Balancing Demand
and Capacity
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9- 1
Relating Demand to Capacity:
Four Key Concepts
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9- 2
Variations in Demand Relative to Capacity
(Fig. 9-1)
VOLUME DEMANDED
Demand exceeds capacity
(business is lost)
CAPACITY UTILIZED
Excess capacity
Low Utilization (wasted resources)
(May Send Bad Signals)
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9- 3
Defining Productive Capacity
in Services
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9- 4
Alternative Capacity Management Strategies
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9- 5
Predictable Demand Patterns and
Their Underlying Causes (Table 9-1)
Weather
Health problems
Accidents, Fires, Crime
Natural disasters
Question: which of these
events can be predicted?
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9- 7
Alternative Demand Management Strategies
(Table 9-2)
Take no action
let customers sort it out
Reduce demand
higher prices
communication promoting alternative times
Increase demand
lower prices
communication, including promotional incentives
vary product features to increase desirability
more convenient delivery times and places
Price per
Room Night
Bl Bh
Th Bh = business travelers in high season
Bl = business travelers in low season
Tl Th = tourist in high season
Th
Bh
Bl Tl
Quantity of Rooms Demanded at Each Price
by Travelers in Each Segment in Each Season Note: hypothetical example
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9- 9
Avoiding Burdensome Waits for Customers
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 10
Alternative Queuing Configurations (Fig. 9-4)
21
29
28
“Take a number” (single or multiple servers) 30 25
20
24
26
31 27
32 23
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 11
Tailoring Queuing Systems to Market Segments:
Criteria for Allocation to Designated Lines
Urgency of job
emergencies vs. non-emergencies
Importance of customer
frequent users/loyal customers vs. others
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 12
Ten Propositions on the Psychology of Waiting
Lines (Table 9-3)
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 13
Benefits of Effective Reservations Systems
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 14
Characteristics of Well-designed
Reservations Systems
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 15
Setting Capacity Allocation Sales Targets for a
Hotel by Segment and Time Period (Fig. 9-5)
Week 7 Week 36
Capacity (% rooms) (Low Season) (High Season)
100%
Out of commission for renovation Executive service guests
Executive service
guests
Transient guests
Weekend
package
50% W/E
package
Transient guests
Groups and conventions
Nights: M Tu W Th F S Sn M Tu W Th F S Sn
Time
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 16
Information Needed for Demand and
Capacity Management Strategies
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 17