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
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 9 – Page ‹#›
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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
Services Marketing 7/e
Chapter 9 – Page ‹#›
From Excess Demand to Excess Capacity
Services Marketing
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 9 – Page ‹#›
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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
Chapter 9 – Page ‹#›
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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
Chapter 9 – Page ‹#›
7
Managing Capacity
Services Marketing
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 9 – Page ‹#›
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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
Slide © 2010 by Lovelock & Wirtz
Services Marketing 7/e
Chapter 9 – Page ‹#›
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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 ‹#›
15
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
Services Marketing 7/e
Chapter 9 – Page ‹#›
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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
Services Marketing 7/e
Chapter 9 – Page ‹#›
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