5questions about Strategic Services Marketing

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StrategicServicesMarketingDemandCapacity_Lecture7.ppt

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Autumn 2020

Associate Professor Francois Carrillat

Marketing Discipline Group

UTS Business School

24706 Strategic Services Marketing

A Customer Experience Perspective

Lecture 7: Managing demand and capacity (Ch. 13)

(see ‘Program’ in the 24706 Subject Outline)

Sessions 1-2

Chapter 1: Introduction to services

Chapter 2: The Gaps model of service quality

Chapter 8: Service innovation and design (blueprinting)

Chapter 9: Customer-defined service standards

Chapter 3: Customer expectations of services

Chapter 4: Customer perceptions of service

Chapter 10: Physical evidence and the servicescape

Chapter 6: Building customer relationships

Chapter 7: Service recovery

Chapter 11: Employees’ roles in service delivery

Chapter 12: Customers’ roles in service delivery

Chapter 13: Managing demand and capacity

Chapter 15: Pricing of services
Chapter 14: Integrated marketing communications

NOTE: Chapters 5 and 16 are not explicitly discussed in lectures

Subject Overview: Textbook Readings & Exams

Sessions 3,4,5

Title: Services Marketing, Integrating
Customer Focus Across the Firm

Authors: Valerie Zeithaml, Mary Jo Bitner, Dwayne Gremler

Publication Details:
2012, 6th Edition, McGraw Hill

Textbook: show and tell US view but will complement with examples international and australian.

Variations in Demand Relative to Capacity

When is low utilisation (when capacity exceeds demand) an issue? After all customers received more attention individually. When servcie quality depends on the presence of other customers.

Fowhat service firms managing demand and capacity is particularly important; for those where peak demand often exceeds capacity and demande fluctuation over time is wide (see page 378, table 13.1).

Fixed capacity due to constraints: time, labor, equipment, facility

Excess demand
Demand exceeds maximum available capacity (MC)

Customers turned away
Lost business opportunities
Resources under great pressure
Service quality suffers
Crowding
Staff and facilities overtaxed
Customers seek competitors’ offerings

Demand exceeds optimum capacity
Upper limit to a firm’s ability to meet demand at a given time

All customers serviced
Excess pressure on all resources (facilities and staff)
Queuing and long waits
Crowding
Service quality suffers

Optimum capacity (OC)
Demand and supply are well
balanced

Excess capacity
Too much capacity relative to demand at a given time

Resources (staff, facilitates and equipment) underutilised
Lack of customers may create negative image/atmosphere
Productivity decreases
Profitability suffers
Customers receive excellent individual service
Customers have full use of the facilities
No waiting/queues

An Important Distinction

OC: the number of customers that can be effectively handled under ideal service conditions

Resources are fully employed, but not overused
Service quality can be delivered effectively

MC: the maximum number of customers a service organisation can accommodate

The absolute limit of service availability without turning customers away

NOTE: Maximum capacity can be the same as optimum capacity

Perishability Challenges

Services cannot be inventoried

Managing supply and demand is a challenge

Service recovery is more difficult than with physical goods

Desirable and undesirable capacity utilization: soccer match vs. airplane seat occupancy

Average attendance	Average	Minimum	Maximum	%Full
Manchester Utd	75,328	75,112	75,397	99.5%
Arsenal	59,988	59,900	60,081	99.4%
Newcastle Utd	50,834	47,763	52,315	97.0%
Manchester City	45,425	45,000	45,622	97.3%
Liverpool	44,658	44,405	44,736	98.4%
Sunderland	43,156	39,077	47,563	88.1%
Chelsea	41,548	41,098	41,629	99.3%
Everton	38,207	34,035	39,621	94.2%
Tottenham	35,716	34,008	36,130	98.6%
West Ham Utd	34,860	34,125	34,977	99.6%
Aston Villa	33,160	25,311	41,273	77.5%
Leicester City	31,717	31,448	32,000	97.6%
Southampton	30,537	27,598	31,723	93.4%
Stoke City	27,111	26,332	27,550	97.7%
West Bromwich	24,988	23,516	26,768	93.4%
Crystal Palace	24,358	23,038	25,197	92.6%
Hull City	23,299	21,275	24,598	91.1%
Swansea City	20,541	20,145	20,828	98.6%
Burnley	19,133	16,904	21,335	89.4%
QP Rangers	17,807	16,163	18,098	97.0%

Which one should have a higher occupancy rate; presumably closer to full capacity? Why?

