Post on 13-May-2015
Lecture Eight
• Balancing Demand
Against Productive
Capacity
(Chapter 9)
Service Quality MKTG 1268
1
JAN 2013 Semester
Overview of Chapter 9
Fluctuations in Demand Threaten Service Productivity
Defining Productive Service Capacity
Managing Capacity
Understanding Patterns of Demand
Managing Demand
Inventory Demand through Waiting Lines and Queuing Systems
Customer Perceptions of Waiting Time
Inventory Demand Through Reservations System
2
3
Managing Resorts Requires Effective Management of
Demand and Capacity
FLUCTUATIONS IN DEMAND
THREATEN SERVICE
PRODUCTIVITY
4
5
Carefully balancing the demands (by customers) and
the available capacity of the service firm’s resources
requires careful planning
From Excess Demand to Excess Capacity
1. Excess demand Too much demand relative to capacity at a given time
2. Demand exceeds optimum capacity Upper limit to a firm’s ability to meet demand at a
given time
3. Optimum capacity Point beyond which service quality declines as more
customers are serviced
4. Excess capacity Too much capacity relative to demand at a given time
Four conditions potentially faced by fixed-capacity services:
6
Variations in Demand Relative to Capacity (Fig. 9.3)
7
7
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 8
Managing Capacity and Demand
• Define productive capacity
• Manage capacity
Stretch capacity ― squeeze more people into a given
capacity
Adjust capacity to more closely match demand
• Understand demand
Understand patterns of demand and determine demand
drivers
• Manage demand
Use marketing strategies to smooth out peaks, fill in valleys
9
Building blocks for managing capacity and demand
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 10
What is 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 businesses that are limited in
capacity depends largely on how capacity is used
11
Defining – specifically – the
productive capacity of a
service
12
Examples of the importance of defining productive capacity
MANAGING CAPACITY
13
14
Managing Capacity – Rush Hour Crowd in
the Subway Train
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
15
Adjusting Capacity to Match Demand (Vary amount of capacity to match anticipated 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
16
17
Cross-training staff as a means of adjusting capacity to
meet demand
ANALYZE PATTERNS
OF DEMAND
18
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 19
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 (Table 9.1) (1)
day
week
month
year
other
employment
billing or tax payments/refunds
pay days
school hours/holidays
seasonal climate changes
public/religious holidays
natural cycles
Predictable Cycles of Demand Levels
Underlying Causes of Cyclical Variations
20
20 See full details in Table 9.1 on page 272 of the text
21
22
Some service jobs can be regularly scheduled –
example maintenance jobs
Predictable Demand Patterns and
Their Underlying Causes (Table 9.1) (2)
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
23
24
Understanding patterns of demand – seasonal trends in
tourist arrivals
MANAGING DEMAND
25
Alternative Demand Management Strategies (Table 9.2)
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
26
See full details in Table 9.2 on page 275 of the text
27
Alternative Demand
Management Strategies
Marketing Strategies Can Reshape Some Demand
Patterns
Use price and other costs to manage demand. If the firm understands the shape of demand curves for different market segments, then prices may be raised/lowered to discourage/attract particular segments at particular times.
Change product elements. Features may be varied according to the time of day (e.g., restaurants) or season of the year (hotels) to attract different market segments.
28
29
Marketing Mix Elements Can Be Used To Shape
Demand Patterns (Pricing)
Marketing Strategies Can Reshape Some Demand
Patterns 30
Modifying time and place of delivery to reflect changing market needs over the product demand cycle.
Use promotion and education. Signage, advertising, and promotion can be used to inform customers of peak periods (encouraging them to avoid using the service during these times, if possible) and promoting off-peak times when the service facility is less crowded and service faster.
31
Seasonal demand
for a service
32
Service Insight 9.1 : Discouraging Demand for
Non-Emergency Calls
INVENTORY DEMAND
THROUGH WAITING LINES
AND RESERVATIONS
33
When Demand Exceeds Supply
Steps to take to inventory demand (keep capacity 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
34
Why do queues exist?
