Demand and Supply in service marketing


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Demand and Supply in service marketing

  1. 1. Demand and Supply Management for Services
  2. 2.  When businesses are considering the price of their products and services, they will sometimes go and look at Supply and Demand.  Supply looks at the price setting point, from the view of the business.  Demand looks at the same process, but from the consumer/customer’s views. Demand and Supply
  3. 3. Demand  Definition – Demand means the various quantities of goods that would be purchased per time period at different prices in a given market.
  4. 4.  Demand curve is the graph depicting the relationship between the price of a certain Commodity and the amount of it that consumers are willing and able to purchase at that given price. Demand Curve
  5. 5. Demand curve The demand Curve is usually downward sloping, since consumers will want to buy more as price decreases.
  6. 6. Demand situation 1 Negative Demand The market is in a state of negative demand if; a major part of the market dislikes the product and may even pay a price to avoid it. 2 . No Demands Target consumers may be uninterested in the product 3 Latent Demand: Many consumers may share a strong need that cannot be satisfied by any existing products.
  7. 7. 4 Irregular Demand Organizations face demand that varies on a seasonal, daily or even hourly basis, causing problems of idle capacity or overcrowded capacity. 5 Full Demand Organizations face full demand when they are pleased with there volume of business. 6 Overfull Demands Some organizations face a demand level that is higher then they can or want to handle. 7 Unwholesome Demand Unwholesome products will attract organized effort to discourage their consumption
  8. 8. Demand Patterns  Irregular demand  Falling demand  Demand to the level of optimum capacity  Demand exceeds optimum capacity  Demand below the optimum capacity  Excess demand
  9. 9. Strategies for Demand Management  Strategies for shifting demand to match service capacity. Communicating busy days and timings. Providing incentives during non -peak periods. Identifying regular customers and serving them first. Scheduling services segment wise
  10. 10. Strategies for Demand Management  Strategies to increase the demand Aggressive promotion Entry into new segments Offering price incentives Change in service timings Promote word-of mouth communication Providing service conveniences to the customer
  11. 11.  Demand Too High flex capacity Demand Too Low • Stretch time, labor, facilities and equipment. • Cross-train employees. • Hire part-time employees. • Request overtime work from employees. • Rent or share facilities. • Rent or share equipment. • Subcontract or outsource activities. • Outsource. • Perform maintenance, renovations. • Schedule vacations. • Schedule employee training. • Lay off employees
  12. 12. Waiting issues: unoccupied time feels longer preprocess waits feel longer anxiety makes waits seem longer uncertain waits seem longer than finite waits unexplained waits seem longer unfair waits feel longer Longer waits are more acceptable for“valuable”services solo waits feel longer Management of Demand in Waiting
  13. 13. Waiting Strategies  Employ operational logic to reduce wait  Establish a reservation process  Differentiate waiting customers  Make waiting fun, or at least tolerable
  14. 14.  Definition – Supply is the amount of goods that producers are willing to supply or sell at a given price. Supply Managing supply means managing capacity. Capacity is the extent of the ability of a system to deliver the service it was designed to deliver. Capacity is defined as the maximum rate of output.
  15. 15. 0 0.5 1 1.5 2 2.5 3 3.5 4 0 10 20 30 40 50 60 70 80 90 Supply Curve Price ($) Quantity Supplied
  16. 16. Constraints on capacity Nature of the constraint Type of service Time Legal Consulting Accounting Medical Labor Law firm Accounting firm Consulting firm Health clinic Equipment Delivery services Telecommunication Utilities Health club Facilities Hotels Restaurants Hospitals Airlines Schools Theaters Churches
  17. 17. Tailoring the level of Capacity  Elastic strategies: “simple” restaurant menu during peak times, less leg space and extra seats in an airplane, etc.  Chase demand: hire part-time people and rent more equipment at peak times; or scheduling employee vacations, sending people to training programs, renting out equipment.
  18. 18. Managing supply Two measures of capacity utilization:  percentage of the total time that facilities and equipment are in revenue operation;  percentage of the physical space (seats, cubic freight capacity) utilized during operations.
  19. 19. Managing supply Increasing customer participation Renting Equipment Automation Extending Service Hours Better SchedulingTools and Practises Expanding / Renovating Facilities
  20. 20.  Equilibrium is when the Demand and Supply are equal. Equilibrium
  21. 21. Equilibrium 0 0.5 1 1.5 2 2.5 3 3.5 4 0 10 20 30 40 50 60 70 80 90 Price ($) Quantity Demanded Equilibrium is when both Supply and Demand curves intersect.The equilibrium is in the middle, which is the amount that the sellers and/or buyers are happy to pay/sell for the selected products. Therefore, in this case the amount demanded at the price of approx. $2.20, would be approximately 48, because this is the equilibrium point. Equilibrium
  22. 22.  When supply and demand are equal (i.e. when the supply function and demand function intersect) the economy is said to be at equilibrium.At this point, the allocation of goods or services is at its most efficient because the amount of goods or services being supplied is exactly the same as the amount of goods or services being demanded.Thus, everyone (individuals, firms, or countries) is satisfied with the current economic condition.At the given price, suppliers are selling all the goods or services that they have produced and consumers are getting all the goods or services that they are demanding.
  23. 23. Managing supply  Increasing customer participation  Renting Equipment  Expanding / Renovating Facilities  Automation  Extending Service Hours  Better SchedulingTools and Practices