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Chapter 3

Services marketing planning and strategy

Balancing demand and capacity

Chapter contents
• An overview of services marketing planning and
strategy: differentiation and positioning strategy
• Characteristics of the service demand
• Managing supply and demand in services
business

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Services marketing planning

• Marketing planning is simply a logical sequence and a

series of activities leading to the setting of marketing
objectives and the formulation of plans for achieving them.

Developing a
Service marketing planning
- Size Define, Analyze
MARKET - Composition
ANALYSIS Market Segments
- Location
- Trends
Select
Target Segments
To Serve

INTERNAL - Resources
Marketing
- Reputation Articulate
ANALYSIS Desired Position Action
- Constraints
in Market Plan
- Values

Select Benefits
to Emphasize
to Customers
- Strengths
COMPETITIVE - Weaknesses Analyze
ANALYSIS - Current Possibilities for
Positioning Differentiation
Source: Adapted from Michael R. Pearce

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Matching Marketing Concept with Operations Concept

Corporate Objectives
and Resources
Marketing Assets Operating Assets
(Customer Base, Mkt. Knowledge, (Facilities/Equipment, IT Systems,
Implementation Skills, Brand Reput.) People, Op. Skills, Cost Structure)

Service Marketing Concept

Service Operations Concept
•Benefits to customer from core/
•Nature of processes
supplementary elements, style,
•Geographic scope of ops
service level, accessibility
•Scheduling
•User costs/outlays incurred •Facilities design/layout
•Price/other monetary costs •HR (numbers, skills)
•Time •Leverage (partners, self-service)
•Mental and physical effort •Task allocation: front/backstage
•Neg. sensory experiences Service Delivery staff; customers as co-producers

Process

Key Steps in Services marketing Planning:

Matching Opportunities to Resources
• Must relate marketing opportunities to firm’s resources
(physical, financial, technological, human….)
• Identify, evaluate firm’s marketing assets
– Customer portfolio/lifetime value (customer equity)
– Market knowledge
– Marketing implementation skill
– Product line
– Competitive positioning strategies
– Brand reputation (brand equity)
• Identify, evaluate firm’s operating assets
– Physical facilities, equipment
– Technology and systems (especially IT)
– Human resources (numbers, skills, productivity)
– Leverage through alliances and partnerships
– Potential for customer self service
– Cost structure

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STP – the strategic aspects of services marketing

Segmenting : commonly used segmentation variables:

Segment selection or Market Targeting

Search for Competitive Advantage in Services
Requires Differentiation and Focus
▪ Intensifying competition in service sector threatens
firms with no distinctive competence and
undifferentiated offerings
▪ Slowing market growth in mature service industries
means that only way for a firm to grow is to take
share from competitors
▪ Rather than attempting to compete in an entire
market, firm must focus efforts on those customers
it can serve best
▪ Must decide how many service offerings with what
distinctive (and desired) characteristics

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Standing Apart from the Competition

A business must set itself apart from its

competition.
To be successful it must identify and promote
itself
as the best provider of attributes that are
important to target customers

GEORGE S. DAY

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Basic Focus Strategies for Services

BREADTH OF SERVICE OFFERINGS

Narrow Wide

Unfocused
Service (Everything
Many Focused for everyone)
NUMBER
OF MARKETS
SERVED
Fully Focused
Market
(Service and
Focused
Few market focused)

Source: Robert Johnston

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Four Principles of Positioning Strategy

1. Must establish position for firm or product in

minds of customers
2. Position should be distinctive, providing one
simple, consistent message
3. Position must set firm/product apart from
competitors
4. Firm cannot be all things to all people--must
focus
Jack Trout

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Uses of Positioning in
Marketing Management

• Understand relationships between products and

markets
– compare to competition on specific attributes
– evaluate product’s ability to meet consumer
needs/expectations
– predict demand at specific prices/performance levels
• Identify market opportunities
– introduce new products
– redesign existing products
– eliminate non-performing products
• Make marketing mix decisions, respond to competition
– distribution/service delivery
– pricing
– communication

