“Let’s Wait and See!” The Real Option to Switch as a Value Component of Customer Relationships

Abstract

We suggest that a customer’s option to switch suppliers, and to wait and see before switching, adds to customer value in uncertain markets, and affects the customer’s switching behavior. We use a real options model to examine the value of this option and conduct sensitivity analyses based on data collected from the German public health insurance market to support our argument. We elaborate on the customer value construct and show how it contributes to customers’ behavioral loyalty. We also provide guidelines for managers of in-suppliers and out-suppliers on how to use the value of customers’ option to switch, e.g., for pricing decisions and management of customer churn.