Services MarketingBy Himansu S M MANAGING DEMAND and CAPACITY: Matching Demand & Capacity Waiting Line Strategies When Demand And Capacity Can't be Matched Waiting Line Strategies Most waiting lines work on the principle of first come, first served. Customers tend to expect this—it's only fair, after all. In many cultures (but not all), people get very resentful if they see later arrivals being served ahead of them for no obvious reason.

1. Services
Marketing
By Himansu S M
MANAGING
DEMAND and CAPACITY:
Matching Demand & Capacity

2. 2
Waiting Line Strategies
When Demand And
Capacity Can't be
Matched
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3. WAITING LINE
STRATEGIES
• Most waiting lines work on the
principle of first come, first served.
Customers tend to expect this—it's
only fair, after all. In many cultures (but
not all), people get very resentful if
they see later arrivals being served
ahead of them for no obvious reason.
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4. Customer Selection Policies
(Differentiating Waiting
Customers)
• But not all queuing systems are
organized on a first-come, first-served
basis. Market segmentation is
sometimes used to design queuing
strategies that set different priorities
for different types of customers.
Allocation to separate queuing areas
may be based on the following:
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5. Urgency of the job
• At many hospital emergency units, a triage
nurse is assigned to greet incoming
patients and decide which ones require
priority medical treatment and which can
safely be asked to register and then sit
down while they wait their turn. Airline
personnel will allow passengers -whose
flights are due to leave soon to check in
ahead of passengers taking later flights.
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6. Duration of Service
Transaction
• Banks, supermarkets, and other retail
services often provide "express lanes"
for shorter, less-complicated tasks.
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7. Payment Of A Premium
Price
• Airlines usually offer separate check-in
lines for first-class and economy-class
passengers, with a higher ratio of
personnel to passengers in the first-
class line (which results in reduced
waits for those who have paid more for
their tickets).
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8. Importance Of The
Customer
• Special processes may be reserved for
members of frequent user clubs.
National Car Rental provides express
pickup and drop-off procedures for its
Emerald Club members and promises
these customers “no waiting, no
paperwork, no hassles”. For VIPs also
there’s no waiting.
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9. Operational Logic
(Queuing System)
• Sometimes, it's just not possible to match
capacity with demand or vice-versa. So
customer waiting is inevitable. The service
marketers must try to remove any
inefficiencies. It may be redesign or
modification or the like.
• Configuration of queuing system refers to
the number, location and type of queues,
and their spatial arrangement, The
following are a few configuration of the
queuing system :
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10. Operational Logic
(Queuing System)
• Multiple queue alternative : For the same
kind of service there are several queues, and
the customer can decide which queue to
join, or switch later.
• Single queue with multiple counters : This is
a fair chance for first-come first served. This
reduces the overall waiting time for the
customers.
• Number or Token system : The customers
take numbers in sequence, then wait in the
lounge for their turn. They can relax, read,
gossip while waiting.
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11. Reservation System
• When waiting can't be avoided, a
reservation system can help to spread the
demand. The concept of a reservation
system is to guarantee that the service is
available when the customer arrives. This
is used in many service sectors like,
Hotels and Restaurants, Air and Rail
Travel, Theatres and Cinemas, Health and
Legal Consultants, etc. This system also
helps in shifting demand to less desirable
time periods. But the drawbacks are :
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12. Reservation System
• When the service is cancelled at the
appointed time. This situation is taken
care of by rescheduling with priority or
refund of money.
• When the customer doesn't turn up.
This is managed by over booking on
the basis of careful study and analysis,
and sometimes charging the
customers a cancellation fee equal to
a part or whole of the booking amount.
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13. THE PSYCHOLOGY OF
WAITING TIME
• The noted philosopher William James
observed:
• "Boredom results from being attentive
to the passage of time itself."
• Based on this observation, David
Maister formulated ten principles
about waiting time.
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14. Unoccupied Time Feels
Longer Than Occupied Time
• When you're sitting around with nothing to do,
time seems to crawl. Thus many service
organizations give customers something to do to
distract them while waiting. Examples :
• Doctors and dentists stock their waiting rooms
with piles of magazines for people to read while
waiting.
