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Switching Costs and Why They Matter

By Kashmie Ali

Switching Costs and Why They Matter

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When it comes to luxury brand management in the Caribbean, guest loyalty and guest satisfaction is important. Loyal customers always come back, spend more money, and spread good word of mouth.

There’s an oft quoted rule in the luxury hotel segment and it’s the 20/80 rule, meaning that 80% of a resort’s business will come back from the 20% of its loyal customers. Looking for ways to create customer loyalty is key, and customer satisfaction is often thought of as the most important thing in creating customer loyalty. But, guest satisfaction won’t necessarily keep people coming back time and time again. There’s a second factor that needs to be looked at.

Switching costs.

Switching costs can be both negative and positive. For the guest a negative switching cost might be lack of alternatives or monetary. Positive switching costs may be something like a loyalty program or amenities that can’t be found elsewhere. There are many different kinds of switching costs that need to be examined when determining how to create more loyalty and they’ll be specific to your target markets.

If the switching cost of changing from one hotel to another in your competitive set is very low, then the switch may occur. If the cost is very high, you’re more likely to create a loyal customer. Therefore, when thinking about creating your 20% base, you should not only take customer satisfaction into account, but also switching costs as they both have a direct impact on customer loyalty.

Need help creating a loyal guest base? Get in touch here or at hello@coralrange.com.

image of Shore Club in Turks & Caicos 

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Filed Under: Operations

About Kashmie Ali

Kashmie Ali has honed his skill set over the past 25 years in pre-openings, brand management, sales and marketing, hotel operations, repositioning, and asset management at hotels and resorts located throughout the Caribbean and the US.

Ali's career path has included: Regional Director of Operations at Sandals Resorts International for their properties in St. Lucia, Antigua, and Barbados | Director of Operations at high-end boutique luxury resorts like Jade Mountain and Anse Chastanet | Vice President for the St. Lucia Hotel and Tourism Association | Transition Director at Wyndman in St. Thomas | Director of the US Virgin Islands Hotel Association... (Learn More)

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