Costs: Sunk/Transaction/Switching/Search

Four cost types shape decisions and markets. Sunk costs are already spent and irrecoverable — they shouldn't influence future decisions but almost always do. Transaction costs are the friction of making a deal: legal fees, time, paperwork, negotiation. Switching costs are the penalty for changing suppliers, tools, or platforms — retraining, data migration, lost integrations. Search costs are the time and effort to find alternatives. Each type distorts decisions. High switching costs create lock-in and moats. High transaction costs prevent efficient markets. High search costs let inferior products survive. The strategist manipulates these costs — raising them for competitors, lowering them for customers.

Ignore sunk costs in decisions — only future costs and benefits matter. Minimise transaction costs for your customers (frictionless checkout, simple contracts). Raise switching costs strategically (integrations, data gravity, habit). Lower search costs for your buyers so they find you (SEO, clear positioning, distribution).

Four cost types shape decisions and markets: sunk (irrecoverable), transaction (deal friction), switching (change penalty), and search (finding alternatives). Ignore sunk costs in decisions. Minimise transaction and search costs for customers. Raise switching costs to protect your moat.