• Car repair facilities may have a television for
customers to watch.
• One tire dealer goes further, providing customers
with free popcorn, soft drinks, coffee, and ice
cream while they wait for their cars to be
returned.
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15. Pre and Post Process Waits Feel
Longer Than In-Process Waits
• Customers are typically more patient
during the core service delivery process
than before it starts or after it's
completed.
• Ex. : In a car servicing process, the
waiting in line feels longer. When the
actual servicing starts, the waiting seems
to be shorter. Now, again after the service,
if there's a delay in releasing the car, then
the wait feels longer.
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16. Anxiety Makes Waits
Seem Longer
• Can you remember waiting for someone to
show up to meet you and worrying about
whether you had the time and/or the location
correct?
• This makes the perceived waiting time
longer, because you are worried about
whether you (or the person you're meeting)
might have made a mistake.
• While waiting in unfamiliar locations,
especially out-of-doors and after dark,
people are often anxious about their
personal safety.
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17. Uncertain Waits Are Longer
Than Known & Finite Waits
• Although any wait may be frustrating, we
can usually adjust mentally to a wait of
known length. It's the unknown that keeps
us on edge. Maybe you've had the
experience of waiting for a delayed flight
when you haven't been told how long the
delay is going to be.
• Airlines often try to appease their
customers by giving them new take-off
times for delayed flights (which are
usually extended several times before the
aircraft actually leaves the gate).
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18. Unexplained Waits Are
Longer Than Explained Waits
• Have you ever been in a subway or an
elevator that has stopped for no apparent
reason? Not only is there uncertainty
about the length of the wait, there's added
worry about what is going to happen. Has
there been an accident on the line?
• Will you have to exit the subway in the
tunnel? Is the elevator broken? Will you be
stuck for hours in close proximity with
strangers?
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19. Unfair Waits Are Longer
Than Equitable Waits
• Expectations about what is fair or unfair
sometimes vary from one culture or
country to another. In America, Canada,
or Britain, for example, people expect
everybody to wait their turn in line and are
likely to get irritated if they see others
jumping ahead or being given priority for
no apparent good reason.
• In some other countries, it is acceptable to
push or shove to the front of a line to
receive faster service. 1914/08/2013 Himansu S M

20. The More Valuable the
Service, the Longer People
Will Wait
• People will queue overnight under
uncomfortable conditions to get good
seats at a major concert, movie
opening, or sports event that is
expected to sell out.
• Ex. : Thanksgiving day in USA &
Canada.
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21. Solo Waits Feel Longer
Than Group Waits
• It's reassuring to wait with one or more
people you know.
• Conversation with friends can help to
pass the time,
• and some people are comfortable
conversing with strangers while they
wait in line.
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22. Physically Uncomfortable
Waits Feel Longer Than
Comfortable Waits
• When people are forced to stand in line for
a long time, their body aches and they get
frustrated.
• And whether sitting or standing, a wait
seems more burdensome if the
temperature is too hot or too cold, if it's
drafty or windy, or if there is no protection
from rain or snow.
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23. Unfamiliar Waits Seem
Longer Than Familiar Ones
• Frequent users of a service know what
to expect and are less likely to worry
while waiting.
• But new or occasional users of a
service are often nervous, wondering
about the probable length of the wait
and what happens next.
• They may also be more concerned
about such issues as personal safety.
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24. What are the implications of
these propositions about the
psychology of waiting?
• When increasing capacity is not
feasible, managers should look for
ways to make waiting more palatable,
pleasant and comfortable for
customers.
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25. CONCEPT OF
YIELD & ITS
MANAGEMENT :
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26. Yield Management :
• For marketing services, the demand can’t
be matched with capacity to a high level,
but it can be done to a considerable
extent. The method by which a firm
manages to have the minimum gap in
demand / capacity, the maximum possible
customer satisfaction with the maximum
return / profit is known generally as the
Yield Management. In other words it is to
find the best balance at any time amongst
the prices charged, the target segment,
the capacity and resources used to get
the best possible financial returns.
