Effects of inertia and switching costs on customer retention: a study of budget hotels in China

Abstract

Purpose This paper aims to examine the effect of consumer inertia – a tendency to adhere to prior purchase decisions despite the existence of preferable alternatives – on the relationships between switching costs and customer retention, and explain the controversy within them in the context of budget hotels. Design/methodology/approach An empirical test was conducted via structural equation modelling based on 337 self-administered questionnaires from customers at six of Chinese popular budget hotels. Findings Consumer inertia was a significant mediator between switching costs and customer retention. Specifically, consumer inertia completely mediated the effects of financial switching costs on customer retention, but partially did between procedural switching costs and customer retention. By introducing consumer inertia, the explanatory power of customer retention improved significantly by 19%. Originality/value This paper clarifies the effects of multiple dimensions of switching costs on customer retention via the mediating role of consumer inertia and partly addresses the inconsistency in the prior studies from an inertia perspective.