Svc Marketing Ch.9

Four conditions potentially faced by fixed-capacity services
excess demand; demand exceeds optimum capacity; optimum capacity; excess capacity
Manage capacity by
stretch capacity – squezze more people into a given capacity; adjust capacity to more closely match demand
Manage demand
use marketing strategies to smooth out peaks, fill in valleys
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
– Labor
– Infrastructure
Stretch and shrink capacity by
-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
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
Demand Varies by Market Segment
• Keep good records of transactions to analyze demand patterns
– Sophisticated software can help to track customer consumption
• Record weather conditions and other special factors that might
influence demand
Underlying Causes of
Cyclical Variations
• billing or tax
• pay days
• school hours/holidays
• seasonal climate changes
• public/religious holidays
• natural cycles
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
– Variations in net profitability for each completed transaction
Alternative Demand Management Strategies
take no action; reduce demand (higher prices or communication encouraging use of other time slots); increase demand; inventory demand by formalized queuing or reservation system
Marketing Strategies Can Reshape Some Demand
Use price and nonmonetary 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
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
Reduce waiting time by
– Rethinking the design of the queuing system
– Installing reservations system
– Tailoring queuing system to different market segments
– Managing customer behavior and their perceptions of the wait
– Redesigning processes to shorten the time of each transaction
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
Allocate queues based on:
• Urgency of job
• Duration of service transaction
• Payment of premium price
• Importance of customer
Ten Propositions to Make Waiting More Bearable
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
Ten Propositions to Make Waiting More Bearable
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
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
reservation 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
When firms overbook to increase yield,
Victims of over-booking should be compensated to preserve the

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