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27. Definition :
• Yield Management is defined as the
process of allocating the right kind of
capacity, to the right kind of customer,
at the right price so as to maximise the
revenue or yield.
• This can be a complex mathematical
model. But in simple arithmetic we
have :
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28. Definition :
• (YIELD) = (ACTUAL REVENUE) ÷
(POTENTIAL REVENUE);
• (ACTUAL REVENUE) = (ACTUAL
CAPACITY USED) × (AVERAGE
ACTUAL PRICE);
• (POTENTIAL REVENUE) = (MAXIMUM
CAPACITY) × (MAXIMUM PRICE);
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29. Definition :
• (YIELD) = [(ACTUAL CAPACITY USED)
÷ (MAXIMUM CAPACITY)] × [(AVERAGE
ACTUAL PRICE) ÷ (MAXIMUM PRICE);
• ( % YIELD) = ( % CAPACITY
UTILISATION) × ( % PRICE
REALISATION).
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30. Example : Rooms in a Hotel
Total No. of Rooms = 100
Max Room Rent = Rs. 1000 / day
In a given Situation, Say :
Rooms Occupied = 80
Average Room Rent = 800 / day
YIELD = [80÷100]×[800÷1000] = 0.8 × 0.8
= 0.64 = 64 %
% YIELD = [80÷100]×[800÷1000]
= 80 % × 80 % = 64 %
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31. Yield Management Process
1. The first step is to segment the market
based on customer needs and their
ability and willingness to pay.
2. The second step is to collect the
information regarding highs / lows of
demand and capacity, and a decision as
to how to tackle the situation.
3. The third step is to take advantage of
varying needs by using the differential
pricing system
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32. Application Areas of Yield
Management :
• Benefits of yield management : Yield
management is to balance the demand
and capacity in a profitable way. The
following are a few of the advantages :
(1) It demonstrates the ability of the
management to sell its service at a
higher price, when the customers are
willing to pay.
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33. Application Areas of Yield
Management :
2. It also helps the management determine
the break-up of services to be sold at
full value and at a discounted price.
3. It helps in fixing the prices in the
discounted category using the demand
levels forecast earlier.
4. This concept also helps the organisation
manage inventory at an optimum level
and thus avoid market share erosion or
revenue dilution.
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34. CHALLENGES AND RISKS
USING YIELD MANAGEMENT :
• Yield management improves revenues. But it
is not without its disadvantages. They are the
following :
• Loss of Competitive Focus :
• Customer Alienation :
• Employee Morale Problems :
• Incompatible Incentive And Reward System :
• Lack of Employee Training :
• Inappropriate Organisation Yield
Management Function :
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35. Loss of Competitive Focus
• Yield management may result in over
focussing on profit maximisation and
inadvertent neglect of aspects of the
service that provide long term
competitive success.
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36. Customer Alienation :
• If customers learn that they are paying a
higher price for service, than someone
else, they may perceive the pricing as
unfair, particularly if they don’t
understand the reason.
• Customer education is thus essential in an
effective yield management programme.
• Customers can be further alienated if they
fall victim (and are not compensated
adequately) to overbooking practices that
are often necessary to make yield
management systems work effectively.
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37. Employee Morale Problems
• Yield management systems take much
guess work and judgement away from
sales reservations people. Although
some employees may appreciate the
guidance, others may resent the rules
and restrictions on their own
discretion.
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38. Incompatible Incentive
And Reward System :
• Employees may resent yield
management systems if these don’t
match the incentive structures. E.g.,
many managers are rewarded on the
basis of capacity utilisation or average
rate charged, whereas yield
management balances the two factors.
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39. Lack of Employee Training
• Extensive training is required to make
a yield management system work.
Employees need to understand its
purpose, how it works, how they
should make decisions, and how the
system will affect their jobs.
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40. Inappropriate Organisation
Yield Management Function
• To be most effective yield management,
an organisation must have centralised
reservations. While airlines and some
large hotel chains and shipping
companies do have such centralisation,
other similar organisations may have
decentralised reservation systems and
thus find it difficult to operate a yield
management system effectively.
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41. End of Chapter – 10 A
• © Himansu S M / 28-08-2010
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