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Fluctuations in Demand Threaten Service Productivity

Managing Capacity

Analyze Patterns of Demand

Managing Demand

Inventory Demand Through Waiting Lines and Queuing Systems

Customer Perceptions of Waiting Time

Inventory Demand Through Reservation Systems

Services Marketing

Slide © 2010 by Lovelock & Wirtz

Services Marketing 7/e

Chapter 9 – Page ‹#›

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Fluctuations in Demand Threaten Service Productivity

Services Marketing

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3

Defining Productive Capacity? Productive capacity can take several forms in services Physical facilities designed to contain customers

Physical facilities designed for storing or processing goods

Physical equipment used to process people, possessions, or information

Labor

Infrastructure

Financial success in capacity-constrained business is a function of management’s ability to use productive capacity as efficiently and profitably as possible.

Services Marketing

Slide © 2010 by Lovelock & Wirtz

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From Excess Demand to Excess Capacity

Services Marketing

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Services Marketing 7/e

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Excess demand

Too much demand relative to maximum capacity

Demand exceeds optimum capacity

Service quality is perceived to have deteriorated

Optimum capacity

Staff is not overworked and customers receive good service

Excess capacity

Too much capacity relative to demand

Variations in Demand Relative to Capacity

VOLUME DEMANDED

TIME CYCLE 1

TIME CYCLE 2

Maximum Available

Capacity

Optimum Capacity

(Demand ≈ Supply)

Low Utilization

(may send bad signals)

Demand > Capacity

(business is lost)

Demand >

optimum capacity

(quality declines)

Excess capacity

(wasted resources)

CAPACITY UTILIZED

Services Marketing

Slide © 2010 by Lovelock & Wirtz

Services Marketing 7/e

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Addressing Problem of Fluctuating Demand

Two basic approaches of which most firms use a mix 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

Use marketing strategies to smooth out peaks, fill in valleys

Inventorying demand until capacity becomes available

Services Marketing

Slide © 2010 by Lovelock & Wirtz

Services Marketing 7/e

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Managing Capacity

Services Marketing

Slide © 2010 by Lovelock & Wirtz

Services Marketing 7/e

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Managing Capacity

Enables more people to be served at same level of capacity

Stretch and shrink:

Offer inferior extra capacity at peaks (e.g., bus/train standees)

Use facilities for longer/shorter periods

Reduce amount of time spent in process by minimizing slack time

Adjusting capacity to match demand

Rest during low demand

Cross-train employees

Use part-time employees

Customers perform self-service

Ask customers to share

Create flexible capacity

Rent/share facilities and equipment

Services Marketing

Slide © 2010 by Lovelock & Wirtz

Services Marketing 7/e

Chapter 9 – Page ‹#›

Analyze Patterns of Demand

Services Marketing

Slide © 2010 by Lovelock & Wirtz

Services Marketing 7/e

Chapter 9 – Page ‹#›

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Demand Varies by Market Segment

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

Services Marketing

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Predictable Cycles of Demand Levels

day

week

month

year

other

Underlying Causes of

Cyclical Variations

employment

billing or tax payments/refunds

pay days

school hours/holidays

seasonal climate changes

public/religious holidays

natural cycles

(e.g., coastal tides)

Predictable Demand Patterns and Their Underlying Causes

Services Marketing

Slide © 2010 by Lovelock & Wirtz

Services Marketing 7/e

Chapter 9 – Page ‹#›

Causes of Seemingly Random Changes in Demand Levels

Weather

Health problems

Accidents, Fires, Crime

Natural disasters

Question: Which of these events can be predicted?

Services Marketing

Slide © 2010 by Lovelock & Wirtz

Services Marketing 7/e

Chapter 9 – Page ‹#›

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Managing Demand

Services Marketing

Slide © 2010 by Lovelock & Wirtz

Services Marketing 7/e

Chapter 9 – Page ‹#›

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Managing Demand

Take no action

Let demand find its own levels

Interventionist approach

Reduce demand in peak periods

Increase demand when there is excess capacity

Inventorying demand until capacity becomes available

Formal wait and queuing system

Reservation system

Services Marketing

Slide © 2010 by Lovelock & Wirtz

Services Marketing 7/e

Chapter 9 – Page ‹#›

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Marketing Mix Elements to Shape Demand Patterns

Use price and other nonmonetary costs to manage demand

Change product elements

Modify place and time of delivery

No change

Vary times when service is available

Offer service to customers at a new location

Promotion and Education

Services Marketing

Slide © 2010 by Lovelock & Wirtz

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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

Services Marketing

Slide © 2010 by Lovelock & Wirtz

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Chapter 9 – Page ‹#›

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