Full flight more profitable but less enjoyable; full stadium more profitable and more enjoyable

Why are airlines still aiming for full capacity when flying? Profit; trying to create a ore enjoyabel personal space for business clas (remember Vrigin Australia).

Which oneThis statistic shows the passenger seat occupancy rate for UK airlines in 2013 and 2014 as of September. Thomas Cook Airlines overtook Thomson Airways as the airline with the highest seat occupancy while seat occupancy on BMI Regional flights jumped from 47.4 percent to 57.8 percent. Both Monarch and Thomson saw a drop in seat occupancy for these two periods.

Variations in Demand Relative to Capacity

Strategies to match demand with capacity match

Keeping customers ‘in stock’

Development of service recovery strategies

Management of supply and demand

When is low utilisation (when capacity exceeds demand) an issue? After all customers received more attention individually. When servcie quality depends on the presence of other customers.

Fowhat service firms managing demand and capacity is particularly important; for those where peak demand often exceeds capacity and demande fluctuation over time is wide (see page 378, table 13.1).

Fixed capacity due to constraints: time, labor, equipment, facility

Excess demand
Demand exceeds maximum available capacity (MC)

Customers turned away
Lost business opportunities
Resources under great pressure
Service quality suffers
Crowding
Staff and facilities overtaxed
Customers seek competitors’ offerings

Demand exceeds optimum capacity
Upper limit to a firm’s ability to meet demand at a given time

All customers serviced
Excess pressure on all resources (facilities and staff)
Queuing and long waits
Crowding
Service quality suffers

Optimum capacity (OC)
Demand and supply are well
balanced

Excess capacity
Too much capacity relative to demand at a given time

Resources (staff, facilitates and equipment) underutilised
Lack of customers may create negative image/atmosphere
Productivity decreases
Profitability suffers
Customers receive excellent individual service
Customers have full use of the facilities
No waiting/queues

An Important Distinction

OC: the number of customers that can be effectively handled under ideal service conditions

Resources are fully employed, but not overused
Service quality can be delivered effectively

MC: the maximum number of customers a service organisation can accommodate

The absolute limit of service availability without turning customers away

NOTE: Maximum capacity can be the same as optimum capacity

Perishability Challenges

Services cannot be inventoried

Managing supply and demand is a challenge

Service recovery is more difficult than with physical goods

Inventory Demand: keeping customers in stock

Ask customers to wait in line (queue), usually on a first-come, first-served basis
http://www.sameolelinedudes.com

https://www.youtube.com/watch?v=9lDdSvZX-fo&list=PLqpBJ9DtSj_4hLeSB8ws0SOD16v8GldUO&index=124

People hate waiting: market for people waiting in line for you.

Reservation used to estimate overall needed capacity

to make sure every individual consumer need is answered; different thing.

Is waiting always bad for business? Not if waiting is part of the experience:

Schwartz Thhings worth waiting for.AND Thhings worth waiting for.AND Thhings worth waiting for.AND Evidnece that waiting increase value of the product

Keeping customers in stock: The Psychology of Waiting

There are 8 Principles:

1) Unoccupied waits feel longer than occupied waits

2) Preprocess waits feel longer than in-process waits

3) Anxiety makes the wait 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 waits

7) The more valuable the service, the longer the customer will wait

8) Solo waits are longer than group waits

Inventory Demand: keeping customers in stock

Offer customers the opportunity to reserve or book capacity in advance

Reservation used to estimate overall needed capacity

to make sure every individual consumer need is answered; different thing.

Thhings worth waiting for.AND Thhings worth waiting for.AND Thhings worth waiting for.AND

Development of service recovery strategies

When is waiting a service failure?

How bad can it be?

How can ‘lost time’ be fixed?

Reservation used to estimate overall needed capacity

to make sure every individual consumer need is answered; different thing.

Thhings worth waiting for.AND Thhings worth waiting for.AND Thhings worth waiting for.AND

Managing demand and supply: Understanding Demand Patterns

Predictable Cycles
e.g., theme parks can expect more customers during school holidays

Random Demand Fluctuations
e.g., increase in insurance claims after Black Saturday

Demand Patterns by Segment
e.g., 9-5 office workers versus housewives/househusbands

In order to prepare for possible demand fluctuations, firms need to monitor demand levels Hourly, daily, weekly, monthly, or seasonally…?

