Service Marketing - Chapter 13

Reduce Demand during Peak Times

- Communicate busy days and times to customers. - Modify timing and location of service delivery. - Offer incentives for non-peak usage. - Set priorities by talking care of loyal or high-need customers first. - Charge full price for the service—no discounts.

Increase Demand to Match Capacity

- Educate customers about peak times and benefits of non-peak use. - Vary how the facility is used. - Vary the service offering. - Differentiate on price.

Waiting Line Strategies

- Employ operational logic to reduce wait - Establish a reservation process - Differentiate waiting customers - Make waiting more pleasurable

Challenges and Risks in Using Yield Management

- Loss of competitive focus - Customer alienation - Employee morale problems - Incompatible incentive and reward systems - Lack of employee training - Inappropriate organization of the yield management function

Excess capacity.

- Resources are under-utilized resulting in lower profits. - Some customers may receive high-quality service, but if quality depends on the presence of other customers, customers may be disappointed.

Demand and supply are balanced at the level of optimal capacity - Ideal Use

- Staff and facilities are occupied at an ideal level. - No one is overworked, facilities can be maintained, and customers are receiving quality.

Issues to Consider in Making Waiting More Pleasurable

- Unoccupied time feels longer than occupied time. - Preprocess waits feel longer than in-process waits. - Anxiety makes waits seem longer. - Uncertain waits seem longer than known, finite waits. - Unexplained waits seem longer than explained waits. - Unfair waits feel longer than equitable waits. - The more valuable the service, the longer the customer will wait. - Solo waits feel longer than group waits.

Adjust Use of Resources

-schedule downtime during periods of low demand -perform maintenance and renovations -schedule vacations and employee training strategically -modify or move facilities and equipment

Increase Capacity Temporarily

-stretch people, facilities, and equipment temporarily -use part time employees -cross train employees -outsource activities -rent or share facilities and equipment

Yield Management is most effective when:

1) Different segments make reservations at different times and 2) Customers who arrive/reserve early are more price sensitive than those who arrive/reserve late.

Understanding Capacity Constraints and Demand Patterns

1. Capacity Constraints - Time - Labor - Equipment - Facilities 2. Demand Patterns - Charting demand patterns - Predictable cycles - Random demand fluctuations - Demand patterns by market segment

Demand Patterns

1. Charting demand patterns 2. Predictable cycles 3. Random demand fluctuations 4. Demand patterns by market segment

Strategies for matching capacity and demand

1. Shifting Demand to Match Capacity 2. Adjusting Capacity to Meet Demand 3. Combining Demand and Capacity Strategies

Yield management approaches are most appropriate for service firms when:

1. They have relatively fixed capacity. 2. They have perishable inventory. 3. They have different market segments or customers, who arrive or make their reservations at different times. 4. They have low marginal sales costs and high marginal capacity change costs. 5. The product is sold in advance. 6. There is fluctuating demand. 7. Customers who arrive or reserve early are more price sensitive than those who arrive or reserve late

Constraints on Capacity

1. Time 2. Labor 3. Equipment 4. Facilities

Combining Demand and Capacity Strategies

Figuring out which is the best set of strategies for maximizing capacity utilization, customer satisfaction, and profitability can be challenging, so many firms use multiple strategies

Variations in Demand Relative to Capacity

Four basic scenarios that can result from different combinations of capacity and demand: 1. Excess demand 2. Demand exceeds the optimum capacity 3. Demand and supply are balanced at the level of optimal capacity. (Ideal use) 4. Excess capacity.

Predictable cycles

Including daily (variations occur by hour), weekly (variations occur by day), monthly (variations occur by day or week), and/or yearly (variations occur according to months or seasons). In some cases, they occur at all periods.

Demand exceeds the optimum capacity

No one is turned away, but the quality may still suffer.

Demand and Capacity for Service Providers

Not all firms will be challenged equally in terms of managing supply and demand. The seriousness of the problem will depend on the extent of demand fluctuations over time and the extent to which supply is constrained

Adjusting Capacity to Meet Demand

The fundamental idea here is to adjust, stretch, and align capacity to match customer demand (rather than working on shifting demand to match capacity, as just described). High Demand 1. Increase Capacity Temporarily Low Demand 2. Adjust Use of Resources

Excess demand

The level of demand exceeds max capacity. - Some customers will be turned away. - For customers who do receive service, quality may be lacking because of crowding or overtaxing of staff and facilities

Charting demand patterns

The organization needs to chart the level of demand over relevant time period

Yield management

The process of allocating the right type of capacity to the right kind of customer at the right price so as to maximize revenue or yield.

Lack of inventory capability

Unlike manufacturing firms, service firms cannot build up inventories during periods of slow demand to use later when demand increases. This lack of inventory capability is due to the perishability of services and their simultaneous production and consumption. This then can lead to a variety of potential outcomes: - Variations in Demand Relative to Capacity

Shifting Demand to Match Capacity

With this strategy, an organization seeks to shift customers away from periods in which demand exceeds capacity, perhaps by convincing them to use the service during periods of slow demand. High Demand 1. Reduce Demand during Peak Times Low Demand 2. Increase Demand to Match Capacity

Yield Management Formula

YIELD = Actual Revenue / Potential Revenue Actual revenue = actual capacity x average actual price Potential revenue = total capacity x maximum price

Maximum Capacity

represents the absolute limit of service availability. May result in excessive waiting by customers.

Optimal Capacity

resources are fully employed but not overused and that customers are receiving quality service in a timely manner.