35
Because number of arrivals at a facility
exceeds capacity of system to process them at
a specific point in the process
Queues are basically a symptom of
unresolved capacity management problems
36
Helping customers
avoid the hassle
of waiting lines
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
It's boring, time-wasting, and sometimes physically uncomfortable
Not all queues take physical waiting in a single location Queues may be physical but geographically
dispersed Some are virtual
37
Reduce Waiting Time By:
38
Rethinking the design of queuing system
Installing reservations system
Tailoring the queuing system to different market segments
Managing customer behavior and their perceptions of wait
Redesign processes to shorten the time of each transaction
Alternative Queuing Configurations (Fig. 9.15)
39
39
Queue Configurations:
40
Single line sequential stage queues are appropriate for small
waiting time and each stage is simple with little chances of
stand-offs.
Single line to multiple servers (snake) is always preferable
over multiple lines to multiple servers, as multiple lines may
not move at the same speed.
Designated lines to designated servers configuration are
suitable for different segments of customers and different
jobs.
Take a number approach saves from the hassles of standing
in the queue, if waiting time is too long. In the meantime
customers can do something else.
41
Different versions of queuing systems
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
See Service Insights 9.3 (page 283)
42
Queuing Systems can be Tailored to Market
Segments
Urgency of job
Emergencies vs. non-emergencies
Duration of service transaction
Number of items to transact
Complexity of task
Payment of premium price
Importance of customer
Frequent users/high volume purchasers vs. others
43
PERCEPTIONS OF
WAITING TIME
44
Ten Propositions to Make Waiting More
Bearable (1)
1. Unoccupied time feels longer than occupied time
2. Solo waits feel longer than group waits
3. Physically uncomfortable waits feel longer than comfortable ones
4. Pre- and post-process waits feel longer than in-process waits
5. Unexplained waits are longer than explained waits
Sources: Maister; Davis & Heineke; Jones &
Peppiatt Cont.
45
46
Occupying customers during waits
6. Unfamiliar waits seem longer than familiar ones
7. Uncertain waits are longer than known, finite waits
8. Unfair waits are longer than fair waits
9. Anxiety makes waits seem longer
10.People will wait longer for more valuable services
Ten Propositions to Make Waiting More
Bearable (2)
Sources: Maister; Davis & Heineke; Jones & Peppiatt
47
48
Uncertain waits create customer anxiety and stress
INVENTORY DEMAND
THROUGH A
RESERVATIONS SYSTEM
49
Benefits of Reservations
Avoid customer dissatisfaction due to excessive waits
Controls and smoothes demand
Allows implementation of revenue management and preselling of service to different customer segments
Data captured helps organizations Prepare financial projections
Plan operations and staffing levels
50
51
Reservation systems in a library
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
52
Reservations Strategies Should Focus on Yield
Yield analysis helps managers recognize opportunity cost of allocating capacity to one customer/segment when another segment might yield a higher rate later
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
53
Setting Hotel Room Sales Targets by Segment
and Time Period
54
55
Developing Loyalty Programs
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 56
Summary of Chapter 9 ― Balancing
Demand and Productive Capacity (1)
• 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
• Managing capacity and demand
Define productive capacity
Manage capacity
Understand and manage demand
Stretching or shrinking capacity levels
Adjusting capacity to match demand
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 57
Summary of Chapter 9 ― Balancing
Demand and Productive Capacity (2)
• 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
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 58
Summary of Chapter 9 ― Balancing
Demand and Productive Capacity (3)
• 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
© Pearson Education South Asia Pte Ltd 2013. All rights reserved 59
Summary of Chapter 9 ― Balancing
Demand and Productive Capacity (4)
• Waiting is a universal phenomenon. Waits can be
reduced by
Rethinking the design of the queuing system
Installing a reservation system
Tailoring queuing system to different market segments
Managing customers’ behavior and their perceptions of the wait
Redesigning the processes to shorten the time of each transaction
• An effective reservations system
Enables demand to be controlled and smoothed in manageable way
Should focus on yield
Requires information
Practice Exam Essay Question:
60
In a popular massage parlour, there are often customers waiting at the reception to get a massage because all the masseurs are already occupied / busy serving other customers.
(a) Recommend three demand and capacity management actions this massage parlour can take to respond to the above situation.
(b) Drawing on what you have learnt in relation to the psychology of waiting, how could this massage parlour make waiting more ‘bearable’ for customers?