Some More Examples

Hairdressers might get busier at lunchtimes, evenings, or at weekends

Gyms might expect more members to join after the Christmas period

Restaurants may be busier around Valentine’s Day / Christmas / Easter

Strategies for Shifting Demand to Match Capacity

Take no action
Let customers sort it out

Reduce demand
Higher prices
Communication encouraging use of other time slots

Increase demand
Lower prices
Communication, including promotional incentives
Vary product features to increase desirability
More convenient delivery times and places

Inventory demand by formalised queuing
Priority systems for most desirable segments
Shift customers to off-peak or future peak

Inventory demand by reservation system
Overide for most desirable segments
Waiting strategies required
Predict wait periods accurately

Reshaping Demand Using the 4Ps

Lower prices / other costs
e.g., student / backpacker discounts at Toni & Guy
on Mon-Tues-Wed

Promotion and education, including communication of promotional incentives
e.g., ‘book early for Mothers
Day’ at restaurants

Vary product features
e.g., off-peak gym
memberships

More convenient delivery
times and places
e.g., online service delivery;
later/earlier opening times

Capacity is Constrained by Four Factors: FELT (1)

Equipment

Physical equipment used to process people, possessions, or information, or to assist in delivering service

e.g., treadmills at a gym

Solution(s): Equipment hire for busy periods; Lease your own equipment in times of low demand

Facilities

The actual building or location from which the service may be offered

e.g., hotels have a limited number of rooms to sell every night

Solution(s): sharing facilities (but this is not appropriate for ALL firms)

Firms can be affected by multiple constraints at any one time

Solutions adopted may differ dependent on demand levels (high or low)

Capacity is Constrained by Four Factors: FELT (2)

Labour

e.g., employees (part-time, full-time, casual)

Solution(s): more flexible allocation of labour hour, OR reduce the amount of interaction staff have with customers by externalizing labor time to customers (e.g., automated customer service)

Time

The hours during which the service is available.

Solution(s): Increase retail times (e.g., Christmas shopping hours); Reduce retail times (e.g., Café 80 closed early January)

Labor: Employ casual (or part-time) staff; Cross-train employees OR allow staff to specialise in one role; Increase working hours OR encourage staff to work overtime; Outsourcing — recruitment firms

Strategies for Adjusting Capacity to Match Demand

Stretching capacity level

Offer inferior extra capacity at peaks (e.g., standing room on public transport)
Use facilities for longer/shorter periods
Reduce amount of time spent in process by minimising slack time

Schedule downtime during periods of low demand

Cross-train employees

Use part-time employees

Invite customers to perform self-service

Ask customers to share

Create flexible capacity

Rent or share extra facilities and equipment

What is the limiting factor for this service capacity element:

An airplane pilot?

An airplane:?

A night club?

Dorada Tennis Club case study: introduction

Context: booming costal resort in Florida faces increasing demand for tennis courts from guests and visitors:
The number of guests and visitors is growing
The popularity of tennis among guests and visitors is growing
Demand for tennis is highly seasonal (peak demand in March and April)

Issues: how to match capacity with demand in the future?

Dorada Tennis Club case study: Table A – court usage statistics, 2004-2007

Table A Court Usage Statistics (2004-2007: 2007 and Dec. 2006 projected)
Year	Court Usage (by court hour)	% Capacity Utilization (actual + potential court hours)
2004	2,789	18.4
2005	6,101	25.9
2006	16,510	34.8
2007	32,816	47.3

Dorada Tennis Club case study: Exhibit 2 Monthly Capacity of a PD Court, 12 Months Ending December 2006.

Dorada Tennis Club case study: Exhibit 3 Court Hours Used and Guest Nights, 15 Months Ending January 2007

Dorada Tennis Club case study: Exhibit 5 Projected Guest-Nights at the Playa Dorada Beach & Resort, 2007-2008

Dorada Tennis Club case study: Possible approaches

Shift demand?

Increase capacity?

step 1: determine the effect of seasonality on capacity surplus (extra cost) and capacity deficit (lost business) at current capacity

step 2: determine the effect of seasonality on capacity surplus (extra cost) and capacity deficit (lost business) at increased capacity (4 courts)

Shift demand
Price
Increase capacity
Build more courts
How many more tennis courts to meet expected demand?