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Chapter 9. Balancing Demand and Capacity


LearningObjectives
Bytheendofthischapter,thereadershouldbeableto:

Highlights

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LO1Knowthedifferentdemandsupplysituationsthatfixedcapacityfirmsmay
face.

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LO2Describethebuildingblocksofdealingwiththeproblemoffluctuating

demand.

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LO3Understandwhatismeantbyproductivecapacityinaservicecontext.

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LO4Befamiliarwithbasicwaystomanagecapacity.

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LO5Understanddemandpatternsandrecognizethatdemandvariesbysegment,

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soexaminehowtopredictsegmentspecificvariationsindemand.

LO6Befamiliarwiththefivebasicwaystomanagedemand.

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LO7Understandhowtousethemarketingmixelementsofprice,product,place,
andpromotiontosmoothoutfluctuationsindemand.

LO8Knowhowtousewaitinglinesandqueuingsystemstoinventorydemand.

LO9Understandhowcustomersperceivewaitsandhowtomakewaitingless
burdensomeforthem.

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LO10Knowhowtousereservationsystemstoinventorydemand.

Figure9.1.ThebeautyandsplendorofTungudalur,askiresortin
Westfjords,Iceland,isnowenjoyedallyearlong.

OpeningVignette:SummerontheSkiSlopes
Itusedtobethatskiresortsshutdownoncethesnowmeltedandnoskiingcouldbedone
ontheslopes.Thechairliftsstoppedoperating,therestaurantsclosed,andthelodgeswere
lockeduntilthenextwinter.Overtime,however,someskioperatorsrecognizedthata
mountainofferssummerpleasures,too.Theykeptlodgingandrestaurantsopenforhikers

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andpicnickers.Someevenbuiltalpineslides,curvingtracksinwhichwheeledtoboggans
couldrunfromthetopofthemountaintothebase.Thiscreateddemandforticketsonthe
skilifts.
Thearrivalofthemountainbikingcrazecreatedopportunitiesforequipmentrentalsaswell
aschairliftrides.KillingtonResortinVermonthaslongencouragedsummervisitorstoride
tothetop,seetheview,andeatatthemountaintoprestaurant.Now,however,italso
enjoysabriskbusinessinrentingmountainbikesandrelatedequipment(suchashelmets).
Besidethebaselodge,whereracksofskisareavailableforrentalinwinter,thesummer
visitorcannowchoosefromrowsofmountainbikes.Usually,bikersusethespecially
equippedchairliftstocarrytheirbikesuptothetopofthemountain,andthenridethem
downmarkedtrails,but,onceinawhile,abikerwillactuallychoosetorideupthe
mountain.Serioushikersdothesametheyclimbtothetopthroughtrails,get
refreshmentsattherestaurant,andthentakethechairliftbackdowntothebase.
Mostlargeskiresortslookforavarietyofadditionalwaystoattractgueststotheirhotels
andrentalhomesduringthesummer.MontTremblantinQubec,forinstance,islocated
besideanattractivelake.Inadditiontoswimmingandotherwatersportsonthelake,the
resortoffersvisitorsactivitieslikeachampionshipgolfcourse,tennis,rollerblading,and
speciallydesignedactivitiesforchildren.Hikersandmountainbikersridetheliftsupthe
mountain.Thisisawonderfulexampleofhowservicedevelopmentandmarketing
generateddemandforotherwiseidleservicecapacity!

HikingatSnowbirdSkiandSummerResort

SkiingatSnowbirdSkiandSummerResort

Fluctuations in Demand Threaten Profitability


Manyserviceswithlimitedcapacityfacewideswingsindemand.IntheOpeningVignette,
thiswideswingindemandiscausedbythechangeofseasons.Thisisaproblembecause
servicecapacityusuallycannotbekeptasideforsaleatalaterdate.Theeffectiveuseof
expensiveproductivecapacityisoneofthesecretsofsuccessinsuchbusinesses.Thegoal
shouldbetoutilizestaff,labor,equipment,andfacilitiesasproductivelyaspossible.By
workingwithmanagersinoperationsandhumanresources,servicemarketersmaybeable
todevelopstrategiestobringdemandandcapacityintobalanceinwaysthatcreate
benefitsforcustomersaswellastoimproveprofitabilityforthebusiness.Forskiresort
operators,theeffectiveuseofcapacitypostwinterrequireschangingthenatureofthe
activitiessothattheslopesandfacilitiescanstillbeutilized.

