The propensity for a service is a customer’s inclination to pay for and use it. So, for example, those who cannot or prefer not to drive to work, have a greater propensity for public transportation, than those who do. Those do own cars and drive them often have the propensity for services that provide parking, insurance, oil changes, and fuel. We all have propensity for services. Which services we tend to use depends on our lifestyles, habits and cultures; where we live and work; and what society and government expect to have, or do (e.g. have an address, some form of ID, and file tax returns).
Service providers look at the propensities and understand why. They see that things customers have and things they don’t. Therefore, for example, they offer to lend money, rent scooters, and stream digital content. They see jobs and tasks customers aren’t willing or able to complete by ourselves. They operate airlines, perform surgical operations, and patrol streets to keep neighborhoods safe and quiet. They launch rockets and place satellites into orbit, so their customers in turn can promise satellite imagery at affordable prices.
Service providers take initiative. They incur costs and risks in putting things in place ahead of time, anticipating our needs, to create anti-needs. There is a certain amount of boldness involved in the absence of firm orders, advanced purchases, or long-term contractual commitments. Where customers have the propensity for services, service providers have the audacity.
Mapping propensity against audacity creates a field map that helps visualize the market for a service; for a particular job to be done. From a service provider’s perspective, the map shows competitive scenarios, and opportunities for growth. From a customer’s perspective, it helps identify opportunities for outsourcing and procurement, or provides the basis for deciding in favor of the do-it-yourself option.
Four thresholds: TH1, TH2, TH3 and TH4 define the field. The strength of attraction between propensity and audacity can be measured in terms of a hypothetical price customers might be willing to pay, ranging from penalty1 to premium, through FREE, low price, and regular or without discount.
TH1: The customer, can’t do it well: TH1 is a threshold level of need. Above this threshold, customers are in the market for a service, and with a high enough willingness to pay. Below this threshold, customers aren’t compelled enough to seek a service. They feel better off getting the job done themselves.
TH2: The provider, can do it well: Th2 is a threshold level of ability, above which service providers are able to make promises compelling enough for customers to consider them as an alternative to DIY. Being above this threshold means providers have the capabilities and resources to deliver the performance and affordance customers would be willing to pay for.
TH3: the customer, can’t do it at all: Th3 is a threshold level of need, and above this threshold, customers aren’t just willing to pay for a service, they are also not in a position to get the job done by themselves. That is why they are likely to pay a premium if the service provider is able to fulfill their needs, and make promises about the outcomes and experiences.
TH4: The provider, can do it best: Th4 is a threshold level of ability above which, as a service provider is among the best in class, has the boldest service offerings, and if the propensity for the service is above the TH3 threshold, is likely to command a premium, and have enough room for maneuver under competitive scenarios.
Many paths to premium
Above TH1 and TH2, the service offering is viable and competitive enough against the DIY option, with opportunity for profitability and growth through great design. Below TH3 and TH4, there is margin pressure as competition is relatively high and prices are expected to be low. In between these four threshold is the stronghold of low pricing. The position of the thresholds relative to each other are indicative of market vibrancy. Where exactly the thresholds are, when they mover, or by how much, depends on the strategic industry factors and the nature of the service.
Service providers might pick a strategy to improve the boldness of their service offerings either though the efficiency of operations or through changes to their core designs. They might adopt a pricing strategy that attracts price sensitive customers with by enticing them to give the service a try, imprinting in their minds a certain net value, and encouraging them to higher levels of propensity, while at the same time being bolder about their service offerings to stave off competition. Free trials and basic options combined with flexible upgrades help propensities form a habit. Amazon AWS and Slack are examples of micro-level with virtually no commitments or lock-in. As habits form and propensity gets stronger, customers find it hard to imagine not using the service, and might find good reason to upgrade to regular pricing or premium options. The field map is also useful to plot a freemium strategy through which a service attract some customers who use the service free of charge while others are willing to pay the regular price, and yet others the premium. This would require mapping the propensities of multiple customer segments, each with a set of TH1 and TH3 thresholds, for a given set of TH2 and TH4.
- In this context, penalty is the equivalent of a customer paying a service provider not to provide the service, because it is a net loss. Or, the service provider paying the customer to not use the service, for similar reasons. It’s a lose-lose situation. ↩