SQ Lecture Eight - Balancing Demand Against Productive Capacity
JAN 2013 Semester 1 Service Quality MKTG 1268 Lecture Eight • Balancing Demand Against Productive Capacity (Chapter 9)
Overview of Chapter 92 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
Managing Resorts Requires Effective Management of Demand and Capacity3
4FLUCTUATIONS IN DEMAND THREATEN SERVICE PRODUCTIVITY
Carefully balancing the demands (by customers) and the available capacity of the service firm’s resources requires careful planning5
From Excess Demand to Excess Capacity6 Four conditions potentially faced by fixed-capacity services: 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 Pointbeyond which service quality declines as more customers are serviced 4. Excess capacity Too much capacity relative to demand at a given time
Variations in Demand Relative to Capacity (Fig. 9.3)7 7
Managing Capacity – Rush Hour Crowd in the Subway Train14
Alternative Capacity Management Strategies15 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
Adjusting Capacity to Match Demand (Vary amount of capacity to match anticipated demand):16 • 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
Cross-training staff as a means of adjusting capacity to meet demand17
Predictable Demand Patterns and Their Underlying Causes (Table 9.1) (1)20 Predictable Cycles Underlying Causes of of Demand Levels Cyclical Variations day employment week billing or tax payments/refunds month pay days year school hours/holidays other seasonal climate changes public/religious holidays natural cycles See full details in Table 9.1 on page 272 of the text 20
Some service jobs can be regularly scheduled – example maintenance jobs22
Predictable Demand Patterns andTheir 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
Understanding patterns of demand – seasonal trends in tourist arrivals24
Alternative Demand Management Strategies (Table 9.2)26 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 See full details in Table 9.2 on page 275 of the text
Marketing Strategies Can Reshape Some Demand Patterns28 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.
Marketing Mix Elements Can Be Used To Shape Demand Patterns (Pricing)29
Marketing Strategies Can Reshape Some Demand Patterns30 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.
Service Insight 9.1 : Discouraging Demand for Non-Emergency Calls32
33 INVENTORY DEMANDTHROUGH WAITING LINES AND RESERVATIONS
When Demand Exceeds Supply34 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
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
Helping customers avoid the hassle of waiting lines36
Waiting In Line37 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 Its 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
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.
Virtual Waits42 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)
Queuing Systems can be Tailored to Market Segments43 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
Ten Propositions to Make Waiting More Bearable (1)45 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.
Ten Propositions to Make Waiting More Bearable (2)47 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 Sources: Maister; Davis & Heineke; Jones & Peppiatt
Uncertain waits create customer anxiety and stress48
49 INVENTORY DEMAND THROUGH ARESERVATIONS SYSTEM
Benefits of Reservations50 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
Characteristics of Well-Designed Reservations System52 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 Yield53 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
Setting Hotel Room Sales Targets by Segment and Time Period54
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?