Figure9.2.Keepingabalancebetweendemandandcapacityisawinwin
forbusinessownersandcustomers.

From Excess Demand to Excess Capacity


Forfixedcapacityfirms,theproblemisafamiliarone.Itseitherfeastorfamineforus!
sighsthemanager.Inpeakperiods,weredisappointingprospectivecustomersbyturning
themaway.Inlowperiods,ourfacilitiesareidle,ouremployeesarestandingaround
lookingbored,andwerelosingmoney.Inotherwords,demandandsupplyarenotin
balance.

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LO1
Knowthedifferentdemandsupplysituationsthatfixedcapacityfirmsmayface.
Atanygivenmoment,afixedcapacityservicemayfaceoneoffourconditions(seeFigure
9.3):
ExcessdemandThelevelofdemandexceedsmaximumavailablecapacity.Asaresult,
somecustomersaredeniedserviceandbusinessislost.
DemandexceedsoptimumcapacityNooneisturnedaway,butconditionsarecrowded,
servicequalityseemsworse,andcustomersmayfeeldissatisfied.
Demandandsupplyarewellbalancedatthelevelofoptimumcapacity.Staffandfacilities
arebusywithoutbeingoverworked,andcustomersreceivegoodservicewithoutdelays.
ExcesscapacityDemandisbelowoptimumcapacity,andproductiveresourcesarenot
fullyused,resultinginlowproductivity.Whenthereislowusage,thereisariskthat
customersmayfindtheexperiencedisappointingorhavedoubtsaboutwhetherthefirm
cansurvive.

Figure9.3.Implicationsofvariationsindemandrelativetocapacity.

Sometimes,optimumandmaximumcapacitiesareoneandthesame.Atalivetheateror
sportsperformance,afullhouseisgrand,sinceitexcitestheplayersandtheaudience.It
createsamoresatisfyingexperienceforall.Withmostotherservices,however,you
probablyfeelthatyougetbetterserviceifthefacilityisnotoperatingatfullcapacity.The
qualityofrestaurantservice,forinstance,oftenbecomesworsewheneverytableis
occupiedbecausethestaffisrushedandthereisagreaterlikelihoodoferrorsordelays.If
youaretravelingaloneinanaircraftwithhighdensityseating,youtendtofeelmore
comfortableiftheseatnexttoyouisempty.

Building Blocks of Managing Capacity and Demand


LO2
Describethebuildingblocksofdealingwiththeproblemoffluctuatingdemand.
Therearetwobasicapproachestotheproblemoffluctuatingdemand.Oneistoadjustthe
levelofcapacitytomeetvariationsindemand.Thisrequiresanunderstandingofwhat
productivecapacitymeansandhowitmaybeincreasedordecreased.Thesecondapproach
istomanagethelevelofdemand.Thisrequiresagoodunderstandingofdemandpatterns
anddriversonasegmentbysegmentbasis,sothatfirmscanusemarketingstrategiesto
smoothoutvariationsindemand.Mostservicefirmsuseamixofbothapproaches.

Figure9.4showsthefourbuildingblocksthattogetherprovideanintegrativeapproachto
balancingcapacityanddemand.Theremainderofthischapterisorganizedalongthesefour
buildingblocks.

Figure9.4.Buildingblocksofmanagingcapacityanddemand.

Defining Productive Service Capacity


LO3
Understandwhatismeantbyproductivecapacityinaservicecontext.
Whenwerefertomanagingcapacity,weimplicitlymeanproductivecapacity.Thisterm
referstotheresourcesorassetsthatafirmcanusetocreategoodsandservices.Theseare
typicallykeycostcomponentsandneedtobemanagedcarefully.Inaservicecontext,
productivecapacitycantakeseveralforms:
1.Physicalfacilitiesdesignedtocontaincustomersandusedforpeopleprocessingservices
ormentalstimulusprocessingservices.Examplesincludemedicalclinics,hotels,passenger
aircrafts,andcollegeclassrooms.Themainformofcapacitylimitationislikelytobein
termsoffurnishingssuchasbeds,rooms,orseats.Insomecases,locallawsmaylimitthe
numberofpeopleallowedinaphysicalfacilityforhealthorsafetyreasons(Figure9.5).

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Figure9.5.Cinemashavetofollowstrictsafetyregulationsonseating
capacityincaseoffireemergencies.

2.Physicalfacilitiesdesignedforstoringorprocessinggoodsthateitherbelongtocustomers
orarebeingofferedtothemforsale.Examplesincludepipelines,warehouses,parkinglots
(Figure9.6),andrailroadfreightwagons.

