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Coping with Fluctuating Demand for Services: Strategies and Challenges

This chapter explores the significant problem of demand management in services marketing. It discusses the nature of service demand, chasing demand with service capacity, smoothing demand to fill service capacity, and the distinction between maximum and optimum capacity.

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Coping with Fluctuating Demand for Services: Strategies and Challenges

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  1. Chapter 14 Coping with Fluctuating Demand for Services

  2. Objectives • To show why demand management is a significant problem for services marketing • To explain the nature of the service demand • To explore chasing demand with service capacity • To examine smoothing demand to fill services capacity • To discuss the distinction between maximum and optimum capacity

  3. Outline • Introduction • Why Is Services Demand a Problem? • The Nature of Service Demand • Chasing Demand with Service Capacity • Soothing Demand To Fill Service Capacity • Maximum Versus Optimum Capacity • Summary and Conclusion

  4. Why Is ServicesDemand a Problem? • Demand cycles – Services must often cope with the ebb and flow of demand that is often deeply ensconced in customers’ behavioral patterns. • Perishability – Services usually exist only for the time during which they are performed --- unused service capacity is not available for later use when demand is great. • One of the most troublesome aspects of services for practitioners— • Too much demand and customers are turned away • Not enough demand and resources go unused.

  5. The Nature of Service Demand • Random fluctuation occurs without warning and is hard to accommodate • Predictable fluctuation occurs when customer demand follows a pattern that repeats itself over time • The key is to identify the pattern and the reasons for it. • Such information will help organizations determine what they can do to address demand swings. • Demand cycles can vary across different time frames

  6. The Nature ofService Demand (cont’d)

  7. Chasing Demandwith Service Capacity • Service capacity comes in three forms • The physical facility in which the service is performed or rendered, e.g., the number of rooms in a hotel • The personnel whose labor and skill level create the service, e.g., the number and skill level of workers available • The equipment that enables the service to occur, e.g., the technology and apparatus associated with the service provision

  8. Chasing Demandwith Service Capacity(cont’d) • Successful service organizations strike a balance between capacity and demand • One way to accomplish that is by Chasing Demand with the organization’s productive capacity (facilities, labor, equipment) • Stretch Capacity to accommodate high demand (e.g., add part time workers) • Shrink Capacity in response to low demand (e.g., schedule facility improvements)

  9. Smoothing Demand toFill Service Capacity • A balance between capacity and demand can also be attempted by efforts aimed at Smoothing Demand • shifting patronage to times when a service's productive capacity is underused • deflecting or discouraging patronage when it is oversubscribed. • Smoothing Demand is accomplished by using the elements of the marketing mix, e.g., heavy promotion to encourage patronage or higher prices to deflect patronage to other times.

  10. Inventorying Demand • Organizations can Inventory Demand, i.e., gain knowledge of customer demand that needs to be accommodated by: • Formal Queuing—using a system to organize the demand • Reservation Systems—scheduling the demand to fit the capacity

  11. Inventorying Demand(cont’d)

  12. Do Nothing • One option an organization has is to Do Nothing about fluctuating demand. • Ideally, customers will adjust to the situation by staying away when there is no capacity and patronizing when known capacity exists. • Somewhat risky approach, however. • Instead, astute organizations will attempt to Chase Demand and Smooth Demand, often a the same time, to bring a balance between capacity and demand

  13. Demand Strategies

  14. Maximum VersusOptimum Capacity • Optimum Capacity is the number of customers that can be effectively handled under ideal conditions • Maximum Capacity is when all of the capacity is utilize • Typically, Optimum Capacity is not Maximum Capacity • Creating demand greater than maximum capacity may result in negative experiences • Maximum capacity does not always mean maximum profits

  15. Maximum VersusOptimum Capacity(cont’d) • When demand exceeds even maximum capacity two possible responses are the customers have to wait or the customers leave • If they leave, they may go to competitors or at the very least be disappointed • If they wait, it’s a good idea to make the wait tolerable • Most customers do not enjoy waiting • A poorly managed wait can put customers in a bad mood, potentially creating negative consequences once they gain entry to the service delivery system • Principles of Waiting provide insights

  16. Maximum VersusOptimum Capacity(cont’d)

  17. Web Sites • Hooters (http://www.hooters.com), p. 212 • U.S. Postal Service (http://www.usps.com), p. 220

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