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Services Marketing - Demand & Capacity (2)


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Services Marketing By Himansu S M
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.

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Services Marketing - Demand & Capacity (2)

  1. 1. Services Marketing By Himansu S M MANAGING DEMAND and CAPACITY: Matching Demand & Capacity
  2. 2. 2 Waiting Line Strategies When Demand And Capacity Can't be Matched 14/08/2013 Himansu S M
  3. 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. 314/08/2013 Himansu S M
  4. 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: 414/08/2013 Himansu S M
  5. 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. 514/08/2013 Himansu S M
  6. 6. Duration of Service Transaction • Banks, supermarkets, and other retail services often provide "express lanes" for shorter, less-complicated tasks. 614/08/2013 Himansu S M
  7. 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). 714/08/2013 Himansu S M
  8. 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. 814/08/2013 Himansu S M
  9. 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 : 914/08/2013 Himansu S M
  10. 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. 1014/08/2013 Himansu S M
  11. 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 : 1114/08/2013 Himansu S M
  12. 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. 1214/08/2013 Himansu S M
  13. 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. 1314/08/2013 Himansu S M
  14. 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. 1414/08/2013 Himansu S M
  15. 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. 1514/08/2013 Himansu S M
  16. 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. 1614/08/2013 Himansu S M
  17. 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). 1714/08/2013 Himansu S M
  18. 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? 1814/08/2013 Himansu S M
  19. 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. 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. 2014/08/2013 Himansu S M
  21. 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. 2114/08/2013 Himansu S M
  22. 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. 2214/08/2013 Himansu S M
  23. 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. 2314/08/2013 Himansu S M
  24. 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. 2414/08/2013 Himansu S M
  25. 25. CONCEPT OF YIELD & ITS MANAGEMENT : 2514/08/2013 Himansu S M
  26. 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. 2614/08/2013 Himansu S M
  27. 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 : 2714/08/2013 Himansu S M
  30. 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 % 3014/08/2013 Himansu S M
  31. 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 3114/08/2013 Himansu S M
  32. 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. 3214/08/2013 Himansu S M
  33. 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. 3314/08/2013 Himansu S M
  34. 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 : 3414/08/2013 Himansu S M
  35. 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. 3514/08/2013 Himansu S M
  36. 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. 3614/08/2013 Himansu S M
  37. 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. 3714/08/2013 Himansu S M
  38. 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. 3814/08/2013 Himansu S M
  39. 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. 3914/08/2013 Himansu S M
  40. 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. 4014/08/2013 Himansu S M
  41. 41. End of Chapter – 10 A • © Himansu S M / 28-08-2010 4114/08/2013 Himansu S M