Figure9.6.Carparksstorecustomerscarstemporarilywhentheyare
outshopping.

3.Physicalequipmentusedtoprocesspeople,possessions,orinformationmayincludea
hugerangeofitemsandmaybeverysituationspecific.Examplesincludediagnostic
equipment(Figure9.7),airportsecuritydetectors,tollgates,andbankATMs.Ifthereis
notenoughequipmentcapacityforagivenlevelofdemand,itcanbringservicetoacrawl
(orevenacompletestop).

Figure9.7.Productivecapacityisexpressedintermsofavailablehoursfor
MRIscanningequipment.

4.Laborisakeyelementofproductivecapacityinallhighcontactservicesandmanylow
contactones(Figure9.8).Ifnotenoughstaffareonduty,customersmightbekeptwaiting
orservicebecomesrushed.Professionalservicesareespeciallydependentonhighlyskilled
stafftocreatehighvalueadded,informationbasedoutput.AbrahamLincolncapturedit
wellwhenhesaidthatalawyerstimeandexpertisearehisstockintrade.

Figure9.8.Restaurantsneedtoensuresufficientmanpowertomeet
customerdemands.

5.Infrastructure.Manyorganizationsaredependentonaccesstosufficientcapacityina
publicorprivateinfrastructuretobeabletodeliverqualityservicetotheirowncustomers.
Capacityproblemsofthiskindmayincludecrowdedairwaysthatleadtoairtraffic
restrictionsonflights,trafficjamsonmajorhighways,andpowerfailures(orbrownouts
causedbyreducedvoltage).
Financialsuccessinbusinessesthatarelimitedincapacitydependslargelyonhowtheir
capacityisused.Ifcapacityisalwaysusedefficientlyandprofitably,thatwouldbeideal.In
practice,however,itisdifficulttoachievethis.Demandlevelsarenottheonlyfactorsthat
changeovertime.Thetimeandeffortrequiredtoprocesseachpersonorthingmayalso
varywidelyatanypointintheprocess.Inbothprofessionalservicesandrepairjobs,
diagnosisandtreatmenttimesvaryaccordingtothenatureofthecustomersproblems.

Managing Capacity

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Managing Capacity
LO4
Befamiliarwithbasicwaystomanagecapacity.
Althoughservicefirmsmayencountercapacitylimitationsbecauseofvaryingdemand,
thereareanumberofwaysinwhichcapacitycanbeadjustedtoreducetheproblem.
Capacitycanbestretchedorshrunk,andtheoverallcapacitycanbeadjustedtomatch
demand.

Stretching Capacity Levels


Here,theactuallevelofcapacityremainsunchanged.Morepeoplearebeingservedwith
thesamelevelofcapacity.Forexample,thenormalcapacityforasubwaycarmayoffer40
seatsandallowstandingroomforanother60passengerswithenoughhandrailandfloor
spaceforall.Yet,atrushhour,perhapsupto200peoplecansqueezeintoasubwaycar,
althoughundersardinelikeconditions(Figure9.9).Similarly,thecapacityofservice
personnelcanbestretched,andstaffmaybeabletoworkathighlevelsofefficiencyfor
shortperiodsoftime.However,staffwouldquicklytireandbegintoprovidepoorserviceif
theyhadtoworkthatfastforaprolongedperiodoftime.

Figure9.9.Rushhourcrowdstretchesthecapacityoftrainservices.

Anotherwaytostretchcapacityistousefacilitiesforlongerperiods.Forexample,some
banksextendtheiropeninghoursduringweekdaysandevenopenonweekends.
Universitiesmayoffereveningandweekendclassesaswellassummersemesterprograms.
Lastly,theaverageamountoftimethatcustomers(ortheirpossessions)spendinthe
processmaybereduced.Sometimes,thisisachievedbyminimizingslacktime.For
example,arestaurantcanbuzztables,seatarrivingdiners,andpresentmenusquickly,and
thebillcanbepresentedpromptlytoagroupofdinersrelaxingatthetableafterameal.
2

Inotherinstances,itmaybeachievedbycuttingbackthelevelofservice,say,offering

asimplermenuatbusytimesoftheday.

Adjusting Capacity to Match Demand


Unlikethepreviousoption,thisoptioninvolveschangingtheoveralllevelofcapacityto
matchvariationsindemand.Thisstrategyisalsoknownaschasingdemand.Thereare
severalactionsthatmanagerscantaketoadjustcapacityasneeded.

