Services Marketing - Demand & Capacity (1)


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Concept of Demand & Capacity:
Since the services can’t be stored as an inventory for future use, and since services are perishable, hence the demand becomes critical.
Once the demand is not catered, it’s lost for ever.
The best a marketer can do is to minimise to some extent by careful planning and adopting some strategies. The following are the factors which affect demand fluctuation
Expansion or Boom :
Contraction and Recession :
Technological Developments :
Demographics :
Natural and Other Disasters :

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Services Marketing - Demand & Capacity (1)

  1. 1. Services Marketing By Himansu S M MANAGING DEMAND and CAPACITY: Concept of Demand & Capacity
  2. 2. CONCEPT OF DEMAND & CAPACITY: 214/08/2013 ©Himansu S M
  3. 3. INTRODUCTION • Since the services can’t be stored as an inventory for future use, and since services are perishable, hence the demand becomes critical. • Once the demand is not catered, it’s lost for ever. • The best a marketer can do is to minimise to some extent by careful planning and adopting some strategies. The following are the factors which affect demand fluctuation 314/08/2013 Himansu S M
  4. 4. INTRODUCTION • Expansion or Boom : • Contraction and Recession : • Technological Developments : • Demographics : • Natural and Other Disasters : 414/08/2013 Himansu S M
  5. 5. DEMAND / CAPACITY VARIATIONS At any given moment, a fixed-capacity service may face one of four conditions : 1. Excess demand—the level of demand exceeds maximum available capacity, with the result that some customers are denied service and business is lost. 514/08/2013 Himansu S M
  6. 6. DEMAND / CAPACITY VARIATIONS 2. Demand exceeds optimum capacity—no one is actually turned away, but conditions are crowded and all customers are likely to perceive a decline in service quality. 614/08/2013 Himansu S M
  7. 7. DEMAND / CAPACITY VARIATIONS 3. Demand and supply are well balanced at the level of optimum capacity—staff and facilities are busy without being overtaxed, and customers receive good service without delays. 714/08/2013 Himansu S M
  8. 8. DEMAND / CAPACITY VARIATIONS 4. Excess capacity—demand is below optimum capacity and productive resources are underutilized, resulting in low productivity. In some instances, this poses a risk that customers may find the experience disappointing or have doubts about the viability of the service. 814/08/2013 Himansu S M
  9. 9. DEMAND / CAPACITY VARIATIONS • You'll notice that we've drawn a distinction between maximum capacity and optimum capacity. • When demand exceeds the maximum available capacity, some potential customers may be turned away and their business could be lost forever. 914/08/2013 Himansu S M
  10. 10. DEMAND / CAPACITY VARIATIONS • When the demand level is between optimum and maximum capacity, all customers can be served but there's a risk that they may receive inferior service and thus become dissatisfied. • The Figure in the next slide explains this in details : 1014/08/2013 Himansu S M
  11. 11. 1114/08/2013 Himansu S M
  12. 12. DEMAND PATTERNS : • Marketers need to understand the pattern or way the demands behave, with respect to time, place and person. Then the relevant strategies can be developed. Sketching Demand Patterns : • Companies need to keep a track record or log book, where all the demands are recorded on daily, weekly, monthly, seasonal, and yearly basis, and a graphical chart, sketch or a report can be made. After a few years, a set of patterns can be accurately predicted. Foreseeable / Predictable Cycles : • Then some easily predicted or foreseeable cycle can be made. On that basis services can be planned. Ex. Health check-ups in hospitals, in a lean1214/08/2013 Himansu S M
  13. 13. DEMAND PATTERNS : Random Demand Variations : • Some other service demands are not easily predictable, or they occur randomly, even if the cause can be ascertained. Say health care or insurance when a flood or earthquake occurs. Demand Patterns by Market Segments : • Another more specialised database keeping is done for different demand pattern of customers of different segments. E.g., for a group of family the bonus time is holiday time, whereas for another group this is insurance premium pay time. 1314/08/2013 Himansu S M
