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Chapter9.BalancingDemandandCapacityEssentialsofServicesMarketing,SecondEdition
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LO1Knowthedifferentdemandsupplysituationsthatfixedcapacityfirmsmay
face.
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LO2Describethebuildingblocksofdealingwiththeproblemoffluctuating
demand.
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LO3Understandwhatismeantbyproductivecapacityinaservicecontext.
Subscribe.
LO4Befamiliarwithbasicwaystomanagecapacity.
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LO5Understanddemandpatternsandrecognizethatdemandvariesbysegment,
(http://community.safaribooksonline.com/)
soexaminehowtopredictsegmentspecificvariationsindemand.
LO6Befamiliarwiththefivebasicwaystomanagedemand.
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LO7Understandhowtousethemarketingmixelementsofprice,product,place,
andpromotiontosmoothoutfluctuationsindemand.
LO8Knowhowtousewaitinglinesandqueuingsystemstoinventorydemand.
LO9Understandhowcustomersperceivewaitsandhowtomakewaitingless
burdensomeforthem.
LO10Knowhowtousereservationsystemstoinventorydemand.
Figure9.1.ThebeautyandsplendorofTungudalur,askiresortin
Westfjords,Iceland,isnowenjoyedallyearlong.
OpeningVignette:SummerontheSkiSlopes
Itusedtobethatskiresortsshutdownoncethesnowmeltedandnoskiingcouldbedone
ontheslopes.Thechairliftsstoppedoperating,therestaurantsclosed,andthelodgeswere
lockeduntilthenextwinter.Overtime,however,someskioperatorsrecognizedthata
mountainofferssummerpleasures,too.Theykeptlodgingandrestaurantsopenforhikers
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Chapter9.BalancingDemandandCapacityEssentialsofServicesMarketing,SecondEdition
andpicnickers.Someevenbuiltalpineslides,curvingtracksinwhichwheeledtoboggans
couldrunfromthetopofthemountaintothebase.Thiscreateddemandforticketsonthe
skilifts.
Thearrivalofthemountainbikingcrazecreatedopportunitiesforequipmentrentalsaswell
aschairliftrides.KillingtonResortinVermonthaslongencouragedsummervisitorstoride
tothetop,seetheview,andeatatthemountaintoprestaurant.Now,however,italso
enjoysabriskbusinessinrentingmountainbikesandrelatedequipment(suchashelmets).
Besidethebaselodge,whereracksofskisareavailableforrentalinwinter,thesummer
visitorcannowchoosefromrowsofmountainbikes.Usually,bikersusethespecially
equippedchairliftstocarrytheirbikesuptothetopofthemountain,andthenridethem
downmarkedtrails,but,onceinawhile,abikerwillactuallychoosetorideupthe
mountain.Serioushikersdothesametheyclimbtothetopthroughtrails,get
refreshmentsattherestaurant,andthentakethechairliftbackdowntothebase.
Mostlargeskiresortslookforavarietyofadditionalwaystoattractgueststotheirhotels
andrentalhomesduringthesummer.MontTremblantinQubec,forinstance,islocated
besideanattractivelake.Inadditiontoswimmingandotherwatersportsonthelake,the
resortoffersvisitorsactivitieslikeachampionshipgolfcourse,tennis,rollerblading,and
speciallydesignedactivitiesforchildren.Hikersandmountainbikersridetheliftsupthe
mountain.Thisisawonderfulexampleofhowservicedevelopmentandmarketing
generateddemandforotherwiseidleservicecapacity!
HikingatSnowbirdSkiandSummerResort
SkiingatSnowbirdSkiandSummerResort
Figure9.2.Keepingabalancebetweendemandandcapacityisawinwin
forbusinessownersandcustomers.
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Chapter9.BalancingDemandandCapacityEssentialsofServicesMarketing,SecondEdition
LO1
Knowthedifferentdemandsupplysituationsthatfixedcapacityfirmsmayface.
Atanygivenmoment,afixedcapacityservicemayfaceoneoffourconditions(seeFigure
9.3):
ExcessdemandThelevelofdemandexceedsmaximumavailablecapacity.Asaresult,
somecustomersaredeniedserviceandbusinessislost.
DemandexceedsoptimumcapacityNooneisturnedaway,butconditionsarecrowded,
servicequalityseemsworse,andcustomersmayfeeldissatisfied.
Demandandsupplyarewellbalancedatthelevelofoptimumcapacity.Staffandfacilities
arebusywithoutbeingoverworked,andcustomersreceivegoodservicewithoutdelays.
ExcesscapacityDemandisbelowoptimumcapacity,andproductiveresourcesarenot
fullyused,resultinginlowproductivity.Whenthereislowusage,thereisariskthat
customersmayfindtheexperiencedisappointingorhavedoubtsaboutwhetherthefirm
cansurvive.
Figure9.3.Implicationsofvariationsindemandrelativetocapacity.
Sometimes,optimumandmaximumcapacitiesareoneandthesame.Atalivetheateror
sportsperformance,afullhouseisgrand,sinceitexcitestheplayersandtheaudience.It
createsamoresatisfyingexperienceforall.Withmostotherservices,however,you
probablyfeelthatyougetbetterserviceifthefacilityisnotoperatingatfullcapacity.The
qualityofrestaurantservice,forinstance,oftenbecomesworsewheneverytableis
occupiedbecausethestaffisrushedandthereisagreaterlikelihoodoferrorsordelays.If
youaretravelingaloneinanaircraftwithhighdensityseating,youtendtofeelmore
comfortableiftheseatnexttoyouisempty.
Figure9.4showsthefourbuildingblocksthattogetherprovideanintegrativeapproachto
balancingcapacityanddemand.Theremainderofthischapterisorganizedalongthesefour
buildingblocks.
Figure9.4.Buildingblocksofmanagingcapacityanddemand.
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Chapter9.BalancingDemandandCapacityEssentialsofServicesMarketing,SecondEdition
Figure9.5.Cinemashavetofollowstrictsafetyregulationsonseating
capacityincaseoffireemergencies.
2.Physicalfacilitiesdesignedforstoringorprocessinggoodsthateitherbelongtocustomers
orarebeingofferedtothemforsale.Examplesincludepipelines,warehouses,parkinglots
(Figure9.6),andrailroadfreightwagons.
Figure9.6.Carparksstorecustomerscarstemporarilywhentheyare
outshopping.
3.Physicalequipmentusedtoprocesspeople,possessions,orinformationmayincludea
hugerangeofitemsandmaybeverysituationspecific.Examplesincludediagnostic
equipment(Figure9.7),airportsecuritydetectors,tollgates,andbankATMs.Ifthereis
notenoughequipmentcapacityforagivenlevelofdemand,itcanbringservicetoacrawl
(orevenacompletestop).
Figure9.7.Productivecapacityisexpressedintermsofavailablehoursfor
MRIscanningequipment.
4.Laborisakeyelementofproductivecapacityinallhighcontactservicesandmanylow
contactones(Figure9.8).Ifnotenoughstaffareonduty,customersmightbekeptwaiting
orservicebecomesrushed.Professionalservicesareespeciallydependentonhighlyskilled
stafftocreatehighvalueadded,informationbasedoutput.AbrahamLincolncapturedit
wellwhenhesaidthatalawyerstimeandexpertisearehisstockintrade.
Figure9.8.Restaurantsneedtoensuresufficientmanpowertomeet
customerdemands.
5.Infrastructure.Manyorganizationsaredependentonaccesstosufficientcapacityina
publicorprivateinfrastructuretobeabletodeliverqualityservicetotheirowncustomers.
Capacityproblemsofthiskindmayincludecrowdedairwaysthatleadtoairtraffic
restrictionsonflights,trafficjamsonmajorhighways,andpowerfailures(orbrownouts
causedbyreducedvoltage).
