Service Marketing

SEMESTER 3
By
Prof. Sachin Khare
Managing demand, capacity and service assets
 Overview of Chapter
• Fluctuations in Demand Threaten Service Productivity
• Managing Capacity
• Analyze Patterns of Demand
• Managing Demand
• Inventory Demand through Waiting Lines and
Reservations
• Perceptions of Waiting Time
• Inventory Demand Through a Reservations System
Fluctuations in Demand
Threaten Service
Productivity
 From Excess Demand to Excess Capacity

Four conditions potentially faced by fixed-capacity services:

• Excess demand
• Level of demand exceeds maximum available capacity
• Customers are denied service and business is lost
• Demand exceeds optimum capacity
• No one is turned away
• Optimum capacity
• Point beyond which service quality declines as more customers
are serviced
• Excess capacity
• Too much capacity relative to demand at a given time
• Low usage also poses a risk, customers may have doubts about
the viability of the service
Variations in Demand Relative to Capacity
Addressing Problem of Fluctuating Demand
Two basic approaches:
• 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
• Many firms use a mix of both approaches
Managing Capacity
 What is Productive Capacity?
• Productive capacity can take several forms in services
• Physical facilities designed to contain customers
(Medical clinics, hotels, college classrooms
• Physical facilities designed for storing or processing
goods (Parking Lots)
• Physical equipment used to process people,
possessions, information (airport security detectors)
• Labor (call center staff need to be sufficient)
• Infrastructure (Congested airways- air traffic
restriction)
• Financial success in businesses that are limited in
capacity depends largely on how capacity is used
 Alternative Capacity Management
Strategies
• Capacity is fixed, but more people are served at the 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

• Chase demand (adjust capacity to match demand)

Adjusting Capacity to Match
Demand
• 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
• Measures of capacity utilization include the number of hours that
facilities , labor, and equipment are productively employed in revenue
operation
• And the units of available space( e.g., seats, telecommunications
bandwidth) that is utilized in revenue operations
• Human beings tend to be far more variable than equipment in their
ability to sustain consistent levels of output over time
Analyze Patterns
of Demand
Demand Varies by Market Segment
• Demand may seem random, but analysis may reveal a
predictable demand cycle for different segments
• 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
Predictable Demand Patterns and
Their Underlying Causes
Predictable Underlying Causes
Cycles of
of Demand Cyclical Variations
• day • employment
Levels
• week • billing or tax payments/refunds
• month • pay days
• year • school hours/holidays
• other • seasonal climate changes
• public/religious holidays
• natural cycles
 Predictable Demand Patterns and
Their Underlying Causes

• Underlying causes of randomly changing demand levels

• Weather
• Health problems
• Accidents, Fires, Crime
• Natural disasters
Disaggregate demand by market segment
for a particular service over time
Use patterns by particular type of
customer or for a particular purpose
Variations in net profitability for each
completed transaction
Managing Demand
 Alternative Demand Management Strategies

• 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 reservation system
• Inventory demand by formalized queuing
Marketing Strategies Can Reshape
Some Demand Patterns
• Use price and other 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
 Inventory Demand Through
Waiting Lines and Reservations
When Demand Exceeds Supply

Steps to take to inventory demand (keep for use later)

• Asking customers to wait in line (queue), usually on a
first-come first-served basis
• Offering customers the opportunity to reserve or book
capacity in advance
 Waiting In Line
• Almost nobody likes to wait
• An average person may spend up to 30 minutes/day
waiting in line—equivalent to 20 months in an 80 year
lifetime
• Not all queues take physical waiting in a single location
• Queues may be physical but geographically dispersed
• Some are virtual
Alternative Queuing Configurations
 Virtual Waits
• One problem of waiting is the waste of customers’
time
• Virtual queues can eliminate the need to wait
• Customers register their place in line on a computer,
which estimates the time they need to reach the front
of the virtual line, customers then return later to claim
their place
Perceptions of
Waiting Time
Ten Propositions to Make Waiting More
Bearable
[Link] time feels longer than occupied time
[Link] waits feel longer than group waits
[Link] uncomfortable waits feel longer than
comfortable ones
[Link]- and post-process waits feel longer than in-
process waits
[Link] waits are longer than explained waits
Ten Propositions to Make Waiting More
Bearable
[Link] waits seem longer than familiar ones
[Link] waits are longer than known, finite waits
[Link] waits are longer than fair waits
[Link] makes waits seem longer
[Link] will wait longer for more valuable services
 Inventory Demand
Through a
Reservations System
 Benefits of Reservations
• Controls and smoothens demand
• Data captured helps organizations
• Prepare financial projections
• Plan operations and staffing levels
• Benefits businesses. Allows management to make sure
some time is kept free for emergency jobs
• Pre-sells service
• Informs and educates customers in advance of arrival
• Saves customers from having to wait in line for service (if
reservation times are honored)
Characteristics of Well-Designed
Reservations System
• Fast and user-friendly for customers and staff

• Answers 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
Reservations Strategies Should
Focus on Yield
• Decisions need to be based on good information
• Detailed record of past usage
• Supported by current market intelligence and good
marketing sense
• Realistic estimate of changes of obtaining higher rated
business
• When firms overbook to increase yield,
• Victims of over-booking should be compensated to preserve
the relationship
Summary– Balancing Demand and
Productive Capacity
• At any moment in time, a fixed-capacity service may face
• Excess demand
• Demand exceeding optimum capacity
• Demand and supply well-balanced at the level of
optimum capacity
• Excess capacity
 Summary– Balancing Demand and
Productive Capacity
• Productive resources are used for creating goods and services; when
facing capacity constraints, firms can consider
• Stretching or shrinking capacity levels
• Adjusting capacity to match demand
• To determine what factors govern demand, firms need to
• Divide demand by market segments
• Understand patterns of demand
Summary– Balancing Demand and
Productive Capacity
• Five basic ways to manage demand

• Take no action

• Reduce demand in peak periods

• Increase demand in low periods

• Inventory demand using a queuing system

• Inventory demand using a reservations system

 Summary– Balancing Demand and
Productive Capacity
• Demand levels can be reshaped by marketing strategies

• Use price and other costs to manage demand

• Change product elements
• Modify place and time of delivery
• Use promotion and education
Summary of Balancing Demand and
Productive Capacity
• Waiting is a universal phenomenon. Waits can be
reduced by
• Rethinking the design of the queuing system
• Redesigning the processes to shorten the time of
each transaction
• Managing customers’ behavior and their
perceptions of the wait
• Installing a reservation system
• An effective reservations system
• Enables demand to be controlled and smoothed in
manageable way