Marketing: Its Most Important Function

Variations in Demand Relative to Capacity

VOLUME DEMANDED

TIME CYCLE 1 TIME CYCLE 2

Maximum Available Capacity

Optimum Capacity (Demand and Supply Well Balanced)

Low Utilization (May Send Bad Signals)

Demand exceeds capacity (business is lost)

Demand exceeds optimum capacity

(quality declines)

Excess capacity (wasted resources)

CAPACITY UTILIZED

– Use marketing strategies to smooth out peaks, fill in valleys

Causes of Seemingly Random Changes in Demand Levels

• Weather• Health problems• Accidents, Fires,

Crime• Natural disasters

Question: Which of these events can be predicted?

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

• Not all demand is desirable• 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

Hotel Room Demand Curves by Segment and Season

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

Price per room night

Quantity of rooms demanded at each price by travelers in each segment in each season

Note: hypothetical example

Benefits of Reservations• Controls and smoothes demand• Pre-sells service• 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

– Prepare financial projections– Plan operations and staffing levels

Characteristics of Well-Designed Reservations System

• Fast and user-friendly for customers and staff• Answers customer questions• Offers options for self service (e.g., the Web)• 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 Members

Transient guestsWeekend package

Groups and conventions

Airline contracts

100%

50%

Week 7 (Low Season)

MNights: TuTime W Th F S Su

Loyalty Program Members

Transient guests

W/Epackage

Groups (no conventions)

Airline contracts

Week 36 (High Season)

M Tu W Th F S Su

Capacity (% rooms)

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• Fixed and variable cost data, profitability of incremental sales• Meaningful location-by-location demand variations• Customer attitudes toward queuing• Customer opinions of quality at different levels of capacity utilization