Financialsuccessinbusinessesthatarelimitedincapacitydependslargelyonhowtheir
capacityisused.Ifcapacityisalwaysusedefficientlyandprofitably,thatwouldbeideal.In
practice,however,itisdifficulttoachievethis.Demandlevelsarenottheonlyfactorsthat
changeovertime.Thetimeandeffortrequiredtoprocesseachpersonorthingmayalso
varywidelyatanypointintheprocess.Inbothprofessionalservicesandrepairjobs,
diagnosisandtreatmenttimesvaryaccordingtothenatureofthecustomersproblems.
Managing Capacity
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Chapter9.BalancingDemandandCapacityEssentialsofServicesMarketing,SecondEdition
Managing Capacity
LO4
Befamiliarwithbasicwaystomanagecapacity.
Althoughservicefirmsmayencountercapacitylimitationsbecauseofvaryingdemand,
thereareanumberofwaysinwhichcapacitycanbeadjustedtoreducetheproblem.
Capacitycanbestretchedorshrunk,andtheoverallcapacitycanbeadjustedtomatch
demand.
Figure9.9.Rushhourcrowdstretchesthecapacityoftrainservices.
Anotherwaytostretchcapacityistousefacilitiesforlongerperiods.Forexample,some
banksextendtheiropeninghoursduringweekdaysandevenopenonweekends.
Universitiesmayoffereveningandweekendclassesaswellassummersemesterprograms.
Lastly,theaverageamountoftimethatcustomers(ortheirpossessions)spendinthe
processmaybereduced.Sometimes,thisisachievedbyminimizingslacktime.For
example,arestaurantcanbuzztables,seatarrivingdiners,andpresentmenusquickly,and
thebillcanbepresentedpromptlytoagroupofdinersrelaxingatthetableafterameal.
2
Inotherinstances,itmaybeachievedbycuttingbackthelevelofservice,say,offering
asimplermenuatbusytimesoftheday.
Theseactions
startfromtheeasiesttoimplement,tothemoredifficult.
Scheduledowntimeduringperiodsoflowdemand.Tomakesurethat100%ofcapacityis
availableduringpeakperiods,maintenance,repair,andrenovationsshouldbecarriedout
whendemandisexpectedtobelow.Employeesshouldtaketheirholidaysduringsuch
periods.
Crosstrainemployees.Evenwhentheservicedeliverysystemappearstobeoperatingat
fullcapacity,certainemployeesmaynotbebusy.Ifemployeescanbecrosstrainedto
performavarietyoftasks,theycanbeshiftedtowherehelpisneededmost,thereby
increasingtotalcapacity.Insupermarkets,forinstance,themanagermaycallonstockers
tooperatecashregisterswhenlinesbecometoolong.Likewise,duringslowperiods,the
cashiersmaybeaskedtohelpstockshelves(Figure9.10).
Figure9.10.Supermarketemployeesarecrosstrainedascashiersand
stockers.
Useparttimeemployees.Manyorganizationshireextraworkersduringtheirbusiest
periods.ExamplesincludepostalworkersandretailstoreassociatesduringtheChristmas
season,extrastafffortaxpreparationservicefirmsattheendofthefinancialyear,and
additionalhotelemployeesduringholidayperiodsandformajorconferences.
Invitecustomerstoperformselfservice.Ifthenumberofemployeesislimited,capacity
canbeincreasedbyinvolvingcustomersincoproductionofcertaintasks.Onewaytodo
thisisbyaddingselfservicetechnologiessuchaselectronickiosksattheairportforairline
ticketingandcheckin,orautomatedcheckoutstationsatsupermarkets.
Askcustomerstoshare.Capacitycanbestretchedbyaskingcustomerstoshareaunitof
capacitynormallymeantforoneindividual.Forinstance,atbusyairportsandtrainstations,
ifthesupplyoftaxisisnotenoughtomeetdemand,travelersgoinginthesamedirection
maysometimesbegiventhechoiceofsharingarideatalowerrate.
Createflexiblecapacity.Sometimes,theproblemdoesnotlieinoverallcapacitybutin
themixavailabletoservetheneedsofdifferentmarketsegments.Onesolutionistodesign
physicalfacilitiestobeflexible.Forexample,thetablesinarestaurantcanbealltwo
seaters.Whennecessary,twotablescanbecombinedtoseatfourpeople,orthreetables
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combinedtoseatsix.Inanairlinecontext,anairlinemayhavetoofewseatsineconomy
eventhoughthereareemptyseatsinthebusinessclasscabinonagivenflight.When
designingits777airliner,BoeingfacedstiffcompetitionfromAirbusandwhatwere
describedasoutrageousdemandsfrompotentialcustomers.Theairlineswantedan
aircraftinwhichgalleysandlavatoriescouldberelocated,plumbingandall,toalmost
anywhereinthecabinwithinamatterofhours.Boeingmanagedtosolvethischallenging
problem.Airlinescanrearrangethepassengercabinofthe777withinhours,varyingthe
numberofseatsamongdifferentclasses.
Rentorshareextrafacilitiesandequipment.Toreducespendingonfixedassets,aservice
businessmaybeabletorentextraspaceormachinesatpeaktimes.Twofirmswith
complementarydemandpatterns,wherewhenoneishighandtheotherislow,mayenter
intoformalsharingagreements.Forexample,someuniversitiesrentoutstudent
accommodationtovisitorsduringthepeakholidayseasonwhentheirownstudentshave
theirsummerbreakandthefirstyearstudentshavenotmovedontocampusyet.
Figure9.11.Scheduledmaintenancechecksatapowerplant.
Tounderstandthepatternsofdemandbysegment,weshouldbeginbygettingsome
answerstoaseriesofimportantquestionsaboutthepatternsofdemandandtheir
underlyingcauses(Table9.1).
Table9.1.Questionsaboutdemandpatternsandtheirunderlyingcauses
Mostcyclesinfluencingdemandforaparticularservicevaryinlengthfromonedayto12
months.Inmanyinstances,multiplecyclesmayoperateatthesametime.
Forexample,demandlevelsforpublictransportmayvarybytimeofday(highestduring
commutehours),dayofweek(lesstraveltoworkonweekendsbutmoreleisuretravel),
andseasonofyear(moretravelbytouristsinsummer)(Figure9.12).Thedemandfor
serviceduringthepeakperiodonaMondayinsummerislikelytobeverydifferentfrom
thedemandduringthepeakperiodonaSaturdayinwinter.Thisshowsdayofweekand
seasonalvariationsatthesametime.Nostrategyforsmoothingdemandislikelyto
succeedunlessthefirmunderstandswhycustomersfromamarketsegmentchoosetouse
theservicewhentheydo.Forexample,ifyoutrytogetcommuterstoshifttheirtravelto
offpeakperiods,itislikelytofail.Thisisbecausetravelisdeterminedbypeoples
employmenthours.
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Figure9.12.Insummer,manytouristsflocktoCologne,Germany,totake
initsrichheritage.
Keepinggoodrecordsofeachtransactionhelpsalotwhenitcomestoanalyzingdemand
patternsbasedonpastexperience.Queuingsystemssupportedbysophisticatedsoftware
canautomaticallytrackcustomerconsumptionpatternsbytypeofcustomer,service
requested,anddateandtimeofday.Whereitisrelevant,itisalsousefultorecordweather
conditionsandotherspecialfactors(astrike,anaccident,abigconventionintown,aprice
change,thelaunchofacompetingservice,etc.)thatmighthaveinfluenceddemand.
Managing Demand
LO6
Befamiliarwiththefivebasicwaystomanagedemand.
Oncewehaveunderstoodthedemandpatternsofthedifferentmarketsegments,wecan
managedemand.Therearefivebasicapproachestomanagingdemand:
Takenoactionandleavedemandtofinditsownlevels.
Reducedemandinpeakperiods.
Increasedemandinlowperiods.
Inventorydemandusingaqueuingsystem.
Inventorydemandusingareservationsystem.
Table9.2linksthesefiveapproachestothetwoproblemsofexcessdemandandexcess
capacity.Manyservicebusinessesfacebothsituationsatdifferentpointsinthecycleof
demandandshouldconsideruseofthestrategiesdescribed.Nextinthissection,wewill
discusshowmarketingmixelementscanhelptoshapedemandlevels.Thisisfollowedby
twosectionsonhowtoinventorydemandthroughwaitinglinesandqueuingsystems,and
thenthroughreservationsystems.
