Question

Ralph, a regional sales manager, was asked to analyze whether his company should launch a marketing effort to become Right Foods' produce supplier this year. He found that Fresh Green Veggies currently has a supply contract with Right Foods that has three more years in its term; RightFoods would have to pay Fresh Green $0.5 million to break the contract. Also, Fresh Green has installed automated ordering/billing software in RightFoods' home office; RightFoods would have to spend $100,000 to replace it and retrain its staff. He concluded that RightFoods' _______ costs would be too high to seriously consider a change in supplier, thereby recommending that a marketing effort not be launched this year.

Answer 1

Answer:

Switching cost

Explanation:

Switching cost is defined as the cost that is incurred in the course of changing from one supplier to another.Switching cost can be in monetary terms like compensation and termination fees and also in non monetary terms like time , effort and psychological stress.

In the given scenario , the defined activities of Right foods and the intention of Ralph clearly point out the process of potential switch of suppliers , even as the potential switching cost of $0.5 million for termination and $100,000 for replacing of software and retraining of staff are apparent.