  14. 14. CAPACITY CONSTRAINTS : • Capacity of a company is defined as the ability to meet the demand and the extent to which it can do it. For production of goods this can be expanded or contracted easily. But for services it is difficult, as four critical factors are involved. This are done with utmost care, planning, cost effective measures. These are : • Time, Labour, • Equipment Facility. 1414/08/2013 Himansu S M
  15. 15. Time • Time is limited and mostly specialised professionals have this constraints, they can’t take up more than the time permits and have to be idle if there are none. • This can be tackled by business houses by opening shop for extended hours when the demand is more and vice versa. • Say doctors can have more consulting hours when there is demand. The service providers must be willing to accept the change in situation. (Types of Services – Legal, Consulting, Accounting, Medical) 1514/08/2013 Himansu S M
  16. 16. Labour • Labour or workers are another area of constraint. Beyond the full work load it’s hard to cater to more. On the other hand temporary employment is not available sufficiently in skilled category. • This can be tackled by out sourcing the workers to a contractors who has a large work force with him. • He can adjust between several companies, but again the difference in the skill is a bottleneck. (Types of Services – Law Firm, Consulting Firm, Accounting Firm, Health Clinic) 1614/08/2013 Himansu S M
  17. 17. Equipment • Like machinery, transport etc. are needed more in no. when there’s a bigger demand. For a limited period a company can’t buy extra equipment or machinery. • But these can be managed by careful planning – like having sufficient equipment for the minimum level in a cycle say a year with down/maintenance time, and out sourcing the additional demand by accurate prediction as far as possible. (Types of Services – Network Services, Delivery services, Telecommunications, Utilities, Health Club) 1714/08/2013 Himansu S M
  18. 18. Facility • These are mostly the infrastructure like premises, building, hotel rooms, restaurant tables, class rooms, etc., which can’t be increased easily or quickly. • But to some extent they can be enhanced, like two shifts in the class rooms, adding a few tables and rearranging them in a restaurant, adding more compartments in a train, more flights for air travel, etc. (Types of Services – Hotels, Restaurants, Hospitals, Airlines, T 1814/08/2013 Himansu S M
  19. 19. STRATEGIES TO MATCH DEMAND AND CAPACITY • The most important job of the service marketer is balancing / matching the demand and capacity. In a particular demand cycle there should be minimum occasions for demand being more, or the idle capacity, with the least extra cost. This can be done as already given and by shifting demand : 1914/08/2013 Himansu S M
  20. 20. Demand Shift : • There are some services where the demand can be shifted, that means the timings can be changed without much discomfort, like use of telephone or internet etc. The prices are more during the peak period and less in slack period. • But there is a limitation, it is not practical in a restaurant, if there is no additional capacity, then the firm looses customer who go to another. There are some other methods : 2014/08/2013 Himansu S M
  21. 21. Demand Shift : (1) - Varying the original services offer : Bigger service providers offering smaller services during low demand period. Like marriage caterers offering smaller parties of birthday, business gatherings etc. 2114/08/2013 Himansu S M
  22. 22. Demand Shift : (2) - Communicating with the customers : By the effective communication, the service marketer can explain the practical situation to the potential customers, so that they can shift their requirement timings. Again this is applicable to a small portion of cases, where choices are available. Some customers are by nature rush avoiders, so to some extent the nature takes care of the shifting. 2214/08/2013 Himansu S M
  23. 23. Demand Shift : (3) - Altering the service delivery timings : Earlier banks used to work from 10 am to 2 pm. Now the scheduled banks have working hours 10 to 3.30, and the new generation private banks have 9.30 to 4.30 timings, and some even are open on Sundays. This is apart from the 24-hr ATMs. 2314/08/2013 Himansu S M
