Switching Costs and Ad Agency-Client Relationship Longevity: An Exploratory Study

Abstract

A model of switching costs is applied to ad agency–client relationships using agency theory. Switching costs are comprised of set-up costs that create barriers to switching to new agencies and exit costs that are barriers to severing relationships with current agencies. Switching cost theory offers insights into why large clients can maintain agency relationships. A survey of American clients shows how client size is associated with set-up and exit costs. These relationships are explained through diversity and scope of services, the creative risk associated with major brands, and the need for more sophisticated monitoring, each acting as switching barriers, extending longevity.

KEYWORDS:

• account longevity
• client size
• switching costs

Notes

Note. High set-up costs are based on Items 1–6. Exit costs represent Items 7–10, all developed from the marketing literature.