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Possible Dimensions for Developing

Positioning Strategies
• Product attributes
• Price/quality relationships
• Reference to competitors (usually shortcomings)
• Usage occasions
• User characteristics
• Product class

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Positioning of Hotels in Belleville:

Price vs. Service Level (Fig. 3.4)
Expensive

Grand
Regency
PALACE

Shangri-La
High Moderate
Service Atlantic Service
Sheraton

Italia
Castle
Alexander IV
Airport Plaza
Less Expensive

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Positioning of Hotels in Belleville:

Location vs. Physical Luxury (Fig. 3.5)
High Luxury

Regency
Grand

Shangri-La
Sheraton
PALACE
Financial Shopping District Inner
District and Convention Centre Suburbs

Castle Italia
Alexander IV
Atlantic
Airport Plaza

Moderate Luxury

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Positioning after New Hotel Construction:

Price vs. Service Level

Expensive
Mandarin
New Grand Heritage
Marriott
Continental

Action?
Regency PALACE
Shangri-La
High No action? Moderate
Service Service
Atlantic
Sheraton
Italia

Castle
Alexander IV
Less Expensive Airport Plaza

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Positioning after New Hotel Construction:

Location vs. Physical Luxury
High Luxury
Mandarin
New Grand
Continental Heritage
Marriott Regency
Sheraton Shangri-La
Action?
PALACE

Financial No action? Shopping District Inner

District and Convention Centre Suburbs

Castle Italia
Alexander IV
Atlantic
Airport Plaza

Moderate Luxury

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Positioning Maps Help Managers to

Visualize Strategy
• Positioning maps display relative performance of competing firms on
key attributes
• Research provides inputs to development of positioning maps
• Challenge is to ensure that
– attributes employed in maps are important to target segments
– performance of individual firms on each attribute accurately
reflects perceptions of customers in target segments
• Predictions can be made of how positions may change in the light of
new developments in the future
• Simple graphic representations are often easier for managers to grasp
than tables of data or paragraphs of prose
• Charts and maps can facilitate a “visual awakening” to threats and
opportunities and suggest alternative strategic directions

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Balancing Demand
and Capacity

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Variations in Demand Relative to Capacity

VOLUME DEMANDED
Demand exceeds capacity
(business is lost)
CAPACITY UTILIZED

Maximum Available Demand exceeds

Capacity optimum capacity
(quality declines)
Optimum Capacity
(Demand and Supply
Well Balanced)

Excess capacity
Low Utilization (wasted resources)
(May Send Bad Signals)

TIME CYCLE 1 TIME CYCLE 2

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Relating Demand to Capacity:

Four Key Concepts
• Excess demand: too much demand relative to
capacity at a given time
• Excess capacity: too much capacity relative to
demand at a given time
• Maximum capacity: upper limit to a firm’s ability
to meet demand at a given time
• Optimum capacity: point beyond which service
quality declines as more customers are serviced

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HOW TO BALANCE DEMAND AND

CAPACITY?

1. Capacity 2. Demand
Management Management

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1. CAPACITY MANAGEMENT
Defining Productive Capacity in Services: the resources or
assets that a firm can employ to create goods and services.
Takes several forms:
•Physical facilities to contain customers
•Physical facilities to store or process goods
•Physical equipment to process people, possessions, or
information
•Labor used for physical or mental work
•Public/private infrastructure—e.g., highways, airports,
electricity

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Alternative Capacity Management

Strategies
• Level capacity (fixed level at all times)
• Stretch and shrink
– offer inferior extra capacity at peaks (e.g. bus/metro
standees)
– vary seated space per customer (e.g. elbow room, leg room)
– extend/cut hours of service
• Chase demand (adjust capacity to match demand)
– schedule downtime in low demand periods
– use part-time employees
– rent or share extra facilities and equipment
– cross-train employees
• Flexible Capacity (vary mix by segment)

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2. DEMAND MANAGEMENT
Understanding patterns of demand
Analyzing the drivers of demand
Dividing up demand by marketing segment

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Questions about the patterns of

demand and their underlying causes

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Predictable Demand Patterns and

Their Underlying Causes
Predictable Cycles Underlying Causes of
of Demand Levels Cyclical Variations
– day – employment
– week – billing or tax payments/refunds
– month – pay days
– year – school hours/holidays
– seasonal climate changes
– other
– public/religious holidays
– natural cycles
(e.g. coastal tides)

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Causes of Seemingly Random Changes

in Demand Levels
• Weather
• Health problems
• Accidents, Fires, Crime
• Natural disasters
Question: which of these
events can be predicted?

