Total cost of utilization

The total cost of utilization (TCU) is the idea that customers pay over and above the price of the service.  To make use of the service, they may incur other expenses or suffer hidden fees and penalties. Or, they pay in terms of the additional time and effort for enrolling or signing up for the service, using it, and making the sure promises are kept.

Some services require costly installations, including changes that need to be made to things customers own. Others require additional purchases, such as Internet broadband to use Netflix, or taxis and train tickets to airports from where low-fare airlines fly. Airlines fares include significant amounts of taxes and fees. Some services require customers to allow access to their personal date, as part of the end user agreement.

When a service is poorly functioning at degraded service levels, customers may suffer a loss of benefits from downtime and disruption for which they may not be compensated. Worse, they have to resort to temporary solutions or alternatives to get by. Enforcement costs, which include getting help and assistance to fix service disruptions are costly for customers as well, and poorly designed recovery processes place an undue burden on customers.

All of these costs add up. For a given price, the TCU is the ratio of price and quality of experience. The TCU is high when the quality of experience is low. It is low when the quality of experience is high. When their TCU is high, services become less attractive because of a lower net value. When the costs are low, service offerings become more attractive.

When transaction costs are high, they eat into the benefits. The totality of these costs has the effect of reducing perceived benefits, and driving down the willingness of customers to pay for and use a service. So, the ability of a service provider isn’t just about having capabilities and resources, but also deploying them in a manner that does not erode net value.

Higher levels of quality assurance can also reduce unnecessary and unexpected costs. Goodwill and trust of service providers, in the form of discounts and rewards, can also reduce the TCU. For a fixed quality of outcomes, any reduction in TCU results in an economic surplus (also known as consumer surplus) that in turn generates goodwill and trust towards the service provider, thus completing the feedback loop.