Service Marketing - Love Lock Chapter-09
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Service Marketing - Love Lock Chapter-09

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Christopher Love Lock
Services Marketing
Chapter Number Nine

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Service Marketing - Love Lock Chapter-09 Service Marketing - Love Lock Chapter-09 Presentation Transcript

  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 1 Chapter 9: Balancing Demand and Productive Capacity
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 2 Overview of Chapter 9  Fluctuations in Demand Threaten Service Productivity  Capacity-Constrained Service Organizations  Patterns and Determinant of Demand  Managing Demand Levels  Inventory Demand through Waiting Lines and Reservations  Minimize Perceptions of Waiting Time  Create an Effective Reservations System
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 3 Fluctuations in Demand Threaten Service Productivity
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 4 From Excess Demand to Excess Capacity Four conditions potentially faced by fixed-capacity services:  Excess demand  Too much demand relative to capacity at a given time  Demand exceeds optimum capacity  Upper limit to a firm·s ability to meet demand at a given time  Optimum capacity  Point beyond which service quality declines as more customers are serviced  Excess capacity  Too much capacity relative to demand at a given time
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 5 Addressing Problem of Fluctuating Demand Two basic approaches:  Adjust level of capacity to meet demand  Need to understand productive capacity and how it varies on an incremental basis  Manage level of demand
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 6 Variations in Demand Relative to Capacity (Fig 9.1) VOLUME DEMANDED TIME CYCLE 1 TIME CYCLE 2 Maximum Available Capacity Optimum Capacity (Demand and Supply Well Balanced) Low Utilization (May Send Bad Signals) Demand exceeds capacity (business is lost) Demand exceeds optimum capacity (quality declines) Excess capacity (wasted resources) CAPACITY UTILIZED  Use marketing strategies to smooth out peaks, fill in valleys  Many firms use a mix of both approaches
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 7 Many Service Organizations Are Capacity Constrained
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 8 Defining Productive Capacity in Services  Physical facilities to contain customers  Physical facilities to store or process goods  Physical equipment to process people, possessions, or information  Labor used for physical or mental work  Public/private infrastructure  See Best Practice In Action 9.1: Improving Check-In Service At Logan Airport
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 9 Alternative Capacity Management Strategies  Level capacity (fixed level at all times)  Stretch and shrink  Offer inferior extra capacity at peaks (e.g., bus/train standees)  Vary seated space per customer (e.g., elbow room, leg room)  Extend/cut hours of service  Chase demand (adjust capacity to match demand)  Flexible capacity (vary mix by segment)
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 10 Adjusting Capacity to Match Demand  Schedule downtime during periods of low demand  Use part-time employees  Rent or share extra facilities and equipment  Ask customers to share  Invite customers to perform self-service  Cross-train employees
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 11 Patterns and Determinants of Demand
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 12 Predictable Demand Patterns and Their Underlying Causes (Table 9.1)  day  week  month  year  other  employment  billing or tax payments/refunds  pay days  school hours/holidays  seasonal climate changes  public/religious holidays  natural cycles (e.g., coastal tides) Predictable Cycles of Demand Levels Underlying Causes of Cyclical Variations
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 13 Causes of Seemingly Random Changes in Demand Levels  Weather  Health problems  Accidents, Fires, Crime  Natural disasters Question: Which of these events can be predicted?
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 14 Analyzing Drivers of Demand  Understand why customers from specific market segments select this service  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
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 15 Overall Usage Levels Comprise Demand from Different Segments  Not all demand is desirable  Keep peak demand levels within service capacity of organization  Marketing cannot smooth out random fluctuations in demand  Fluctuations caused by factors beyond organization·s control (for example: weather)  Detailed market analysis may reveal that one segment·s demand cycle is concealed within a broader, random pattern
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 16 Demand Levels Can Be Managed
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 17 Alternative Demand Management Strategies (Table 9.2)  Take no action  Let customers sort it out  Reduce demand  Higher prices  Communication promoting alternative times  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
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 18 Marketing Strategies Can Reshape Some Demand Patterns  Use price and other 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
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 19 Hotel Room Demand Curves by Segment and Season (Fig 9.3) Bh = business travelers in high season Bl = business travelers in low season Th = tourist in high season Tl = tourist in low season Bh Bh Bl Bl Th Th Tl Tl Price per room night Quantity of rooms demanded at each price by travelers in each segment in each season Note: hypothetical example
