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DEMAND MANAGEMENT IN SERVICES Module 7

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At the end of this module the learning …

At the end of this module the learning
outcomes are:
What is demand management?
What are the capacity constraints?
What strategies can be used to manage demand?
Understand the concept of waiting in services

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  • 1. Marketing of Infrastructure Services and Utilities Module ~ 7 Module 7
  • 2. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES At the end of this module the learning outcomes are: • What is demand management? • What are the capacity constraints? • What strategies can be used to manage demand? • Understand the concept of waiting in services 2
  • 3. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Suggested readings Services Marketing by Zeithmal and Bitner, 2nd edition Chapter 14 3
  • 4. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Demand management • Services • Cannot be stored • Perishable • Simultaneous production and consumption. 4
  • 5. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES COMMON SITUATIONS • Vacant seat in • Airlines • Hotel • Restaurant • Lawyer sitting idle. Loss of billing 5
  • 6. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Lack of inventory means: • Excess demand • Demand exceeds optimum capacity • Demand and supply are balanced at the level of optimum capacity • Excess capacity. 6
  • 7. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Excess demand. • • • Demand exceeds supply Loss of customers Existing customers. – – – Deterioration in services Overcrowding Overuse of facilities Example: Saturday movie at 8.00 p.m. in PVR multiplex. Going to Sagar restaurant in Delhi at 8.00 p.m. 7
  • 8. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Demand exceeds optimum capacity. • Supply not created according to demand. • Constant overuse. • Cannot deliver consistent quality. 8
  • 9. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Demand and supply are balanced at the level of optimum capacity • All facilities • Used at optimum level • Customers • • Receive optimum services No delays Ideal Situation 9
  • 10. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Excess Capacity • Demand less than the capacity • All resources under-utilised • Customers receive excellent services • No waiting Examples • Morning show at PVR multiplex • Going to bar at 4 p.m. 10
  • 11. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Demand Fluctuation • Different Type Wide Fluctuation • Telecommunications Heavy traffic during day Low traffic during night • Hospital Sometimes no patient Many patients Lack of bed Disaster Earthquake 11
  • 12. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Narrower Fluctuation • Insurance • Banking 12
  • 13. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Understanding capacity constraints • Restaurant • No. of Seats: 50 • Customers waiting: 200 • Can we increase seats to 200 • Unfortunately not always possible 13
  • 14. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES CONSTRAINTS Depending on the service, constraints can be – – – – – Time Labour Equipment Facilities Combination of the above. 14
  • 15. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Time Constraint • Staff operating at peak capacity • Demand exceeds supply Income tax consultant • People pay income tax • File return • Last day of return • Seek advice of a consultant • Many customers are waiting on the last day Time constraint of handling so many customers on the 15 last day
  • 16. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Equipment constraint Federal Express • Delivery of mail Greeting Cards Christmas New Year day • Huge demand Availability of trucks is a constraint 16
  • 17. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES STRATEGIES FOR MATCHING CAPACITY AND DEMAND Two Strategies • Shifting demand to match capacity • Flexing capacity to meet demand 17
  • 18. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Shifting Demand to Match Capacity • Capacity (Supply) is fixed • Shift /Change demand to match supply • Shift demand to lean seasons • Not always possible • How can we do this? 18
  • 19. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Various methods to shift demand • Vary the service offering • Communicate with customers • Modify timing and location of service delivery • Differentiate on price 19
  • 20. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Vary the service offering Whistler Mountain, Canada • Snow Skiing facilities • Only in winter? • What do you do in summer? • Skiing not possible • Development and training programs • For various people category • Corporate executives • Professionals 20
  • 21. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Vary the service offering Airlines • Change plane configuration • Depending on situation• No first class • Only economy class 21
  • 22. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Los Angeles Hospital • Lean season • Movie productions allowed • Featuring on hospitals • Is it always possible? • Can you change hospitals into movie theatres • What are the implications • Is image at stake • Many organisations refrain from this? Handle with care 22
  • 23. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Communicate with customers • How to shift demand • Inform peak demand period • Customers can choose some other time • Off peak times • Benefits Happy customers More satisfied 23
  • 24. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES . Modify Timing and Location of Service Delivery • Organizations adjust their timings / days of service delivery Banking industry • Earlier banking hours • Working hours 10.00 am to 2.00 pm • Now banking hours Afternoon hours Evening hours • Banks open on Sunday 24