Table9.2.Alternatedemandmanagementstrategiesfordifferentcapacity
situations
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Chapter9.BalancingDemandandCapacityEssentialsofServicesMarketing,SecondEdition
Figure9.13.Managersareinstrumentalinpricingaproductorservice.
Oneofthemostdirectwaystobalancesupplyanddemandisthroughtheuseofpricing.
Nonmonetarycosts,too,mayhaveasimilareffect.Forinstance,ifcustomerslearnthey
arelikelytofaceincreasedtimeandeffortcostsduringpeakperiods,thosewhodislike
spendingtimewaitingincrowdedandunpleasantconditionswilltrytocomeduringless
busytimes.Similarly,cheaperpricesmayencourageatleastsomepeopletochangethe
timingoftheirbehavior,whetheritisforshopping,travel,orsendinginequipmentfor
repair.
Forthemonetarypriceofaservicetobeeffectiveasademandmanagementtool,
managersmusthavesomesenseoftheshapeandslopeofaproductsdemandcurve.They
mustunderstandhowthequantityofservicedemandedrespondstochangesinthepriceper
unitataparticularpointintime.Itsalsoimportanttodeterminewhetherthedemand
curveforaspecificservicevariessharplyfromonetimeperiodtoanother.Forinstance,will
thesamepersonbewillingtopaymoreforaweekendstayinahotelonCapeCodin
summerthaninwinter(whentheweathercanbefreezing)?Theanswerisprobablyyes.
Ifso,verydifferentpricingschemesmaybeneededtofillcapacityineachtimeperiod.
Whencapacityislimited,however,thegoalinaprofitseekingbusinessshouldbetomake
asmuchuseofthecapacityaspossibleforthemostprofitablesegmentsatanygiventime.
Capacityavailabilitywillbeprioritizedforthefirmsmostvaluablesegments.Airlines,for
instance,holdacertainnumberofseatsforbusinesspassengerspayingfullfareandplace
manyconditionsonfaresfortourists(usingnonphysicalratefencessuchasrequiring
advancepurchaseandaSaturdaynightsstay).Thisistopreventbusinesstravelersfrom
takingadvantageofcheapfaresdesignedtoattracttouristswhocanhelpfilltheaircraft.
Pricingstrategiesofthisnatureareknownasrevenuemanagementandarediscussedin
Chapter6.
Change Product Elements
Sometimes,pricingalonewillbeineffectiveinmanagingdemand.TheOpeningVignetteis
agoodcaseinpoint.Ifthereisnosnowforskiingopportunities,noskierswouldbuylift
ticketsforuseonamidsummerdayatanyprice.Itisthesameforavarietyofother
seasonalbusinesses(Figure9.14).Thus,educationalinstitutionsofferweekendandsummer
programsforadultsandseniorcitizens.Smallpleasureboatsoffercruisesinthesummer
andadocksidevenueforprivatefunctionsinwintermonths.Thesefirmsrecognizethatno
amountofpricediscountingislikelytobringinbusinessoutofseason.Therefore,anew
serviceproducttargetedatdifferentsegmentsisneededtoencouragedemand.
Figure9.14.Bedandbreakfastinnsaredependentontheseasonaltideof
tourists.
Duringthecourseofa24hourperiod,therecanbeproductvariations.Somerestaurants
provideagoodexampleofthis.Theychangemenusandlevelsofserviceatdifferenttimes
oftheday,varylightinganddecor,andopenorclosethebar.Thegoalistoappealto
differentneedswithinthesamegroupofcustomers,toreachouttodifferentcustomer
segments,ortodoboth,accordingtothetimeofday.Productelementscanalsobe
changedtoincreasecapacityduringpeakperiods.Forexample,thelunchmenuisdesigned
tocontainonlydishesthatarefasttoprepareduringthebusylunchperiod.
Modify the Place and Time of Delivery
Ratherthantryingtochangedemandforaservicethatcontinuestobeofferedatthesame
timeinthesameplace,firmscanalsochangethetimeandplaceofdelivery.Thefollowing
basicoptionsareavailable:
Varythetimeswhentheserviceisavailable.Thisstrategyshowschangingcustomer
preferencebydayofweek,byseason,andsoon.Forexample,peopleusuallyhavemore
timetowatchmoviesonweekends.Therefore,therearemoretimeslotsforshowson
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Chapter9.BalancingDemandandCapacityEssentialsofServicesMarketing,SecondEdition
weekendsthanonweekdays.Similarly,retailersalsotendtostayopentilllateronFridays
andSaturdaysastherearemoreshoppersonthosedays.Shopsmayalsoextendtheirhours
inthedaysleadinguptoChristmasorduringschoolholidayperiods.
Offertheservicetocustomersatanewlocation.Oneapproachistooperatemobileunits
thattaketheservicetocustomers,ratherthanrequiringthemtovisitfixedsiteservice
locations.Travelinglibraries,mobilecarwashservices,inofficetailoringservices,home
deliveredmealsandcateringservices,andvansequippedwithprimarycaremedical
facilitiesareexamplesofthis.Acleaningandrepairfirmthatwishestogeneratebusiness
duringlowdemandperiodsmightofferfreepickupanddeliveryofmovableitemsthatneed
servicing.
Promotion and Education
Eveniftheothervariablesofthemarketingmixremainunchanged,communicationefforts
alonemaybeabletohelpsmoothdemand.Signage,advertising,publicity,andsales
messagescanbeusedtoeducatecustomersaboutthetimingofpeakperiodsandencourage
themtomakeuseoftheserviceatoffpeaktimeswhentherewillbefewerdelays.
ExamplesincludeUSPostalServicerequeststoMailEarlyforChristmas,and
communicationsfromsalesrepstoindustrialmaintenancefirmsadvisingcustomersof
periodswhenpreventivemaintenanceworkcanbedonequickly.Inaddition,management
canaskservicepersonnel(orintermediariessuchastravelagents)toencouragecustomers
withflexibleschedulestofavoroffpeakperiods.
Changesinpricing,productcharacteristics,anddistributionmustbecommunicatedclearly.
Ifafirmwantstoobtainaparticularresponsetovariationsinmarketingmixelements,it
must,ofcourse,informcustomersfullyabouttheirchoices.AsdiscussedinChapter7,short
termpromotionsthatcombinebothpricingandcommunicationelements,aswellasother
incentives,mayprovidecustomerswithattractiveincentivestoshiftthetimingofservice
usage.
Notalldemandisdesirable.Somedemandsareunrelatedtoafirmsserviceortakeup
moreofthefirmsservicecapacitythanisdesired.Suchundesirabledemandcanbe
discouragedthrougheducationandcommunication.Discouragingundesirabledemandmay
helptokeeppeakdemandlevelswithintheservicecapacityoftheorganization.For
example,ServiceInsights9.1showshowamarketingcampaignwasusedtoreduce
undesirabledemandforemergencyservicesandfreeupcapacity.Manycallsto911numbers
arenotreallyproblemsthatfire,police,orambulanceservicesshouldbesolving.Suchcalls
makeitdifficultfortheorganizationtorespondtotherealneedsofitstargetcustomers.
ServiceInsights9.1:DiscouragingDemandforNon
emergencyCalls
Haveyoueverwonderedwhatitsliketobethepersonwhosendsoutthe
emergencyvehiclesforanemergencytelephoneservicesuchas911?People
differwidelyinwhattheyconsidertobeanemergency.
ImagineyourselfinthehugecommunicationsroomatPoliceHeadquarters
inNewYork.Agrayhairedsergeantistalkingpatientlybyphonetoawoman
whohasdialed911becausehercathasrunupatreeandshesafraidits
stuckthere.Maam,haveyoueverseenacatskeletoninatree?the
sergeantasksher.Allthosecatsgetdownsomehow,dontthey?Afterthe
womanhashungup,thesergeantturnstoavisitorandshrugs.Thesekinds
ofcallskeeppouringin,hesays.Whatcanyoudo?Thetroubleis,when
peoplecalltheemergencynumberwithcomplaintsaboutnoisypartiesnext
door,pleastorescuecats,orrequeststoturnoffleakingfirehydrants,they
maybeslowingresponsetimestofires,heartattacks,orviolentcrimes.
