.

As you consider the above, don’t fall into the trap of measuring yourself against your competitors. Measure yourself against perfection. To chase perfection, you will have to think “outside of the box.”


Steve is a Principal of The Disruption Lab. Prior to joining The Disruption Lab, Steve served as the Principal Consultant for the Strategic Solutions Group at InfoWorks, a regional business and technology consulting firm based in Nashville, TN. While his consulting engagements at InfoWorks spanned several industries, the majority of his work was in healthcare.​

Much of Steve’s career has been in executive leadership roles at Ingram Content Group (formerly Ingram Book Group). Over his 15 years with Ingram, Steve was part of a high performance executive team that drove significant growth in revenue and profits through innovative customer partnerships and services. Steve’s leadership was characterized by adeptly leveraging technology and building responsive organizations through organizational design and development. Steve’s business experience ranges from technical responsibilities such as operations research, business analysis, and systems development to senior management responsibilities as CEO, Chairman, and board director.​​

You can connect with or ask Steve a question through The Disruption Lab community at https://thedisruptionlab.community/.

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