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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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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Suggested readings
Services Marketing
by
Zeithmal and Bitner, 2nd edition
Chapter 14
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Demand management
• Services
• Cannot be stored
• Perishable
• Simultaneous production and consumption.
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COMMON SITUATIONS
• Vacant seat in
• Airlines
• Hotel
• Restaurant
• Lawyer sitting idle. Loss of billing
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Lack of inventory means:
• Excess demand
• Demand exceeds optimum capacity
• Demand and supply are balanced at the
level of optimum capacity
• Excess capacity.
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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.
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Demand exceeds optimum capacity.
• Supply not created according to demand.
• Constant overuse.
• Cannot deliver consistent quality.
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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
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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.
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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
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Narrower Fluctuation
• Insurance
• Banking
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Understanding capacity constraints
• Restaurant
• No. of Seats: 50
• Customers waiting: 200
• Can we increase seats to 200
• Unfortunately not always possible
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CONSTRAINTS
Depending on the service, constraints
can be
– Time
– Labour
– Equipment
– Facilities
– Combination of the above.
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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
last day
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Equipment constraint
Federal Express
• Delivery of mail
Greeting Cards
Christmas
New Year day
• Huge demand
Availability of trucks is a constraint
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STRATEGIES FOR MATCHING CAPACITY
AND DEMAND
Two Strategies
• Shifting demand to match capacity
• Flexing capacity to meet demand
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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?
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Various methods to shift demand
• Vary the service offering
• Communicate with customers
• Modify timing and location of service
delivery
• Differentiate on price
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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
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Vary the service offering
Airlines
• Change plane configuration
• Depending on situation-
• No first class
• Only economy class
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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
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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
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. 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
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Differentiate on Price
• Low demand
• Use price
• Customer sensitivity of demand is critical
Example
• Business travellers are less price sensitive
compared to leisure travellers
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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
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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
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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
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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.
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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
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Stretch Labour
• Employees work for longer hours
• Peak demand
Banks
• Peak demand
• Additional people deployed at front
counters/cashier
• Redeployed from back offices
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Stretch facilities
• How can
Theatres
Restaurants
Classrooms
• Can be expanded on temporary basis.
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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
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Stretch Equipment
• Stretch beyond the maximum capacity
• To accommodate peak demand
Power generation utilities
• Peak Season
• Extreme winter
• Extreme summer
• Run additional generators
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ALIGN CAPACITY WITH DEMAND
FLUCTUATIONS
• Chase demand strategy
• Match capacity with demand patterns
• Use of the resources
Time, labour, equipment, facilities
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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
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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?
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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
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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
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. Modify or move facilities and equipment
• Modification of capacities
Budget Hotels
• Peak season
• Big room converted into two smaller rooms
• Create additional capacity
• Slack season
• Remove partition
• Create bigger room
• Charge higher Prices
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If Supply and Demand cannot be matched
or aligned, what would you do?
Look at waiting line strategies
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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
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WHERE WAITING HAPPENS
• At a doctor’s clinic
• On telephone assistance
• Customer care help lines
• In a bank
• At ATM
• At petrol pumps
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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?
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WAITING LINE STRATEGIES
• Employ operational logic
• Establish a reservation process
• Differentiate waiting customers
• Make waiting fun, or at least tolerable
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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
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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
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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?
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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
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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
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Customer importance
• Old customers
• Loyal customers
• Given priority
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Job urgency
Hospital – Emergency
• Customer life at stake
• Provided immediate priority
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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.
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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
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. 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 in-
process waits
• Anxiety makes waits seem longer
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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
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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
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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
through
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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?
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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
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Unexplained waits are longer than
explained waits
• Longer wait
• If explained fine
• Unexplained
• Causes problems
• Irritation to customers
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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 first-
come, first-served policy.
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Airlines
Economy Class
– Long queues
First Class
– No queue
You get a feeling of unfairness, standing
in a queue for economy class.
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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.
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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