Atonepoint,thesituationinNewYorkCitygotsobadthatofficialswere
forcedtodevelopamarketingcampaigntodiscouragepeoplefrommaking
inappropriaterequestsforemergencyassistancethroughthe911number.
Theproblemwasthat,whatmightseemlikeanemergencytothecallera
belovedcatstuckupatree,anoisypartythatwaspreventingatiredperson
fromgettingneededsleepwasnotalife(orproperty)threateningsituation
ofthetypethatthecitysemergencyservicesshouldbecalledontosolve.So
acommunicationscampaign,usingavarietyofmedia,wasdevelopedto
urgepeoplenottocall911unlesstheywerereportingadangerous
emergency.Forhelpinresolvingotherproblems,theywereaskedtocalltheir
localpolicestationorothercityagencies.
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Chapter9.BalancingDemandandCapacityEssentialsofServicesMarketing,SecondEdition
Figure9.15.Hertzhelpsitscustomerstoavoidthetimeandhassleof
waitinginline.
Physicalobjectswaitforprocessing,too.Customersemailssitincustomerservicestaffs
inboxes,applianceswaittoberepaired,andcheckswaittobeclearedatabank.
Ineachinstance,acustomermaybewaitingfortheoutcomeofthatworkananswertoan
email,anappliancethatisworkingagain,andacheckcreditedtoacustomersbalance.
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Chapter9.BalancingDemandandCapacityEssentialsofServicesMarketing,SecondEdition
ServiceInsights9.2:DisneyTurnsQueueManagementinto
aScience
HaveyoueverbeeninaqueueatDisneyland?Veryoften,wemaynot
realizehowlongwehavebeenwaiting,astherearemanysightstosee
whilewequeue.Wemaybewatchingavideo,lookingatothercustomers
enjoyingthemselves,orreadingthevariouspostersonthewall.Asour
waitingtimeisoccupied,wemaynotrealizethatalongtimehaspassed.
Disneyhastakenthemanagementofwaitinglinestoanotherlevel.AtWalt
DisneyWorld,thereisaDisneyOperationalCommandCenter,wherethe
techniciansaremonitoringqueuesthroughoutthethemeparktomakesure
thattheyarenottoolongandpeoplearemovingalong.Tothem,patienceis
notavirtueinthethemeparkbusiness.InsidetheCommandCenter,
computerprograms,videocameras,digitalmapsofthepark,andothertools
helptechnicianstospotwheretheremightbequeuesthataretoolong.Once
thereisawaitproblem,theywillsendastafftofixtheproblemimmediately.
Awaitproblemmaybedealtwithinseveralways.Forexample,theymay
sendaDisneycharactertoentertainthewaitingcustomers.Alternatively,they
candeploymorecapacity.Ifthereisalongqueueforaboatride,thenthey
willdeploymoreboatssothatthequeuemovesfaster.SinceDisneyWorldis
dividedintodifferentlands,ifthereislesscrowdinonelandcomparedto
another,theymayrerouteaminiparadetowardthatarea,sothatthecrowds
willfollowandthecrowddistributionbecomesmoreeven.Theyhavealso
addedvideogamestowaitareas.
WiththeCommandCenterinplace,theyhavemanagedtoincreasethe
averagenumberofridesthatavisitortoMagicKingdomnormallytakes,from
nineridestotenrides.Disneycontinuestoexperimentwithdifferenttypesof
technologytohelpthemmanagecustomerwaitingtime.Theyare
experimentingwithsmartphonetechnologyatthemomenttoseehowitcan
beusedtohelpthemtomanagewaitinglines.Disneydoesallthisinthe
hopethatcustomerswillnotbefrustratedbythewaits,andwillreturnmore
often.
Source:BrooksBarnes,DisneyTacklesMajorThemeParkProblem:
Lines,TheNewYorkTimes,December27,2010,
http://www.nytimes.com/2010/12/28/business/media/28disney.html
(http://www.nytimes.com/2010/12/28/business/media/28disney.html) ,accessedMarch12,
2012.
Figure9.16.Alternativequeueconfigurations.
Insingleline,sequentialstages,customersproceedthroughseveralservingoperations,as
inacafeteria.Somestages,however,maytakelongertoprocessthanpreviousstages.
Manycafeteriashavelinesatthecashregisterbecausethecashiertakeslongertocalculate
howmuchyouoweandtoreturnchangethantheserverstaketoplacefoodonyourplate.
Parallellinestomultipleserversoffermorethanoneservingstation.Thisallows
customerstoselectoneofseverallinesinwhichtowait.Banksandticketwindowsare
commonexamples.Thedisadvantageofthisdesignisthatlinesmaynotmoveatequal
speed.Haveyoueverchosenwhatlookedliketheshortestqueue,onlytowatchin
frustrationasotherqueuesmovedattwicethespeedofyours,justbecausesomeonein
yourlinehasacomplicatedtransaction?
Asinglelinetomultipleservers,commonlyknownasasnake,Thistypeofwaitingline
solvestheproblemoftheparallellinestomultipleserversmovingatdifferentspeeds.This
methodiscommonlyusedatpostofficesandairportcheckins(Figure9.17).
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Figure9.17.Postofficesusethesinglelinetomultipleserversapproachto
controlhumantraffic.
Designatedlinesinvolveassigningdifferentlinestocategoriesofcustomers.Examples
includeexpresslines(forinstance,for12itemsorless)andregularlinesatsupermarket
checkouts,anddifferentcheckinstationsforfirstclass,businessclass,andeconomyclass
airlinepassengers.
Takeanumbersavescustomerstheneedtostandinaqueue.Thisprocedureallowsthem
tositdownandrelax(ifseatingisavailable)ortoguesshowlongthewaitwillbeanddo
somethingelseinthemeantime.Ofcourse,customersthenrisklosingtheirplaceifearlier
customersareservedfasterthanexpected.Usersofthismethodincludelargetravel
agents,governmentoffices,andoutpatientclinicsinhospitals.
Waitlist.Restaurantsoftenhavewaitlistswherepeopleputtheirnamesdownandwait
untiltheirnameisannounced.Therearefourcommonwaysofwaitlisting:(1)partysize
seating,wherethenumberofpeopleismatchedtothesizeofthetable(2)VIPseating,
whichinvolvesgivingspecialrightstofavoredcustomers(3)callaheadseating,which
allowspeopletotelephonebeforearrivaltoholdslotsonthewaitlistand(4)largeparty
reservations.Ifcustomersarefamiliarwithwaitlistingtechniques,theyarelikelytoview
themtobefair.Ifnot,VIPseatingisviewedasespeciallyunfairbyguestswhodontenjoy
theprioritytreatment.
Companiescanuseacombinationofqueuesinthesamelocation.Forinstance,acafeteria
withasingleservinglinemightoffertwocashregisterstationsatthefinalstage(Figure
9.18).Similarly,patientsatasmallmedicalclinicmightvisitasinglereceptionistfor
registration,proceedsequentiallythroughmultiplechannelsfortesting,diagnosis,and
treatment,andconcludebyreturningtoasinglelineforpaymentatthereceptionistsdesk.
Figure9.18.Singlequeuingsystemsincafsusuallyhavemorethanone
cashregisterstations.
Researchsuggeststhatselectingthemostsuitabletypeofqueueisimportanttocustomer
satisfaction.AnatRafaeliandhercolleaguesfoundthatthewaythequeuesinawaiting
areaarelaidoutcanproducefeelingsofinjusticeandunfairnessincustomers.Customers
whowaitedinparallellinestomultipleserversreportedgreaterdissatisfactionwiththe
fairnessoftheservicedeliveryprocessthancustomerswhowaitedinasingleline(snake)
toaccessmultipleservers.Thisresultwasdespitethefactthatbothgroupsofcustomers
waitedthesameamountoftimeandwereinvolvedincompletelyfairserviceprocesses.
