Balancing Demand and Supply (9)

The Satisfaction-Loyalty CurveChapter 9
Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 9- *
Learning Objectives - Chapter 9
Consider how variations in demand can be predicted
Explore how capacity management techniques can be employed to match variations in demand
Assess how marketing strategies can smooth out fluctuations in demand
Reveal what can be done to reduce the waiting time discomfort
Uncover what makes a reservation system effective
Fluctuations in Demand Threaten Service Productivity
Productive Capacity and Service Success
Services cannot be stockpiled
This is problematic for people or physical possession services due to wide swings in demand
Goal is to utilize staff, equipment, and facilities as productively as possible
From Excess Demand to Excess Capacity
Four conditions potentially faced by fixed-capacity services:
Excess demand
Too much demand relative to capacity at a given time
Demand exceeds optimum capacity
Upper limit to a firm’s ability to meet demand at a given time
Optimum capacity
Point beyond which service quality declines as more customers are serviced
Excess capacity
Too much capacity relative to demand at a given time
Addressing Problem of
Adjust level of capacity to meet demand
Need to understand productive capacity and how it varies on an incremental basis
Manage level of demand
Variations in Demand Relative to Capacity (Fig 9.1)
VOLUME DEMANDED
Use marketing strategies to smooth out peaks, fill in valleys
Many firms use a mix of both approaches
Many Service Organizations Are Capacity Constrained
Defining Productive Capacity in Services
Physical facilities to contain customers
Physical facilities to store or process goods
Physical equipment to process people, possessions, or information
Labour used for physical or mental work
Public/private infrastructure
See Best Practice In Action 9.1: Improving Check-In Service at Logan Airport
Alternative Capacity Management Strategies
Stretch and shrink
Vary seated space per customer (e.g., elbow room, leg room)
Extend/cut hours of service
Flexible capacity (vary mix by segment)
Adjusting Capacity to Match Demand
Schedule downtime during periods of low demand
Use part-time employees
Ask customers to share
Cross-train employees
Patterns and Determinants of Demand
Predictable Demand Patterns and
day
week
month
year
other
employment
Causes of Seemingly
Weather
Analyzing Drivers of Demand
Understand why customers from specific market segments select this service
Keep good records of transactions to analyze demand patterns
Sophisticated software can help to track customer consumption patterns
Record weather conditions and other special factors that might influence demand
Overall Usage Levels Comprise
Demand from Different Segments
Keep peak demand levels within service capacity of organization
Marketing cannot smooth out random fluctuations in demand
Fluctuations caused by factors beyond organization’s control (for example: weather)
Detailed market analysis may reveal that one segment’s demand cycle is concealed within a broader, random pattern
Demand Levels Can Be Managed
Alternative Demand-Management Strategies (Table 9.2)
Take no action
Reduce demand
Higher prices
Inventory demand by reservation system
Inventory demand by formalized queuing
Marketing Strategies Can
Change product elements
No change
Offer service to customers at a new location
Promotion and education
Hotel Room Demand Curves by
Segment and Season (Fig 9.3)
Bh = business travelers in high season
Bl = business travelers in low season
Th = tourist in high season
Tl = tourist in low season
Bh
Bh
Bl
Bl
Th
Th
Tl
Tl
by travelers in each segment in each season
Note: hypothetical example
Inventory Demand through Waiting Lines and Reservations
Waiting Is a Universal Phenomenon!
An average person may spend up to 30 minutes/day waiting in line—equivalent to over a week per year!
Almost nobody likes to wait
It's boring, time-wasting, and sometimes physically uncomfortable
Why Do Waiting Lines Occur?
Because the number of arrivals at a facility exceeds capacity of system to process them at a specific point in the process
Queues are basically a symptom of unresolved capacity management problems
Not all queues take form of a physical waiting line in a single location
Saving Customers from
Burdensome Waits
Add extra capacity so that demand can be met at most times (problem: may increase costs too much)
Rethink design of queuing system to give priority to certain customers or transactions
Redesign processes to shorten transaction time
Manage customer behaviour and perceptions of wait
Install a reservations system
Alternative Queue Configurations
Parallel lines to multiple servers
Designated lines to designated servers
Single line to multiple servers (“snake”)
“Take a number” (single or multiple servers)
28
29
21
20
24
23
30
25
31
26
27
32
Urgency of job
Emergencies versus non-emergencies
Complexity of task
Minimize Perceptions of Waiting Time
Ten Propositions on Psychology of
Waiting Lines (1) (Table 9.3)
Unoccupied time feels longer than occupied time
Pre- and post-process waits feel longer than in-process waits
Anxiety makes waits seem longer
Uncertain waits are longer than known, finite waits
Unexplained waits are longer than explained waits
Sources: Maister; Davis & Heineke; Jones & Peppiatt; see your Services Marketing text, page 275 for full source information.
Ten Propositions on Psychology of
Waiting Lines (2) (Table 9.3)
Unfair waits are longer than equitable waiting
People will wait longer for more valuable services
Waiting alone feels longer than waiting in groups
Physically uncomfortable waits feel longer
Waits seem longer to new or occasional users
Sources: Maister; Davis & Heineke; Jones & Peppiatt; see your Services Marketing text, page 275 for full source information.
Create an Effective Reservation System
Benefits of Reservations
Informs and educates customers in advance of arrival
Saves customers from having to wait in line for service (if reservation times are honored)
Data captured helps organizations
Characteristics of Well-Designed Reservations System
Fast and user-friendly for customers and staff
Answers customer questions
Accommodates preferences (e.g., room with view)
Deflects demand from unavailable first choices to alternative times and locations
Includes strategies for no-shows and overbooking
Requiring deposits to discourage no-shows
Canceling unpaid bookings after designated time
Compensating victims of over-booking
Setting Hotel Room Sales Targets by
Segment and Time Period (Fig.9.7)
Out of commission for renovation
Loyalty Program
Information Needed for Demand and Capacity Management Strategies
Historical data on demand level and composition, noting responses to marketing variables
Demand forecasts by segment under specified conditions
Segment-by-segment data
Meaningful location-by-location demand variations
Customer attitudes toward queuing
Customer opinions of quality at different levels of capacity utilization
Summary – Chapter 9
Service capacity may face four types of demand
Service capacity can be adjusted to match demand by using temporary employees, cross-training employees etc
Variations in demand can be predicted through good record keeping and analysis
Firms have many options on how they can match capacity to variations in demand
Marketing strategies can smooth out fluctuations in demand by deploying the four traditional Ps of the marketing mix
There are five different approaches to reducing waiting time discomfort

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Balancing Demand and Supply (9)