  24. 24. Demand Shift : (4) - Price differentiation : This concept works on the basis of the economy of supply and demand. Having a differential pricing as mentioned earlier, say for bars daytime is low priced. But here there is a limitation – it doesn’t apply to many services or many customers. Also there is a danger of attracting another segment or dissatisfying the target segment. The marketer has to be very particular about the price sensitivity of the customers. 2414/08/2013 Himansu S M
  25. 25. Adjusting Capacity to Meet Demand : Managing the following entities have been discussed earlier : Time, Labour, Equipment , and Facility. 2514/08/2013 Himansu S M
  26. 26. Align Capacity with Demand Fluctuations : • Another set of options involves tailoring the overall level of capacity to match variations in demand. • This strategy is known as ―Chase Demand Strategy‖. They are : 2614/08/2013 Himansu S M
  27. 27. Align Capacity with Demand Fluctuations : (1) Schedule downtime during periods of low demand. To ensure that 100 percent of capacity is available during peak periods, repairs and renovations should be conducted when demand is expected to be low. Employee holidays should also be taken during such periods. 2714/08/2013 Himansu S M
  28. 28. Align Capacity with Demand Fluctuations : (2) Use part-time employees. Many organizations hire extra workers during their busiest periods. Examples include postal workers and retail store clerks during the pre-Christmas season, extra staff in tax preparation firms at the end of the financial year, and additional hotel employees during holiday periods and major conventions. 2814/08/2013 Himansu S M
  29. 29. Align Capacity with Demand Fluctuations : (3) Rent or share extra facilities and equipment. To limit investment in fixed assets, a service business may be able to rent extra space or machines at peak times. Firms with complementary demand patterns may enter into formal sharing agreements. 2914/08/2013 Himansu S M
  30. 30. Align Capacity with Demand Fluctuations : (4) Cross-train employees. Even when the service delivery system appears to be operating at full capacity, certain physical elements—and their attendant employees - may be under- utilized. If employees can be cross-trained to perform a variety of tasks, they can be shifted to bottleneck points as needed to help increase total system capacity. 3014/08/2013 Himansu S M
  31. 31. Align Capacity with Demand Fluctuations : (5) Modify or move Facilities and Equipment. Sometimes it is possible to adjust, move, or creatively modify existing capacity to meet demand fluctuations. Like Hotel conference halls may be partitioned into two or three halls when the demand occurs. 3114/08/2013 Himansu S M
  32. 32. Strategies for Shifting Demand to Match Capacity DEMAND TOO HIGH • Use signage to communicate busy days and times. • Offer incentives to customers for usage during non-peak times. • Take care of loyal or regular customers first. • Advertise peak usage times and benefits of non- peak use. • Charge full price for the service – no discounts. DEMAND TOO LOW • Use sales and ads to increase business from current market segments. • Modify the service offering to apply to new market segments. • Offer discounts or price reduction. • Modify Hours of operation. • Bring the service to the customer. 3214/08/2013 Himansu S M
  33. 33. Strategies for Flexing Capacities to Match Demand DEMAND TOO HIGH • Stretch time, labour, facilities and equipment. • Cross-train the employees. • Hire part-time employees. • Request over-time work from employees. • Rent or share facilities. • Rent or share equipment. • Sub-contract or out source activities. DEMAND TOO LOW • Perform maintenance, renovations. • Schedule vacations. • Schedule employee training. • Lay-off employees. 3314/08/2013 Himansu S M
  34. 34. Creating Demand Inventory • In an ideal world, nobody would ever have to wait to conduct a transaction at a service organization. • But since services are performances, they can't typically be stored for later use during periods of excess demand. In businesses where demand regularly exceeds supply, managers often try to manage demand in one of two ways: 3414/08/2013 Himansu S M
  35. 35. Creating Demand Inventory • By asking customers to wait in line (queuing), usually on a first-come, first- served basis : This is known as Queuing system - like waiting line (Queue) for turn in a dental clinic. • By offering them the opportunity to reserve or book space in advance : This is known as the Reservation system - like railway travel. 3514/08/2013 Himansu S M
  36. 36. End of Chapter - 10 • © Himansu S M / 28-08-2010 3614/08/2013 Himansu S M