6
Theissueofperceivedfairnesscomesaboutbecausewaitingcustomersoftenobserve
howclosetheyaretogettingserved.Perhapsyouvewatchedresentfullyasotherdiners
whoarrivedatabusyrestaurantlaterthanyouweregivenpriorityandcuttingthequeue.
Itdoesntseemfairespeciallywhenyouarehungry!
Virtual Waits
Oneoftheproblemsofwaitinginlineisthewasteofcustomerstime.Thevirtualqueue
strategyisacreativewayoftakingthephysicalwaitingoutofthewaitaltogether.Instead,
customersregistertheirplaceinlineonacomputer,whichestimatesthetimeatwhich
theywillreachthefrontofthevirtuallineandshouldreturntoclaimtheirplace.
ServiceInsights9.3describesthevirtualqueuingsystemsusedintwoverydifferent
industries:athemeparkandacallcenter.
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ServiceInsights9.3:WaitinginaVirtualQueue
Disneyiswellknownforitseffortstogivevisitorstoitsthemeparks
informationonhowlongtheymayhavetowaittorideaparticularattraction
andforentertainingguestswhiletheyarewaitinginline.However,the
companyfoundthatthelongwaitsatitsmostpopularattractionswerestilla
majorsourceofdissatisfaction,andsocreatedaninnovativesolution.
ThevirtualqueueconceptwasfirsttestedatDisneyWorld.Atthemost
popularattractions,guestswereabletoregistertheirplaceinlinewitha
computerandwerethenfreetousethewaittimevisitingotherplacesinthe
park.Surveysshowedthatguestswhousedthenewsystemspentmore
money,sawmoreattractions,andhadsignificantlyhighersatisfaction.After
furtherrefinement,thesystemnownamedFastpasswasintroducedatthe
fivemostpopularattractionsatDisneyWorldandsubsequentlyextendedto
allDisneythemeparksworldwide.Itisnowusedbymorethan50million
guestsayear.
Fastpassiseasytouse.WhenguestsapproachaFastpassattraction,theyare
giventwoclearchoices:obtainaFastpassticketthereandreturnatthe
appointedtime,orwaitinastandbyline.Signsindicatehowlongthewaitis
ineachinstance.TousetheFastpassoption,guestsinserttheirpark
admissionticketsintoaspecialturnstileandreceiveFastpassticketsstating
returntimes.Guestshavesomeflexibilitybecausethesystemallowsthema
60minutewindowbeyondtheprintedreturntime.
JustliketheFastpasssystem,callcentersalsousevirtualqueues.Thereare
differenttypesofvirtualqueuingsystemsforcallcenters.Thefirstin,firstout
queuingsystemisverycommon.Whencallerscallin,theywillheara
messagethatinformsthemoftheestimatedwaittimeforthecalltobetaken
byanagent.Thecallercan(1)waitinthequeueandgetconnectedtoan
agentwhenhisturnarrives,or(2)choosetoreceiveacallback.Whenthe
callerchoosesthisoption,hehastoenterhistelephonenumberandtellhis
name.Hethenhangsupthephone.However,hisvirtualplaceinthequeue
iskept.Whenheisnearlyattheheadofthequeue,thesystemcallsthe
customerbackandputshimattheheadofthequeuewhereanagentwill
attendtohimnext.Inbothsituations,thecustomerisunlikelytocomplain.In
thefirstsituation,itistheirchoicetowaitinthequeue,andthepersoncan
stilldosomethingelseashealreadyknowstheestimatedwaittime.Inthe
secondsituation,thepersondoesnothavetowaitforverylongbefore
reachinganagent.Thecallcenteralsobenefitsbecausetherearefewer
frustratedcustomersthatmaytakeupthevaluabletimeoftheagentsby
complainingabouthowlongtheyhavetowait.Inaddition,firmsalsoreduce
abortedormissedcallsfromcustomers.
Source:DuncanDickson,RobertC.Ford,andBruceLaval,Managing
RealandVirtualWaitsinHospitalityandServiceOrganizations,Cornell
HotelandRestaurantAdministrationQuarterly46,February2005,5268
VirtualQueue,Wikipedia,www.en.wikipeidao.org/wiki/virtual_queuing
(http://www.en.wikipeidao.org/wiki/virtual_queuing) ,accessedMarch12,2012.
Theconceptofvirtualqueueshasmanypotentialapplications.Cruiseships,allinclusive
resorts,andrestaurantscanallusethisstrategyifcustomersarewillingtoprovidetheircell
phonenumbersorremainwithinbuzzingrangeofafirmoperatedpagersystem.
Infact,ithasbeenfoundthatifcustomersare
dissatisfiedwiththewait,theymustbemoresatisfiedwiththeservicetohavethesame
levelofloyaltyascustomerswhoweresatisfiedwiththewait.
ofwaitingtomakewaitslessstressfulandunpleasantforcustomers(Figure9.19).
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Figure9.19.Whilewaiting,timecanseemtopassveryslowly.
Unoccupiedtimefeelslongerthanoccupiedtime.Whenyouaresittingaround
withnothingtodo,timeseemstocrawl.Servicefirmsshouldgivecustomerssomethingto
doortodistractthemwhilewaitingsotheyarelessbored(Figure9.20).Forexample,
BMWcarownerscanwaitincomfortinBMWservicecenterswherewaitingareasare
furnishedwithdesignerfurniture,plasmaTVs,WiFihotspots,magazines,andfreshly
brewedcappuccinos.Manycustomersevenbringtheirownentertainmentintheformofa
cellphonewithmessagingandgames,oraniPad.
Figure9.20.Keepingoccupiedbyreadingmagazineswillmakethewaitfor
thespatreatmentfeelshorter.
Solowaitsfeellongerthangroupwaits.Itisnicetowaitwithpeoplewhomyou
know.Talkingtofriendsisonewayofhelpingtopassthetimewhilewaiting.
Physicallyuncomfortablewaitsfeellongerthancomfortablewaits.Myfeet
arekillingme!isoneofthemostoftenheardcommentswhenpeopleareforcedtostandin
lineforalongtime.Whethertheyareseatedorstanding,waitingisunpleasantifthe
temperatureistoohotortoocold,oriftheresnoprotectionfromrainorsnow.
Preandpostprocesswaitsfeellongerthaninprocesswaits.Waitingtobuya
tickettoenterathemeparkisdifferentfromwaitingtorideonarollercoasteronceyoure
inthepark.
Unfairwaitsarelongerthanequitablewaits.Perceptionsaboutwhatisfairor
unfairsometimesvaryfromonecultureorcountrytoanother.IntheUnitedStates,
Canada,orBritain,forexample,peopleexpecteverybodytowaittheirturninlineandare
likelytogetirritatediftheyseeothersjumpingaheadorbeinggivenpriorityforwhat
seemstobenogoodreason.Whenpeopleperceivethatwaitingisfair,itreducesthe
negativeeffectofwaiting.
Unfamiliarwaitsseemlongerthanfamiliarones.Peoplewhouseaserviceoften
knowwhattoexpectandarelesslikelytoworrywhilewaiting.Neworoccasionalusers
willoftenwondernotonlyaboutthelengthofthewaitbutalsoaboutwhatwillhappen
next.
Uncertainwaitsarelongerthanknown,finitewaits.Althoughanywaitmaybe
frustrating,weusuallycanadjustiftheyknowhowlongtheyareexpectedtowait.Imagine
waitingforadelayedflightandnotbeingtoldhowlongthedelayisgoingtobe(Figure
9.21).Youdontknowwhetheryouhavethetimetogetupandwalkaboutintheterminal
orwhethertostayatthegateincasetheflightiscalledanyminute.
Figure9.21.Uncertainwaitforadelayedflightcancausefrustration.
Unexplainedwaitsarelongerthanexplainedwaits.Haveyoueverbeenina
subwayoranelevatorthathasstoppedfornoapparentreason,withoutanyonetellingyou
why?Inadditiontouncertaintyaboutthelengthofthewait,theresaddedworryabout
whatisgoingtohappen.Hastherebeenanaccidentontheline?Willyoubestuckforhours
withstrangers?
