service marketing - love lock chapter-09

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 1

Chapter 9:Balancing Demand and Productive Capacity


Overview of Chapter 9

• Fluctuations in Demand Threaten Service Productivity• Capacity-Constrained Service Organizations• Patterns and Determinant of Demand• Managing Demand Levels• Inventory Demand through Waiting Lines and

Reservations• Minimize Perceptions of Waiting Time• Create an Effective Reservations System


Fluctuations in Demand Threaten Service Productivity


From Excess Demand to Excess Capacity

Four conditions potentially faced by fixed-capacity services:• Excess demand

o Too much demand relative to capacity at a given time => customer is denied service => biz lost

• Demand exceeds optimum capacityo Upper limit to a firm’s ability to meet demand at a given time => no one

turned away, but conditions are deteriorating• Optimum capacity

o Demand =Supply ; Staff not over worked and Customers face no delay• Excess capacity

o Supply > Demand


Variations in Demand Relative to Capacity (Fig 9.1)

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


Many Service Organizations Are Capacity Constrained


Defining Productive Capacity in Services

• Physical facilities to contain customers – Ex aircraft, classrooms

• Physical facilities to store or process goods -Warehouses

• Physical equipment to process people, possessions, or information – diagnostic equip

• Labor used for physical or mental work – hotel staff, nurses


Alternative Capacity Management Strategies

• Level capacity (fixed level at all times)- No. of seats in theatre

• Stretch and Shrink Capacity Offer extra capacity at peaks (e.g., bus/train standees)- Mumbai Trains . Introduce spl

trains – Shabrimala Season Extend/cut hours of service Introducing token systems (prepaid) in hotels to reduce time for people to wait for billing.

Hence they leave and new customers can walk in.

• Chase demand (adjust capacity to match demand) Use part time employees during peak season Rent /Share additional facilities at peak times. Eg. Renting cars for large conferences. Ask customers to share. At peak times customers asked to share taxis at Airports If employees ltd, then customers to opt for SST .Ex platform ticket purchase Cross train employees to perform multi tasking in peak times

• Flexible capacity (vary mix by segment): Boeing 777 can change passenger cabins with hours for adjusting demand


Patterns and Determinants of Demand – The other side


Predictable Demand Patterns and Their Underlying Causes (Table 9.1)

• Day – varies every hour• Week – varies every day• month – every day/week• Year – month/season• other

• Employment Schedules• pay days – high demand• school hours and vacation• seasonal climate changes• public/religious holidays• Natural disasters – impact on

ambulance, fire coast guard services

Predictable Cycles of Demand Levels

Underlying Causes of Cyclical Variations


Analyzing Drivers of Demand

• Understand why customers from specific market segments select this service. Get the WHY behind choice

• Keep records of each transactions to analyze demand patterns based on past experienceo Sophisticated software can help to track customer consumption

patterns

• Record weather conditions and other special factors ( big convention, price change etc) that might influence demand


Overall Usage Levels Comprise Demand from Different Segments

• A micro segment may have a pattern of demand that needs to be tapped.

Ex : Industrial Equipment Service/Repair center: Some walk ins, some regular contracts, some emergency services. Walk ins happen on week ends, emergency mainly after heavy rains.

• Marketing cannot smooth out random fluctuations in demand , but detailed market analysis may reveal that one segment’s demand cycle is concealed within a broader, random pattern

Ex: Retail store has varied set of customers – Some visit for Monthly once for months provisions. Some visit daily for staple items purchase like milk, vegetables etc


Demand Levels Can Be Managed


Alternative Demand Management Strategies (Table 9.2)

• Take no actiono Let customers sort it out. They learn from WOM when is the slack

and peak time, where to stand and what is the possible waiting time • Reduce demand

o Higher priceso Communication : promoting usage of time slots. Evening Colleges

• Increase demando Lower priceso Communication, including promotional incentiveso More convenient delivery times and places

• Inventory demand by reservation system : Provide priority to special customers, others attended later.• Inventory demand by formalized queuing : Special line for VIPs.


Marketing Strategies CanReshape Some Demand Patterns

• Use price and other costs( time, psychological cost)• to manage demand• Change product elements. Price discounting will not

boost sales in off peak seasons. Ex Hotels offer various menus during different time of the day to cater to different customer needs

• Modify place and time of deliveryo No change o Vary times when service is available – during summer café’ remain

open till late night. Shops extend working hours during Diwali and dussera

o Offer service to customers at a new location – Free dental check up in mobile dental vans.

• Promotion and education customers about peak period and slack period


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?

Not all queues take form of a physical waiting line in a single location . Ex Waiting for customer care rep to answer the call.

Waiting for a taxi at a different location than from where it was reserved( Taxi HQ)

• 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


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. Use of internet

• Manage customer behavior and perceptions of wait

• Install a reservations system – Ex Web check in


Alternative Queuing Configurations (Fig 9.5)

Single line, single server, single stage –Ex : Small railway reservation stations

Single line, single servers, sequential stagesGovt offices

Parallel lines to multiple servers –Large railway reservation centers

Designated lines to designated servers – Ladies Q, Credit card booking, Group booking Q

Single line to multiple servers (“snake”)-Ex Airport Check in –One entrance and diff check in for diff flights

“Take a number” (single or multiple servers)Ex Banks

28 2921

20

24

23

30 25

3126

2732


Criteria for Allocating Different Market Segments to Designated Lines

• Urgency of jobo Emergencies versus non-emergencies at hospitals

• Duration of service transactiono Number of items to transact – Bulk Cash Deposit/ Withrawal >

Rs 5 Lacso Complexity of task -Spl Fx Transactions

• Payment of premium priceo First class versus economy. Spl lines, check in facilities

• Importance of customero Frequent users/high volume purchasers versus others.o Ex Spl Airport lounges for premium fliers.


Minimize Perceptions of Waiting Time


Ten Propositions on Psychology of Waiting Lines (1) (Table 9.3)

• Unoccupied time feels longer than occupied time – Place TV

• Pre- and post-process waits feel longer than in-process waits – Ex Movie: Wait 1 – Buying Ticket, Wait 2 : Maneuvering vehicle from parking lot

• Anxiety makes waits seem longer

• Uncertain waits are longer than known, finite waits – Inform customer the approx wait time

• Unexplained waits are longer than explained waits- Inform customer reason for delay and possible time for recovery

Sources: Maister; Davis & Heineke; Jones & Peppiatt


• Unfair waits are longer than equitable waiting : People jumping Q

• 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 – Place a

lobby manager to take care of this

Ten Propositions on Psychology of Waiting Lines (2) (Table 9.3)

Sources: Maister; Davis & Heineke; Jones & Peppiatt


Create An Effective Reservation System


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

o Prepare financial projectionso 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

o Requiring deposits to discourage no-showso Canceling unpaid bookings after designated time


Setting Hotel Room Sales Targets by Segment and Time Period (Fig.9.4)

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 guestsW/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• 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

Thank You

service marketing - love lock chapter-09

Education

capacity services

demand relative

pattern of demand

demand use

chase demand

balancing demand

drivers of demand

determinants of demand