The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market

by Pat Dorsey

When you’re looking for evidence of high customer switching costs, these questions should help: • Does the firm’s product require a significant amount of client training? If so, customers will be reluctant to switch and incur lost productivity during the training period. • Is the firm’s product or service tightly integrated into customers’ businesses? Firms don’t change vendors of mission-critical products often because the costs of a botched switch may far outweigh the benefits of using the new product or service. • Is the firm’s product or service an industry standard? Customers may feel pressure from their own clients—or their peers—to continue using a well-known and well-respected product or service. • Is the benefit to be gained from switching small relative to the cost of switching? Bank customers, for example, often endure slightly higher fees because the lower fees they might get from moving to a competing bank are of less value than the potential hassle of moving their account. • Does the firm tend to sign long-term contracts with clients? This is often a sign that the client does not want to frequently switch vendors.