Anxietymakeswaitsseemlonger.Canyourememberwaitingforsomeonetoshow
upatthearrangedmeetingtime,andworryingaboutwhetheryouhadgottenthetimeor
locationcorrect?Whilewaitinginunfamiliarlocations,especiallyoutdoorsandatnight,
peopleoftenworryabouttheirpersonalsafety.
Themorevaluableorimportanttheservice,thelongerpeoplewillwait.
Peoplewilloftenqueueupovernightunderuncomfortableconditionstogetgoodseatstoa
majorconcertorsportseventthatisexpectedtoselloutfast.
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inventorydemand(Figure9.22).Asksomeonewhatservicescometomindwhenyoutalk
aboutreservationsand,mostlikely,theywillciteairlines,hotels,restaurants,carrentals,
andtheaters.Suggesttermswithsimilarmeaningsasbookingsorappointmentsand
theymayaddhaircuts,visitstoprofessionalssuchasdoctorsandconsultants,vacation
rentals,andservicecallstofixanythingfromabrokenrefrigeratortoaneuroticlaptop.
Therearemanybenefitsinhavingareservationsystem:
Figure9.22.Mostlibrarieshaveareservationsystemforbooks,
magazinesandaudiovisualmaterials.
Customerdissatisfactionduetoexcessivewaitscanbeavoided.Oneaimofreservationsis
toguaranteethatservicewillbeavailablewhencustomerswantit.Customerswhohold
reservationsshouldbeabletoavoidqueuesbecausetheyhavebeenguaranteedserviceata
specifictime.
Reservationsallowdemandtobecontrolledandsmoothedoutinamoremanageable
way.Awellorganizedreservationsystemallowstheorganizationtochangedemandfor
servicefromafirstchoicetimetoearlierorlatertimes,fromoneclassofservicetoanother
(upgradesanddowngrades),andevenfromfirstchoicelocationstoalternativeones.In
thisway,therecanbehighercapacityutilization.
Reservationsystemsallowtheimplementationofrevenuemanagementandpresellingof
aservicetodifferentcustomersegments(seeChapter6onrevenuemanagement).For
example,requiringreservationsfornormalrepairandmaintenanceallowsmanagementto
makesurethatsometimewillbekeptfreeforhandlingemergencyjobs.Sincetheseare
unpredictable,higherpricescanbechargedandthesebringwiththemhighermargins.
Datafromreservationsystemsalsohelporganizationstoprepareoperationaland
financialprojectionsforfutureperiods.Systemsvaryfromasimpleappointmentbookusing
handwrittenentriesforadoctorsoffice,toacentral,computerizeddatabankforanairlines
globaloperations.
Thechallengeindesigningreservationsystemsistomakethemfastanduserfriendlyfor
bothstaffandcustomers.Manyfirmsnowallowcustomerstomaketheirownreservations
onaselfservicebasisviatheirwebsites.Whethertalkingwithareservationagentor
makingtheirownbookings,customerswantquickanswersaboutwhetheraserviceis
availableatapreferredtimeandatwhatprice.Theyalsoappreciateitifthesystemcan
providefurtherinformationaboutthetypeofservicetheyarereserving.Forinstance,cana
hotelassignaspecificroomonrequest?Orcanitatleastassignaroomwithaviewofthe
lakeratherthanonewithaviewoftheparkinglot?Somebusinessesnow,infact,chargea
feeformakingareservation(seeServiceInsights9.4).NorthwestAirlinescharges$15to
reservesomeofthemostdesirableeconomyclassseats,andAirCanadacharges$12for
11
advancedseatreservationsoncertainflights.
Ofcourse,problemsarisewhencustomersfailtoshoworwhenservicefirmsoverbook.
Marketingstrategiesfordealingwiththeseoperationalproblemsincluderequiringa
deposit,cancelingnonpaidreservationsafteracertaintime,andprovidingcompensationto
victimsofoverbooking(seeChapter6onrevenuemanagement).
ServiceInsights9.4:PaytoGetThatHardtoGetTable
Reservation!
PrimeTimeTablesisanexclusiveonlinecompanythathelpscustomerstoget
tablereservations.Whatissospecialaboutthat?Well,PrimeTimeTablesis
abletogetreservationsatthemostpopulardiningspots,whereonlypeople
whoaresomebodyorhavetherightconnectionscansecureatable.Manyof
thosereservationsarenotopentotheordinarydiner.Thecompanyisableto
getatableonaspecificdayandonshortnotice.Currently,thecompany
focusesonareaswhereitisdifficulttogetreservations,namelyNewYork
City,Philadelphia,andtheHamptons.Individualspayamembershipfeeof
$500tojoinand$45foreachreservationmade.
PascalRiffaud,theentrepreneurbehindthisidea,isthepresidentof
PersonalConciergeInternational,aleadingcompanyprovidingexclusive
conciergeservicesintheUnitedStates.Duringhisworkexperienceas
PresidentofPersonalConcierge,Riffaudbuiltalargenetworkofcontacts
withexclusiverestaurants,allowinghimtoobtainthosehardtoget
reservations.
Hisclientsweredelightedwithhisserviceandkeptfloodinghimwith
requestsforreservations.However,therehavebeenprotestsfromrestaurant
ownerswhofeelheisupsettingtheirreservationsmanagementsystemsand
sellingtheirtables.EventhoughRiffauddoescancelunsoldreservations,
restaurantownersfeelthesecouldhavebeensoldtoothercustomerswho
reallywantedatable.Restaurantsmayhavetorethinkthewaytheyhandle
reservations!
Source:K.Severson,Now,for$45,anInsidersAccesstoHotTables,
TheNewYorkTimes,31,January2007,available:
http://www.primetimetables.com(http://www.primetimetables.com) ,accessed
March12,2012.
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areofgreatestvalueforservicefirmsthatfinditexpensivetomodifytheircapacitybut
12
incurrelativelylowcostswhentheysellanotherunitofavailablecapacity.
Yieldanalysisforcesmanagerstorecognizetheopportunitycostofsellingcapacityfora
givendatetoacustomerfromonemarketsegmentwhenanothermightsubsequently
yieldahigherrate.Thinkaboutthefollowingproblemsfacingsalesmanagersfordifferent
typesofserviceorganizationswithcapacitylimitations:
Shouldahotelacceptanadvancebookingfromatourgroupof200roomnightsat$140
eachwhensomeofthesesameroomnightsmightpossiblybesoldlateratshortnoticeto
businesstravelersatthefullpostedrateof$300?
Shouldarailroadwith30emptyfreightcarsacceptanimmediaterequestforashipment
worth$1,400percar,orholdthecarsforafewmoredaysinthehopeofgettingpriority
shipmentthatwouldbetwiceasvaluable?
Shouldaprintshopprocessalljobsonafirstcome,firstservedbasis,withaguaranteed
deliverytimeforeachjob,orshoulditchargeapremiumrateforrushwork,andtell
customerswithstandardjobstoexpectsomevariabilityincompletiondates?
Decisionsonsuchproblemsneedtobehandledwithinformation.Goodinformation,based
ondetailedrecordkeepingofpastusageandsupportedbycurrentmarketintelligence,isthe
keytoallocatingtheinventoryofcapacityamongdifferentsegments.Thedecisiontoaccept
orrejectbusinessshouldbebasedonrealisticestimatesoftheprobabilitiesofobtaining
higherratedbusinessandawarenessoftheneedtomaintaincurrentcustomer
relationships.Informationmayhavetobecollectedthroughspecialstudies,suchas
customersurveysorreviewsofsimilarsituations.Itmayalsobenecessarytocollect
informationoncompetitiveperformancebecausechangesinthecapacityorstrategyof
competitorsmayrequirecorrectiveaction.