Theseactions

startfromtheeasiesttoimplement,tothemoredifficult.
Scheduledowntimeduringperiodsoflowdemand.Tomakesurethat100%ofcapacityis
availableduringpeakperiods,maintenance,repair,andrenovationsshouldbecarriedout
whendemandisexpectedtobelow.Employeesshouldtaketheirholidaysduringsuch
periods.
Crosstrainemployees.Evenwhentheservicedeliverysystemappearstobeoperatingat
fullcapacity,certainemployeesmaynotbebusy.Ifemployeescanbecrosstrainedto
performavarietyoftasks,theycanbeshiftedtowherehelpisneededmost,thereby
increasingtotalcapacity.Insupermarkets,forinstance,themanagermaycallonstockers
tooperatecashregisterswhenlinesbecometoolong.Likewise,duringslowperiods,the
cashiersmaybeaskedtohelpstockshelves(Figure9.10).

Figure9.10.Supermarketemployeesarecrosstrainedascashiersand
stockers.

Useparttimeemployees.Manyorganizationshireextraworkersduringtheirbusiest
periods.ExamplesincludepostalworkersandretailstoreassociatesduringtheChristmas
season,extrastafffortaxpreparationservicefirmsattheendofthefinancialyear,and
additionalhotelemployeesduringholidayperiodsandformajorconferences.
Invitecustomerstoperformselfservice.Ifthenumberofemployeesislimited,capacity
canbeincreasedbyinvolvingcustomersincoproductionofcertaintasks.Onewaytodo
thisisbyaddingselfservicetechnologiessuchaselectronickiosksattheairportforairline
ticketingandcheckin,orautomatedcheckoutstationsatsupermarkets.
Askcustomerstoshare.Capacitycanbestretchedbyaskingcustomerstoshareaunitof
capacitynormallymeantforoneindividual.Forinstance,atbusyairportsandtrainstations,
ifthesupplyoftaxisisnotenoughtomeetdemand,travelersgoinginthesamedirection
maysometimesbegiventhechoiceofsharingarideatalowerrate.
Createflexiblecapacity.Sometimes,theproblemdoesnotlieinoverallcapacitybutin
themixavailabletoservetheneedsofdifferentmarketsegments.Onesolutionistodesign
physicalfacilitiestobeflexible.Forexample,thetablesinarestaurantcanbealltwo
seaters.Whennecessary,twotablescanbecombinedtoseatfourpeople,orthreetables

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combinedtoseatsix.Inanairlinecontext,anairlinemayhavetoofewseatsineconomy
eventhoughthereareemptyseatsinthebusinessclasscabinonagivenflight.When
designingits777airliner,BoeingfacedstiffcompetitionfromAirbusandwhatwere
describedasoutrageousdemandsfrompotentialcustomers.Theairlineswantedan
aircraftinwhichgalleysandlavatoriescouldberelocated,plumbingandall,toalmost
anywhereinthecabinwithinamatterofhours.Boeingmanagedtosolvethischallenging
problem.Airlinescanrearrangethepassengercabinofthe777withinhours,varyingthe
numberofseatsamongdifferentclasses.
Rentorshareextrafacilitiesandequipment.Toreducespendingonfixedassets,aservice
businessmaybeabletorentextraspaceormachinesatpeaktimes.Twofirmswith
complementarydemandpatterns,wherewhenoneishighandtheotherislow,mayenter
intoformalsharingagreements.Forexample,someuniversitiesrentoutstudent
accommodationtovisitorsduringthepeakholidayseasonwhentheirownstudentshave
theirsummerbreakandthefirstyearstudentshavenotmovedontocampusyet.

Understanding Patterns of Demand


LO5
Understanddemandpatternsandrecognizethatdemandvariesbysegment,soexamine
howtopredictsegmentspecificvariationsindemand.
Nowletslookattheothersideoftheequation.Inordertoeffectivelymanagedemandfor
aparticularservice,managersneedtounderstandthatdemandoftendiffersbymarket
segment.Forinstance,arepairandmaintenanceshopthatservicesindustrialelectrical
equipmentmayalreadyknowthatacertainproportionofitsworkconsistsofregularly
scheduledjobs(Figure9.11).Therestmaycomefromwalkinbusinessandemergency
repairs.Althoughitmightseemhardtopredictorcontrolthetimingandvolumeofsuch
work,furtheranalysismightshowthatthereismorewalkinbusinessonsomedaysofthe
weekthanothers.Forexample,emergencyrepairsareoftenrequestedfollowingdamage
duetothunderstorms(whichtendtobeseasonalinnatureandcanoftenbepredictedaday
ortwoinadvance).Ifafirmunderstandsitsservicedemandpatterns,itisabletoschedule
lesspreventivemaintenanceworkondayswhereahighlevelofdemandisexpectedsothat
itcantakeonmoreprofitableemergencyrepairs.