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Alternative Demand Management Strategies

• 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
• Inventory demand by reservation system
• Inventory demand by formalized queueing

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Inventory demand by reservation system

Benefits of Effective Reservations Systems

▪ Controls and smoothes demand
▪ Pre-sells service
▪ Informs and educates customers in advance of
arrival
▪ Customers avoid waiting in line for service (if
service times are honored)
▪ Data capture helps organizations prepare
financial projections

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Characteristics of Well-designed
Reservations Systems
• Fast and user friendly for customers and staff
• Can answer customer questions
• Offers options for self service (e.g. Web)
• Accommodates preferences (e.g., room with view)
• Deflects demand from unavailable first choices to
alternative times and locations
• Includes strategies for no-shows and overbooking
– requiring deposits to discourage no-shows
– canceling unpaid bookings after designated time
– compensating victims of over-booking

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Inventory demand by formalized

Alternative Queuingqueueing
Configurations
Single line, single server, single stage

Single line, single servers at sequential stages

Parallel lines to multiple servers

Designated lines to designated servers

Single line to multiple servers (“snake”)

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“Take a number” (single or multiple servers) 30 25
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Inventory demand by formalized queueing

Avoiding Burdensome Waits for Customers

▪ Add extra capacity so that demand can be met at
most times (problem: may add too many costs)
▪ Rethink design of queuing system to give priority
to certain customers or transactions
▪ Redesign processes to shorten transaction time
▪ Manage customer behavior and perceptions of
wait
▪ Install a reservations system

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Tailoring Queuing Systems to Market Segments:

Criteria for Allocation to Designated Lines
• Urgency of job
– emergencies vs. non-emergencies
• Duration of service transaction
– number of items to transact
– complexity of task
• Payment of premium price
– First class vs. economy
• Importance of customer
– frequent users/loyal customers vs. others

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Ten Propositions on the Psychology of

Waiting Lines
1. Unoccupied time feels longer
2. Preprocess/postprocess waiting feel longer than in-
process
3. Anxiety makes waiting seem longer
4. Uncertain waiting is longer than known, finite waiting
5. Unexplained waiting seems longer
6. Unfair waiting is longer than equitable waiting
7. People will wait longer for more valuable services
8. Waiting alone feels longer than in groups
9. Physically uncomfortable waiting feels longer
10. Waiting seems longer to new or occasional users
Sources: Maister; Davis & Heineke; Jones & Peppiatt

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MARKETING STRATEGIES CAN RESHAPE SOME

DEMAND PATTERNS
Eg: Use price and other costs to manage demand
Hotel Room Demand Curves by
Price per Segment and by Season
Room Night
Bl Bh
Th Bh = business travelers in high season
Bl = business travelers in low season
Tl Th = tourist in high season

Tl = tourist in low season

Th
Bh
Bl Tl
Quantity of Rooms Demanded at Each Price
by Travelers in Each Segment in Each Season Note: hypothetical example

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Setting Capacity Allocation Sales

Targets for a Hotel by Segment and
Time Period Week 36
Week 7
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

Groups (no conventions)

Airline contracts Airline contracts

Nights: M Tu W Th F S Sn M Tu W Th F S Sn
Time

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Information Needed for Demand and

Capacity Management Strategies

• Historical data on demand level and composition, noting

responses to marketing variables
• Demand forecasts by segment under specified
conditions
• Fixed and variable cost data, profitability of incremental
sales
• Site-by-site demand variations
• Customer attitudes towards queuing
• Customer evaluations of quality at different levels of
capacity utilization

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