Whennewstrategiesareunderconsideration,operationsresearchersoftencancontribute
usefulinsightsbydevelopingsimulationmodelsoftheeffectofchangesindifferent
variables.Suchanapproachisparticularlyusefulinservicenetworkenvironments,suchas
themeparksandskiresorts,wherecustomerscanchoosebetweenmultipleactivitiesatthe
samesite.MadeleinePullmanandGaryThompsonmodeledcustomerbehaviorataski
resort,whereskierscanchoosebetweendifferentliftsandskirunsofvaryinglengthsand
levelsofdifficulty.Throughanalysis,theywereabletofindoutthepotentialfutureeffectof
liftcapacityupgrades(biggerorfasterchairlifts),capacityexpansionintheformofmore
landforskiing,industrygrowth,daytodaypricevariations,customerresponseto
13
informationaboutwaittimesatdifferentlifts,andchangesinthecustomermix.
Figure9.23showscapacityallocationinahotelsetting.Demandfromdifferenttypesof
customersvariesnotonlybydayoftheweekbutalsobyseason.Theseallocationdecisions
bysegmentarecapturedinreservationdatabasesthatareavailableworldwide.Theytell
reservationpersonnelwhentostopacceptingreservationsatcertainprices,eventhough
manyroomsmaystillremainunbooked.Loyaltyprogrammembers,whoaremainly
businesstravelers,areobviouslyaverydesirablesegment(Figure9.24).
Figure9.23.Settingcapacityallocationtargetsbysegmentforahotel.
Figure9.24.Somebankswillworkwithairlinestoofferairmailsloyalty
creditcardtobusinesstravelers.
Similarchartscanbedrawnformostbusinesseswithcapacitylimitations.Insome
instances,capacityismeasuredintermsofseatsforagivenperformance,seatmiles,or
roomnights.Inotherinstances,itmaybeintermsofmachinetime,labortime,billable
professionalhours,vehiclemiles,orstoragevolume.
Chapter Summary
LO1Atanyonetime,afirmwithlimitedcapacitycanfacedifferentdemand
supplysituations:excessdemand,demandthatexceedsidealcapacity,wellbalanced
demandandsupply,orexcesscapacity.
Whendemandandsupplyarenotinbalance,firmswillhaveidlecapacityduringlow
periods,buthavetoturnawaycustomersduringpeakperiods.Thissituationpreventsthe
efficientuseofproductiveassetsanderodesprofitability.
Firmsthereforeneedtotryandbalancedemandandsupplythroughadjustingcapacity
and/ordemand.
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LO2Thebuildingblocksforeffectivecapacityanddemandmanagementare:
Defineproductivecapacity.
Usecapacitymanagementtools.
Understanddemandpatternsanddriversbyacustomersegment.
Usedemandmanagementtools.
LO3Whenwerefertomanagingcapacity,weimplicitlymeanproductive
capacity.
Thereareseveraldifferentformsofproductivecapacityinservices:physicalfacilitiesfor
processingcustomersphysicalfacilitiesforprocessinggoodsphysicalequipmentfor
processingpeople,possessionsorinformationandlaborandinfrastructure.
LO4Capacitycanbemanagedinanumberofways,including:
Stretchingcapacitysomecapacityareelasticandmorepeoplecanbeservedwiththe
samecapacitythroughcrowding(e.g.,inasubwaycar),extendingoperatinghours,or
speedingupcustomerprocessingtimes.
Adjustingcapacitytomorecloselymatchdemandby(1)schedulingdowntimeduringlow
periods,(2)crosstrainingemployees,(3)usingparttimeemployees,(4)inviting
customerstoperformselfservice,(5)askingcustomerstosharecapacity,(6)designing
capacitytobeflexible,and(7)rentingorsharingextrafacilitiesandequipment.
LO5Tomanagedemandeffectively,firmsneedtounderstanddemandpatterns
anddriversbymarketsegment.Differentsegmentsoftenexhibitdifferentdemand
patterns(e.g.,routinemaintenanceversusemergencyrepairs).Oncefirmshavean
understandingofthedemandpatternsoftheirmarketsegments,theycanusemarketing
strategiestoreshapethosepatterns.
LO6Demandcanbemanagedinthefollowingfivebasicways:
Takenoaction,andleavedemandtofinditsownlevels.
Reducedemandduringpeakperiods.
Increasedemandduringlowperiods.
Inventorydemandthroughwaitinglinesandqueuingsystems.
Inventorydemandthroughreservationsystems.
LO7Thefollowingmarketingmixelementscanbeusedtohelpsmoothout
fluctuationsindemand:
Usepriceandnonmonetarycustomercoststomanagedemand.
Changeproductelementstoattractdifferentsegmentsatdifferenttimes.
Modifytheplaceandtimeofdelivery(e.g.,throughextendedopeninghours).
Promotionandeducation(e.g.,mailearlyforChristmas).
LO8Waitinglineandqueuingsystemshelpfirmsinventorydemandovershort
periodsoftime.Therearedifferenttypesofqueueswiththeirrespectiveadvantagesand
applications.Queuingsystemsincludesinglelinewithsequentialstages,parallellinesto
multipleservers,singlelinetomultipleservers,designatedlines,takinganumber,andwait
list.
Notallqueuingsystemsareorganizedonafirstcome,firstservedbasis.Rather,good
systemsoftensegmentwaitingcustomersby:
Urgencyofthejob(e.g.,hospitalemergencyunits).
Durationoftheservicetransaction(e.g.,expresslanes).
Premiumservicebasedonapremiumprice(e.g.,firstclasscheckincounters).
Importanceofthecustomer(e.g.,frequenttravelersgetprioritywaitlisting).
LO9Customersdontlikewastingtheirtimewaiting.Firmsneedtounderstand
thepsychologyofwaitingandtakeactivestepstomakewaitinglessfrustrating.We
discussed10possiblesteps,includingkeepingcustomersoccupiedorentertainedwhile
waiting,informingcustomershowlongthewaitislikelytobe,providingthemwithan
explanationofwhytheyhavetowait,andavoidingperceptionsofunfairwaits.
LO10Effectivereservationsystemsinventorydemandoveralongerperiodof
timeandofferseveralbenefits.They:
Helptoreduceorevenavoidcustomerswaitinginqueuesandtherebyavoid
dissatisfactionduetoexcessivewaits.
Allowthefirmtocontroldemandandsmoothitout.
Enabletheuseofrevenuemanagementtofocusonincreasingyieldbyreservingscarce
capacityforhigherpayingsegments,ratherthanjustsellingoffcapacityonafirstcomefirst
servebasis.
ThesekeywordsarefoundwithinthesectionsofeachLearningObjective(LO).Theyare
integraltounderstandingtheservicesmarketingconceptstaughtineachsection.Havinga
firmgraspofthesekeywordsandhowtheyareusedisessentialtohelpingyoudowellon
yourcourse,andintherealandverycompetitivemarketingsceneoutthere.
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LO11Excesscapacity
2Excessdemand
3Fixedcapacityservice
4Maximumcapacity
5Optimumcapacity
LO26Buildingblocks
7Managecapacity
8Managedemand
9Productivecapacity
10Understanddemand
LO311Equipment
12Infrastructure
13Labor
14Physicalfacilities
LO415Adjustingcapacity
16Capacitylimitations
17Chasingdemand
18Crosstrainemployees
19Downtime
20Flexiblecapacity
21Parttimeemployees
22Selfservice
23Stretchingcapacity
LO524Demandbysegment
25Demandpatterns
26Managedemand
27Patternsofdemand
28Queuingsystems
29Seasonal
LO630Fivebasicapproaches
31Increasedemand
32Inventorydemand
33Managingdemand
34Queuingsystem
35Reducedemand
36Reservationsystem
37Takenoaction
38Waitinglines
LO739Demandmanagementtool
40Nonmonetarycosts
41Placeofdelivery
42Price
43Productelements
44Promotionandeducation
45Timeofdelivery
46Undesirabledemand
LO847Snake
48Takeanumber
49Designatedlines
50Managingwaitinglines
51Multipleservers
52Parallellines
53Queueconfigurations
54Sequentialstages
55Singleline
56Virtualqueue
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57Virtualwaits
58Waitlist
LO959Equitablewaits
60Explainedwaits
61Finitewaits
62Inprocesswaits
63Occupiedtime
64Perceptionsofwaitingtime
65Postprocesswaits
66Preprocesswaits
67Psychologyofwaitingtime
68Solowaits
69Uncertainwaits
70Unexplainedwaits
71Unfairwaits
72Unfamiliarwaits
73Unoccupiedtime
LO1074Inventorydemand
75Reservationstrategies
76Reservationsystems
77Revenuemanagementsystems
78Yieldanalysis
Howwelldoyouknowthelanguageofservicesmarketing?Quizyourself!