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 20 Inventory Demand through Waiting Lines and Reservations
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 21 Waiting Is a Universal Phenomenon!  An average person may spend up to 30 minutes/day waiting in line²equivalent to over a week per year!  Almost nobody likes to wait  It's boring, time-wasting, and sometimes physically uncomfortable
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 22 Why Do Waiting Lines Occur? Not all queues take form of a physical waiting line in a single location  Because the 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
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 23 Saving Customers from Burdensome Waits  Add extra capacity so that demand can be met at most times (problem: may increase costs too much)  Rethink design of queuing system to give priority to certain customers or transactions  Redesign processes to shorten transaction time  Manage customer behavior and perceptions of wait  Install a reservations system
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 24 Alternative Queuing Configurations (Fig 9.5) Single line, single server, single stage Single line, single servers, sequential stages Parallel lines to multiple servers Designated lines to designated servers Single line to multiple servers (³snake´) ³Take a number´ (single or multiple servers) 28 29 21 20 24 23 30 25 31 26 27 32
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 25 Criteria for Allocating Different Market Segments to Designated Lines  Urgency of job  Emergencies versus non-emergencies  Duration of service transaction  Number of items to transact  Complexity of task  Payment of premium price  First class versus economy  Importance of customer  Frequent users/high volume purchasers versus others
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 26 Minimize Perceptions of Waiting Time
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 27 Ten Propositions on Psychology of Waiting Lines (1) (Table 9.3)  Unoccupied time feels longer than occupied time  Pre- and post-process waits feel longer than in-process waits  Anxiety makes waits seem longer  Uncertain waits are longer than known, finite waits  Unexplained waits are longer than explained waits Sources: Maister; Davis & Heineke; Jones & Peppiatt
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 28 6. Unfair waits are longer than equitable waiting 7. People will wait longer for more valuable services 8. Waiting alone feels longer than waiting in groups 9. Physically uncomfortable waits feel longer 10.Waits seem longer to new or occasional users Ten Propositions on Psychology of Waiting Lines (2) (Table 9.3) Sources: Maister; Davis & Heineke; Jones & Peppiatt
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 29 Create An Effective Reservation System
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 30 Benefits of Reservations  Controls and smoothes demand  Pre-sells service  Informs and educates customers in advance of arrival  Saves customers from having to wait in line for service (if reservation times are honored)  Data captured helps organizations  Prepare financial projections  Plan operations and staffing levels
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 31 Characteristics of Well-Designed Reservations System  Fast and user-friendly for customers and staff  Answers customer questions  Offers options for self service (e.g., the Web)  Accommodates preferences (e.g., room with view)  Deflects demand from unavailable first choices to alternative times and locations  Includes strategies for no-shows and overbooking  Requiring deposits to discourage no-shows  Canceling unpaid bookings after designated time  Compensating victims of over-booking
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 32 Setting Hotel Room Sales Targets by Segment and Time Period (Fig.9.7) Out of commission for renovation Loyalty Program Members Transient guests Weekend package Groups and conventions Airline contracts 100% 50% Week 7 (Low Season) MNights: TuTime W Th F S Su Loyalty Program Members Transient guests W/E package Groups (no conventions) Airline contracts Week 36 (High Season) M Tu W Th F S Su Capacity (% rooms)
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 33 Information Needed for Demand and Capacity Management Strategies  Historical data on demand level and composition, noting responses to marketing variables  Demand forecasts by segment under specified conditions  Segment-by-segment data  Fixed and variable cost data, profitability of incremental sales  Meaningful location-by-location demand variations  Customer attitudes toward queuing  Customer opinions of quality at different levels of capacity utilization
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 34 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  Productive resources are used for creating goods and services; when facing capacity constraints, firms can consider  Stretching or shrinking capacity levels  Adjusting capacity to match demand  Creating flexible capacity  To determine what factors govern demand, firms need to  Understand patterns of demand  Analyze drivers of demand  Divide demand by market segments
  • Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 9 - 35 Summary of Chapter 9: Balancing Demand and Productive Capacity (2)  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  Waiting is a universal phenomenon. Waits can be reduced by  Rethinking the design of the queuing system  Redesigning the processes to shorten the time of each transaction  Managing customers¶ behavior and their perceptions of the wait  Installing a reservation system  An effective reservations system  Enables demand to be controlled and smoothed in manageable way  Should focus on yield  Requires information