  • 25. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Differentiate on Price • Low demand • Use price • Customer sensitivity of demand is critical Example • Business travellers are less price sensitive compared to leisure travellers 25
  • 26. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES What is the objective • High capacity utilization without sacrificing profits • Use of Price • Every situation Hotels Restaurants Movie halls • Happy hours Is lowering price always the right strategy 26
  • 27. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Dangers of lowering price • Price wars • Competitors also lower prices • Customers getting used to lower prices • Airlines Industry • Overused • Many airlines have used this • Very few airlines are profitable 27
  • 28. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Flexing capacity to meet demand • • • • • How can you change/flex capacity? Adjust Stretch Align capacity to meet demand What are organizational resources • • • • Time People Equipment Facilities 28
  • 29. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Various strategies to flex capacity 1. Stretch existing capacities • • • • Stretch Time Stretch Labour Stretch facilities Stretch equipment 2. Align capacity with demand fluctuations • • • • • • Use part - time employees Outsourcing Rent or share facilities or equipment Schedule downtime during periods of low demand Cross-train employees Modify or move facilities and equipment. 29
  • 30. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Stretch time • Extend hours of services on a temporary basis Archie's Greeting shop • Christmas, New Year, Valentines day • Open for longer time Doctor clinic • Winters 9.30 to 12.30, 6 to 8.p.m. • Summer 8.30 to 1.00 , 5 to 9 p.m. • Why • More patients. • More diseases in summer Stretch capacity by Stretching time 30
  • 31. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Stretch Labour • Employees work for longer hours • Peak demand Banks • Peak demand • Additional people deployed at front counters/cashier • Redeployed from back offices 31
  • 32. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Stretch facilities • How can Theatres Restaurants Classrooms • Can be expanded on temporary basis. 32
  • 33. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Stretch facilities Railways • Summer rush • Peak demand • What does railways do? • Run additional trains “Holiday Special” Increase frequency of existing trains • II tier AC to III tier AC • Increase capacity 33
  • 34. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Stretch Equipment • Stretch beyond the maximum capacity • To accommodate peak demand Power generation utilities • Peak Season • Extreme winter • Extreme summer • Run additional generators 34
  • 35. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES ALIGN CAPACITY WITH DEMAND FLUCTUATIONS • Chase demand strategy • Match capacity with demand patterns • Use of the resources Time, labour, equipment, facilities 35
  • 36. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Use part – time employees • • • Peak demand Align labour resources with demand Hire part – time employees Hotels in Goa • • • • • • Dec – Jan peak season Huge demand Hotels hire part – time employees Meet demand Slack season Lay off part time employees 36
  • 37. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Rent or Share facilities or equipment • • Sharing facilities Renting Hotels in Goa • • • • • • Hotels own buses Drop and pick – up passengers Peak Season Huge demand for short period Renting buses To meet peak demand? 37
  • 38. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Schedule down time during periods of low demand • • • Facilities used at peak Need maintenance Conducted during off – season Carrier Air conditioners • • • • • Summer peak season Winter slack season Maintenance during winter season People are occupied Use peak season to attend complaints 38
  • 39. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Cross–train employees • • Ability to perform more than one activity Need less employees Dominos • Peak demand • Home delivery • Packing employees convert into delivery boys • Vice – versa • Can handle various types of activities • Training imparted for various skills Used in Banks, Airlines 39
  • 40. Module 7 Marketing of Infrastructure Services and Utilities DEMAND MANAGEMENT IN SERVICES . Modify or move facilities • Modification of capacities and equipment Budget Hotels • • • • • • • Peak season Big room converted into two smaller rooms Create additional capacity Slack season Remove partition Create bigger room Charge higher Prices 40
  • 41. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES If Supply and Demand cannot be matched or aligned, what would you do? Look at waiting line strategies 41
  • 42. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Waiting line strategies • Inspite of best efforts • Demand may exceed supply • Not economical to increase supply • Very costly • Customers have to wait How to make WAITING a better experience 42
  • 43. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES WHERE WAITING HAPPENS • • • • • • At a doctor’s clinic On telephone assistance Customer care help lines In a bank At ATM At petrol pumps 43
  • 44. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES WAITING – IS IT A PROBLEM • • • • • • Fast – paced society People do not tolerate People work for longer hours Increasing stress in jobs Tolerance level are low Customers expect Want efficient service Less or no waiting How to reduce / manage waiting? 44