Notfortheacademicallyfaintofheart
Foreachkeywordyouareabletorecallwithoutreferringtoearlierpages,give
yourselfapoint(andapatontheback).Tallyyourscoreattheendandseeifyou
earnedtherighttobecalledaservicesmarketeer.
Score
015ServicesMarketingisdoneagreatdisservice.
1630Themidnightoilneedstobelit,pronto.
3145Iknowwhatyoudidntdoallsemester.
4660Acloseshavewithsuccess.
6175Now,goforthandmarket.
7678Thereshouldbeamarketingconceptnamedafteryou.
KnowYourESM
ReviewQuestions
1.Whatisthedifferencebetweenidealcapacityandmaximumcapacity?
Provideexamplesofasituationwhere(a)thetwomightbethesameand(b)
thetwoaredifferent.
2.Describethebuildingblocksformanagingcapacityanddemand.
3.Whatismeantbyproductivecapacityinservices?
4.Whyiscapacitymanagementparticularlyimportantforservicefirms?
5.Whatactionscanfirmstaketoadjustcapacitytomorecloselymatch
demand?
6.Howcanfirmsidentifythefactorsthataffectdemandfortheirservices?
7.Whatactionscanfirmstaketoadjustdemandtomorecloselymatch
capacity?
8.Howcanmarketingmixelementsbeusedtoreshapedemandpatterns?
9.Whataretheadvantagesanddisadvantagesofthedifferenttypesof
queuesforanorganizationservinglargenumbersofcustomers?Forwhich
typeofservicemighteachofthequeuingtypesbemoresuitable?
10.Howcanfirmsmakewaitingmorepleasantfortheircustomers?
11.Whatarethebenefitsofhavinganeffectivereservationsystem?
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Chapter9.BalancingDemandandCapacityEssentialsofServicesMarketing,SecondEdition
WorkYourESM
ApplicationExercises
1.Explainhowflexiblecapacitycanbecreatedineachofthefollowing
situations:(a)alocallibrary,(b)anofficecleaningservice,(c)atechnical
supporthelpdesk,(d)anInterflorafranchise.
2.Identifysomespecificexamplesoffirmsinyourcommunity(orregion)that
significantlychangetheirproductand/ormarketingmixinordertoincrease
patronageduringlowdemandperiods.
3.Selectaserviceorganizationofyourchoice,andidentifyitsparticular
patternsofdemandwithreferencetothechecklistprovidedinTable9.1and
answer:(a)Whatisthenatureofthisserviceorganizationsapproachto
capacityanddemandmanagement?(b)Whatchangeswouldyou
recommendinrelationtoitsmanagementofcapacityanddemandandwhy?
4.Reviewthe10suggestionsonthepsychologyofwaiting.Whicharethe
mostrelevantin(a)asupermarket(b)acitybusstoponarainy,dark
evening(c)adoctorsofficeand(d)aticketlineforafootballgame
expectedtobeasellout?
5.Giveexamples,basedonyourownexperience,ofareservationsystemthat
workedreallywellandofonethatworkedreallybadly.Identifyandexamine
thereasonsforthesuccessandfailureofthesetwosystems.What
recommendationswouldyoumaketobothfirmstoimprove(orfurther
improveinthecaseofthegoodexample)theirreservationsystems?
Endnotes
1 .KennethJ.KlassenandThomasR.Rohleder,CombiningOperationsandMarketing
toManageCapacityandDemandinServices,TheServiceIndustriesJournal21,(April
2001):130.
2 .BreffniM.Noone,SherylE.Kimes,AnnaS.Mattila,andJochenWirtz,TheEffectof
MealPaceonCustomerSatisfaction,CornellHospitalityQuarterly48,no.3(2007):231
245.
3 .BasedonmaterialinJamesA.FitzsimmonsandM.J.Fitzsimmons,Service
Management:Operations,Strategy,andInformationTechnology,6thed.NewYork:Irwin
McGrawHill,2008W.EarlSasser,Jr.,MatchSupplyandDemandinServiceIndustries,
HarvardBusinessReview54,(NovemberDecember1976):133140
4 .KennethJ.KlassenandThomasR.Rohleder,UsingCustomerMotivationsto
ReducePeakDemand:DoesItWork?TheServiceIndustriesJournal24,(September
2004):5370.
5 .KellyA.McGuireandSherylE.Kimes,ThePerceivedFairnessofWaitlist
ManagementTechniquesforRestaurants,CornellHotelandRestaurantAdministration
Quarterly47,(May2006):121134.
6 .AnatRafaeli,G.Barron,andK.Haber,TheEffectsofQueueStructureonAttitudes,
JournalofServiceResearch5,(November2002):125139.
7 .DuncanDickson,RobertC.Ford,andBruceLaval,ManagingRealandVirtualWaits
inHospitalityandServiceOrganizations,CornellHotelandRestaurantAdministration
Quarterly46,(February2005):5268.
8 .AnaB.CasadoDiazandFranciscoJ.MsRuiz,TheConsumersReactiontoDelays
inService,InternationalJournalofServiceIndustryManagement13,no.2(2002):118
140.
9 .FredericBielenandNathalieDemoulin,WaitingTimeInfluenceontheSatisfaction
LoyaltyRelationshipinServices,ManagingServiceQuality17,no.2(2007):174193.
10.ThissectionisbasedonDavidH.Maister,ThePsychologyofWaitingLines,inJ.A.
Czepiel,M.R.Solomon,andC.F.Surprenant,eds.TheServiceEncounter.Lexington(MA:
LexingtonBooks/D.C.Heath,1986,113123).PeterJonesandEmmaPeppiat,Managing
PerceptionsofWaitingTimesinServiceQueues,InternationalJournalofServiceIndustry
Management7,no.5(1996):4761.ClayM.Voorhees,JulieBaker,BrianL.Bourdeau,E.
DeanneBrocato,andJ.JosephCronin,Jr.ModeratingtheRelationshipsamongPerceived
WaitingTime,AngerandRegret,JournalofServiceResearch12,no.2,(November2009):
138155.KellyA.McGuire,SherylE.Kimes,MichaelLynn,MadelineE.Pullmanand
RussellC.Lloyd,AFrameworkforEvaluatingtheCustomerWaitExperience,Journalof
ServiceManagement21,no.3(2010):269290.Also,seethefindingsforwaitsituationsin
stressfulserviceencounterssuchasdentalappointmentsbyElizabethGelfandMiller,
BarbarahE.Kahn,andMaryFrancesLuce,ConsumerWaitManagementStrategiesfor
NegativeServiceEvents:ACopingApproach,JournalofConsumerResearch34,no.5
(2008):635648.
11.SusanCarey,NorthwestAirlinestoChargeExtraforAisleSeats,TheWallStreet
JournalMarch14,2006.
12.SherylE.KimesandRichardB.Chase,TheStrategicLeversofYieldManagement,
JournalofServiceResearch1,(November1998):156166AnthonyIngold,UnaMcMahon
Beattie,andIanYeoman,eds.,YieldManagementStrategiesfortheServiceIndustries,
2ndedn.London:Continuum,2000.
13.MadeleineE.PullmanandGaryM.Thompson,EvaluatingCapacityandDemand
ManagementDecisionsataSkiResort,CornellHotelandRestaurantAdministration
Quarterly43,(December2002):2536MadeleineE.PullmanandGaryThompson,
StrategiesforIntegratingCapacitywithDemandinServiceNetworks,JournalofService
Research5,(February2003):169183.
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