In this chapter he explains switching costs and how they work as a great moat for a company. We may travel an extra 5 to 10 minutes if a grocery item is cheaper at some place however we generally will not switch our CA that does our taxes or the bank account that we operate. This is because the switching cost of closing this account and then opening the bank account and again automating all the bills payment is a pain and the very thought stops us from doing this. This creates a moat for the bank which would charge higher fees for various transactions. Some of the ERPs and database companies thrive on this switching cost moat as enterprises do not want to risk changing their systems with a new one and ending up having business interruptions and revenue losses due to new system. The cost or pain is much higher than the benefits enjoyed and this provides a very good moat to the company. If a company makes it tough for customers to use competitors product or service then it can charge more and maintain high returns on capital.
Most of the products like razors, printers, blood sugar monitors they cost so cheap but the refills are so expensive. The reason is since we already bought the printer or the razor, the chances are we will keep buying the refills for that instead of buying another razor or a printer. These companies may make small losses when they sell their razor or printer but they make big profits in refills.
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