Question

_____ arise(s) when the customer is required to pay a penalty to switch providers.

A. Fixed costs
B. Legal inertia
C. Financial inertia
D. Contractual costs
E. Opportunity costs

Answer 1

Switching costs, in the form of Contractual costs, are fees that customers must pay when they have a contractual obligation and decide to switch service providers before the term ends.Thus the correct option is D.

Step-by-step explanation:

Costs that arise when a customer is required to pay a penalty to switch providers are known as switching costs or switching barriers. In the context of the given options, the correct term is Contractual costs. Switching costs can take various forms, such as financial penalties, time, effort, and psychological costs associated with changing from one product to another. In the case of contractual costs, the penalty is usually monetary and is stipulated in the contract with the current provider. These costs may serve as a deterrent to customers considering switching to a competitor, thus affecting their decision-making process.