Quality of demand is the other side of quality of service. It is what customers promise in return. Services are viable as long as there is sufficiently high quality of demand. Even if there are some willing to pay for it, the quality of demand is not good enough for copy centers to maintain the capabilities and resources. Quality of demand includes willingness to pay, tolerance for pain, and patterns of use, including frequency and volume. It requires customers to make commitments that reduce the costs and risks for service providers, in relation to pricing, probability and choice.
The greater the uncertainty in demand, the higher the risk it won’t materialize as expected. That forces service providers to incur costs they might not be able to recover, most often in the form of perishable capacity and underutilized assets. To avoid margin pressure, providers overbook demand so every unit of capacity is spoken for by more than one unit of demand. Or, they allocate fewer resources per unit of demand to reduce idling, passing on the pain in the form congestion and delay. Quite often, service providers discourage uncertainty and variation with requirements for advance booking, and restrictions or penalties for changes and cancellations, as airlines most often do with economy class tickets. With higher class options, passengers have the privilege of being spontaneous or fickle-minded as much as they want. The difference in price partly compensates for perishable capacity. Advance purchases, subscriptions, and loyalty programs are strategies to reduce the uncertainty in demand.
Flexibility and choice
In general, variety and choice cost more to offer if it requires service providers to deploy and maintain a greater variety of capabilities and resources, in greater number of configurations, and none of them fully utilized. That’s why we often find that the cheaper the offering the lesser the flexibility and choice. A way service providers reduce uncertainty and risk associated with choice, is by limiting when and where their services promise certain outcomes and experiences, and the window of opportunity within which the choices will expire.
Customers often face the choice of paying more to choose as they wish, or forsaking choice for a lower price. Airlines fares are an example of that. False choices and compromises, however, can inadvertently initiate a vicious cycle in which poorer quality of demand leads to higher levels of dissatisfaction, which in turn leads to a lower willingness to pay, which prompts providers to cut costs and unfortunately a lower quality of service. That’s why design is so important in finding breakthrough solutions that avoid imposing false choices and compromises.
Exceptional costs and risks
Contracts need to provide for flexibility and tolerance to be able to allow for exceptional costs and risks from errors, exceptions, and variations in the quality of demand. Higher demand tolerance leads to exceptional costs and risks: it’s one thing to create the most amazing journey, with lots of options and latitude on interactions. It’s another to be able to recover the costs. It’s up to design to find new paths that are less expensive and yet amazing in terms of experience: good design aims to minimize total cost of utilization (TCU) for customers. Capabilities and resources that are highly location-specific or rarely demand tend to be under-utilized and expensive. Exceptional costs & risks that cannot be avoided have to be minimized and recovered by shaping and influencing the demand patterns. It’s no joke that Southwest Airlines in its entire 45-year history has been profitable every single year, never laid off staff or cut pay. There are many factors, including exceptional leadership, but also the fact they pioneered the no-frills airline model and have always flown a single type of aircraft: The Boeing 737.
Service providers who invest in design, relentlessly seek solutions that offer the highest possible quality of service for the lowest possible quality of demand. They truly understand how capacity interacts with demand, and then seek to improve their capabilities and push their design envelopes. The design of their services is more demand tolerant, which makes them more competitive than the alternatives. Then if their customers end up presenting a higher quality of demand, including a higher willingness to pay, there is the possibility of a virtuous cycle that churns surpluses and profit, instead of customers.
Willingness to pay
Pricing of services is driven by strategies for customer segmentation, when some customers are less willing than others to pay a particular price for a particular quality of service. Service providers using price discrimination, demand shaping, and yield management to techniques to drive demand for each pricing level. Government agencies have much less flexibility and freedom with such techniques, since they have to make services affordable to all regardless of their income levels, and willingness to pay (WTP). Nevertheless, for profit or for public good, it is important for service providers to know where the floor and the ceiling are for their services, in terms of customers’ willingness to pay, because that is the indication of the strength of attraction between propensity and audacity.
The willingness to pay a particular price is the most important commitment customers make, which gives service providers the opportunity to recover the cost of providing a particular quality of service. Anything can be done for a high enough price. Emirates offers an entire private suite with a shower on their Airbus A380 flights, Boeing can offer a super secure blackphone for the chief executive, and SpaceX can deliver payloads up to 8.0 mT to a geosynchronous transfer orbit (GTO) for $90 million. RyanAir can fly passengers across Europe for $20, a Moto G4 Android smartphone costs $149, and it’s always possible to rent a transponder on a satellite already up there. Many services are offered free-of-charge, if you’re willing to suffer the ads they display. Paying a fee removes the ads.