Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

Feedback 
Loop
 

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2007 Annual International CHRIE Conference & Exposition 
277
The systems theory stipulates that every system has a control mechanism and that systems can be 
controlled at different degrees of sophistication. Hence, there exit barriers (in this papers referred to as switching 
costs) as well entry barriers (herein referred to as admittance costs to a new service provider) A consumer that leaves 
Service Provider A for B has to overcome, in addition to admittance costs, the adjustment Service Provider B. This 
control system maintains at least one system variable within some specified range (Mabogunje, 1970), or if the 
variable goes outside the range, the system moves to bring the variable back into the range and this control is 
internal to the system. Just like a thermostat, control mechanisms check the flow into and out of the system. These 
control mechanisms are what have been referred to as switching costs and can be found both at the 
switched from
and 
switched to
service providers. Take for example the contractual relationship between a service provider and a 
consumer. This agreement sets roles and expectations of each party in the contract and is a barrier to consumer 
movement or switching away from the current service provider. The receiving service provider might have 
switching costs or barriers that deter consumer movement such as credit checks, procedures and structure for setting 
up new accounts, depending on the severity, these barriers deter or accelerate consumer switching. 
When consumers finally move out and find a new service provider, the switching definition stipulates that 
they will settle permanently or at least relatively permanently. These switchers become a source of information, both 
to the “
switched from
” and “
switched to
” service providers. Through the feedback loop, switchers return information 
to their previous “homes.” This information can either be positive or negative and it has consequences and 
implications for both the consumers and the firm. Positive information or feedback is likely to stir a wave of out-
switchers (massive switching). Negative feedback has the opposite effect. The information or feedback can also 
have an effect at the firm level. Whether its positive or negative information will stir the firm to reassess its strengths 
and weaknesses, swinging into action to either retain the consumers or attract the switchers.