Marketing Services and the Customer Experience
aman_2910
Lecture_Capacityanddemand.pptxCapacity and demand Marketing Services and the Customer Experience Study unit 8
Special challenges for services
Perishability of service output: no inventory
Demand fluctuation (level and pattern)
Four scenarios
Demand exceeds maximum capacity
Demand exceeds optimum capacity
Demand and supply well-balanced
Capacity exceeds demand
Consequences
Loss of customers when demand exceeds maximum capacity
Quality of service suffers when demand exceeds optimum capacity
Wasted resources when capacity exceeds demand
Management strategies
Provide
Maintain capacity to meet maximum demand
Match (or Chase)
Alter capacity to meet fluctuating demand
Control
Control demand to maintain consistency
Influence
Influence demand to reduce the magnitude of peaks and troughs and match capacity to the resulting pattern
(Crandall and Markland, 1996)
Understanding demand
Record demand patterns
Analyse for predictable patterns
Determine underlying causes
Identify patterns within patterns (e.g. demographics)
Demand management: Shift
Full price during busy periods
Incentives for non-peak usage
Inform customers when peak demand will occur
Modify delivery times
Offer new locations
(Radas and Shugan, 1998)
Demand management: Increase
Create alternative use for otherwise wasted capacity
Offer price discounts
Increase promotion
Demand management: Inventory
Queuing System
Advise customers of waiting time
Explain cause of waiting time
Reduce waiting time perceptions
Virtual queuing
Reservation system
Priority system
Capacity
Physical facilities
Physical equipment
Time
Labour
Limit to how much organization can control demand.
Need to balance with capacity management and
find optimal mix
(Pullman and Thompson, 2003)
Capacity management
Increase working hours of staff
Cross-train staff
Extend hours of business
Part-time staff
Outsource
Schedule downtime during quiet periods
Add additional facilities
Design process to use slack periods as far as possible
Introduce self-service
Rent/share capacity
(Klassen and Rohleder, 2002)
Yield (Revenue) management
Process of maximizing profit from a fixed, perishable capacity at any given time
Relevant to services with highly fluctuating demand, large numbers of customers, and multiple customer segments
Find the best balance at a particular point in time between price, segments sold to, and type of capacity used
Allocate the right capacity to the right person at the right price to maximize yield (revenue)
(Guillet and Mohammed, 2015)
Yield management strategies
Overbooking to ensure capacity is not wasted
Differential pricing based on expected demand from different customer segments (e.g. mix of business versus economy class)
Discriminatory pricing (different prices to different segments for the same service)
Risks/Challenges
Overbooking can ‘backfire’
Risk of alienating customers
Risk of selling service at a lower price to customer who would be willing to pay more
Need to establish fences to prevent all customers taking advantage of discounted prices
Requires detailed data on past demand patterns
(Erdem and Jiang, 2016)
References
Crandall, R. and Markland, R. (1996) Demand management – today’s challenge for service industries. Production and Operations Management. 5 (2), pp. 106-120.
Erdem, M. and Jiang, L. (2016) An overview of hotel revenue management research and emerging patterns in the third millennium. Journal of Hospitality and Tourism Technology. 7 (3), 300-312.
Guillet, B. and Mohammed, I. (2015) Revenue management research in hospitality and tourism. International Journal of Contemporary Hospitality Management, 27 (4), 526-60.
Klassen, K. and Rohleder, T. (2002) Demand and capacity management decisions in services. International Journal of Operations and Production Management, 22 (5), 527-548.
Pullman, M. and Thompson, G. (2003) Strategies for integrating capacity with demand in service networks. Journal of Service Research, 5 (3), 169-183.
Radas, S. and Shugan, S. (1998) Managing service demand: Shifting and bundling. Journal of Service Research, 1 (1), 47-64.