  • 45. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES WAITING LINE STRATEGIES • Employ operational logic • Establish a reservation process • Differentiate waiting customers • Make waiting fun, or at least tolerable 45
  • 46. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Employ operational logic • If waiting common, then operations need improvements Marriot Hotel • Loyal customers • Check-in • Go straight to their allotted room • Complete formalities in room • No waiting 46
  • 47. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Standard Chartered Bank • Earlier • Deposit and withdrawal counters were separate • Heavy waiting at withdrawal counters • Now single counter for withdrawal and deposit • Less number of counters required ABN AMRO Bank • Cash delivery at residence • Customers who do not want to wait 47
  • 48. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Establish a reservation process • • • • • • • • • • Waiting cannot be avoided Reservation System Spread demand Purpose Guarantee that when customer arrives Reduces waiting time Shifts demand What if “no – show” Depends on analysis Is the percentage high or low? 48
  • 49. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Airlines • No-show quite frequent • Accurate prediction • Over-booking common • What do you do when all booked customers land up? • Compensated for not taking flight • Incentives to get offloaded • Some companies do not refund for no-show/ cancellation 49
  • 50. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Differentiate waiting customers • • • Would you accord priority First-come, first served Differentiation depends on – – – – Importance of the customer Urgency of the job. Duration of the service transaction Payment of a premium price 50
  • 51. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Customer importance • Old customers • Loyal customers • Given priority 51
  • 52. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Job urgency Hospital – Emergency • Customer life at stake • Provided immediate priority 52
  • 53. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Duration of the service transaction • Short Jobs • Priority through express lanes DSOI-Club, Delhi • Members vs. non-members • Members • Simple process • Non – members • To go through entire procedure. 53
  • 54. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Payment of a premium price • Creation of different services level • Paying extra Airlines • First class passengers Express check-in counters No wait • Economy class passengers Wait of 10 minutes Not uncommon to see longer wait 54
  • 55. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES . Making waiting fun, or at least tolerable • How do you handle wait? • Are customers feeling bored? • Unoccupied time feels longer than occupied time • Pre-process wait feels longer than inprocess waits • Anxiety makes waits seem longer 55
  • 56. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Making waiting fun, or at least tolerable • Uncertain waits are longer than known, finite waits • Unexplained waits are longer than explained waits • Unfair waits are longer than equitable waits • The more valuable the service, the longer the customer will wait • Solo waits feel longer than group waits 56
  • 57. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Unoccupied time feels longer than occupied time • Unoccupied makes you bored • How to make customers feel occupied • Playing music on phone banking services of Citibank 57
  • 58. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Pre-process waits feel longer than in-process waits • Can wait be related to upcoming services • Gets a feeling that “service has already started” Examples • Filling out medical details before meeting physician • Order your dinner at waiting lounge • Show videotape of upcoming Service • Car service station-inspection at gate • Show video of various processes/stages your car will go 58 through
  • 59. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Anxiety makes wait seem longer • Anxiety increases because of waiting • How to deal with this. Disney theme park • Along the queue • At various points • How long the wait is? 59
  • 60. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Uncertain waits are longer than known, finite waits • Certain wait • Fine • But when wait longer, customer’s anxious • Reduce this • By informing customers for delay 60
  • 61. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Unexplained waits are longer than explained waits • Longer wait • If explained fine • Unexplained • Causes problems • Irritation to customers 61
  • 62. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Unfair waits are longer than equitable waits • If you come first • You expect first-come, first-served • Problems • If this is not followed Organizations do not always follow firstcome, first-served policy. 62
  • 63. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Airlines Economy Class – Long queues First Class – No queue You get a feeling of unfairness, standing in a queue for economy class. 63
  • 64. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES The more valuable the service, the longer the customer will wait • Customer making phone-call • Customer meeting doctor • Where he/she will be ready to wait • Doctor • Why • Perceived to be more valuable Customers for bypass heart surgery will wait patiently even for a longer time. 64
  • 65. Marketing of Infrastructure Services and Utilities Module 7 DEMAND MANAGEMENT IN SERVICES Solo waits feel longer than group waits • Individual versus group • As groups, feeling of wait is less • Distractions • Gossips • Individual • People tend to speak to other customers during waiting 65

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