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Service Marketing

Balancing Demand and


Productive Capacity
Professor Walter Vizarreta

Table of Contents

Fluctuations in demand
Capacity-constrained service organizations
Patterns and determinant of demand
Demand levels can be managed
Marketing strategies can reshape demand patterns
Inventory demand through waiting lines
Create an effective reservations system

Fluctuations in demand

Excess demand
Demand exceeds optimum
capacity
Optimum capacity (balance
between demand and capacity)
Excess capacity

Capacity-constrained service
organizations

Defining productive capacity.


Resources or assets companies can use to create goods
and services.
Comes in different forms:

Physical facilities to contain customers (clinics, hotels)


Physical facilities to store or process goods (parking lots,
warehouses)
Physical equipment to process people, possessions, or information
(medical equipment, cash registers, benches at customer service
centers)
Labor
Public/private infrastructure (congested air routes, power grid,
telecommunications, etc.)

Capacity-constrained service
organizations

Sometimes, capacity levels stretch and shrink, for


example:

Bus travel: people sit during off peak hours and stand during peak
hours.
Adding chairs and tables at a restaurant
Giving the customer the receipt immediately in a restaurant
Offering simple menus at peak hours
University classes in the morning or on the weekend

Capacity-constrained service
organizations

Adjusting capacity to match demand

Schedule downtime during periods of low demand (employee


vacations)
Use part-time employees
Rent or share extra facilities and equipment
Ask customers to share (taxis, restaurants)
Invite customers to perform self-service
Cross-train employees

Create flexible capacity

Modifiable planes or connecting hotel guestrooms

Patterns and determinant of


demand

Understanding patterns of demand

Is it a predictable cycle?
What are the underlying causes of the variations?
Is it seemingly random?
Can its segments be separated?

Analyzing drivers of demand


Demand is divided among market segments

Gondolas in
Venice

Demand levels can be


managed

Take no action
Reduce demand during peak hours
Increase demand when there is excess capacity
Inventory demand by reservation system
Inventory demand by formalized queuing

Marketing strategies can reshape


demand patterns

Use price and other costs to manage


demand
Change product elements (hotel
restaurant, event venue)
Modify place and time of delivery
(weekend matinee, close earlier/later
during summer, open modules)
Promotion and education

Inventory demand through


waiting lines
Alternative queuing configurations:
Single line, single server, single stage

Single line, single servers, sequential stages

Parallel lines to multiple servers

Designated lines to designated servers

Inventory demand through


waiting lines
Alternative queuing configurations:
Single line to multiple servers (snake)

29

Take a number (single or multiple servers)

28

30

31

20
26

32

21

25
24
27

23

Inventory demand through


waiting lines

Queuing can be adapted to different market


segments:
Urgency

of job
Duration of service transaction
Payment of premium price
Importance of customer

Inventory demand through


waiting lines

Ten propositions on psychology of waiting lines:


Unoccupied time feels longer than occupied time.
2.
Pre- and post-process waits feel longer than in-process waits.
3.
Anxiety makes waits seem longer.
4.
Uncertain waits are longer than known, finite waits.
5.
Unexplained waits are longer than explained waits.
6.
Unfair waits are longer than equitable waiting.
7.
People will wait longer for more valuable services.
8.
Waiting alone feels longer than waiting in groups.
9.
Physically uncomfortable waits feel longer.
10. Waits seem longer to new or occasional users.
1.

Inventory demand through


waiting lines

Provide customers information on wait time

Create an effective
reservations system

Guarantees service is available when the customer wants


it
Can be as simple as using a notebook or as complex as a
computer database
Pre-sells the service; educates and informs customers
about the wait itself
Must be fast and user friendly

Create an effective
reservations system

Reservation strategies must focus on yield:

Should an industrial repair and maintenance firm set aside a


percentage of its productive capacity every day for emergencies
that offer a larger contribution margin and the potential to increase
long term customer loyalty or should it simply continue following
the strategy that assures it has enough work, basically implying
staying the course to keep its employees busy?

Setting hotel room sales targets by segment and time period


Capacity
(% rooms)

Week 7
(low season)

Week 36
(high season)

100%
Loyalty program members

Out of commission for renovation

Loyalty program
members
Transient guests
Weekend
package
50%

Weekend
package

Transient guests
Groups and conventions
Groups (no conventions)

Airline contracts

Nights:

Tu

Airline contracts

Th

Sn

M
Time

Tu

Th

Sn

Create an effective
reservations system

Information needed for demand and capacity


management strategies:

Historical data
Demand forecasts
Segment-by-segment data
Fixed and variable costs data
Meaningful location-by-location demand variations
Customer attitudes
Customer opinions

Thank you very


much!