Figure9.11.Scheduledmaintenancechecksatapowerplant.

Tounderstandthepatternsofdemandbysegment,weshouldbeginbygettingsome
answerstoaseriesofimportantquestionsaboutthepatternsofdemandandtheir
underlyingcauses(Table9.1).
Table9.1.Questionsaboutdemandpatternsandtheirunderlyingcauses

Mostcyclesinfluencingdemandforaparticularservicevaryinlengthfromonedayto12
months.Inmanyinstances,multiplecyclesmayoperateatthesametime.
Forexample,demandlevelsforpublictransportmayvarybytimeofday(highestduring
commutehours),dayofweek(lesstraveltoworkonweekendsbutmoreleisuretravel),
andseasonofyear(moretravelbytouristsinsummer)(Figure9.12).Thedemandfor
serviceduringthepeakperiodonaMondayinsummerislikelytobeverydifferentfrom
thedemandduringthepeakperiodonaSaturdayinwinter.Thisshowsdayofweekand
seasonalvariationsatthesametime.Nostrategyforsmoothingdemandislikelyto
succeedunlessthefirmunderstandswhycustomersfromamarketsegmentchoosetouse
theservicewhentheydo.Forexample,ifyoutrytogetcommuterstoshifttheirtravelto
offpeakperiods,itislikelytofail.Thisisbecausetravelisdeterminedbypeoples
employmenthours.

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Figure9.12.Insummer,manytouristsflocktoCologne,Germany,totake
initsrichheritage.

Keepinggoodrecordsofeachtransactionhelpsalotwhenitcomestoanalyzingdemand
patternsbasedonpastexperience.Queuingsystemssupportedbysophisticatedsoftware
canautomaticallytrackcustomerconsumptionpatternsbytypeofcustomer,service
requested,anddateandtimeofday.Whereitisrelevant,itisalsousefultorecordweather
conditionsandotherspecialfactors(astrike,anaccident,abigconventionintown,aprice
change,thelaunchofacompetingservice,etc.)thatmighthaveinfluenceddemand.

Managing Demand
LO6
Befamiliarwiththefivebasicwaystomanagedemand.
Oncewehaveunderstoodthedemandpatternsofthedifferentmarketsegments,wecan
managedemand.Therearefivebasicapproachestomanagingdemand:
Takenoactionandleavedemandtofinditsownlevels.
Reducedemandinpeakperiods.
Increasedemandinlowperiods.
Inventorydemandusingaqueuingsystem.
Inventorydemandusingareservationsystem.
Table9.2linksthesefiveapproachestothetwoproblemsofexcessdemandandexcess
capacity.Manyservicebusinessesfacebothsituationsatdifferentpointsinthecycleof
demandandshouldconsideruseofthestrategiesdescribed.Nextinthissection,wewill
discusshowmarketingmixelementscanhelptoshapedemandlevels.Thisisfollowedby
twosectionsonhowtoinventorydemandthroughwaitinglinesandqueuingsystems,and
thenthroughreservationsystems.
Table9.2.Alternatedemandmanagementstrategiesfordifferentcapacity
situations

Marketing Mix Elements Can Be Used to Shape Demand Patterns


LO7
Understandhowtousethemarketingmixelementsofprice,product,place,andpromotion
tosmoothoutfluctuationsindemand.
Severalmarketingmixvariablescanbeusedtoencouragedemandduringperiodsofexcess
capacityandtodecreaseorshiftdemandduringperiodswhenthereisalackofcapacity.
Priceoftenisthefirstvariabletobeproposedforbringingdemandandsupplyintobalance
(Figure9.13).However,changesinproduct,distributionstrategy,andcommunication
effortscanalsobeusedtoreshapedemandpatterns.Althoughwediscusseachelement
separatelyhere,effectivedemandmanagementeffortsoftenrequirechangesintwoor
moreelementsatthesametime.

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Figure9.13.Managersareinstrumentalinpricingaproductorservice.

Use Price and Nonmonetary Costs to Manage Demand

Oneofthemostdirectwaystobalancesupplyanddemandisthroughtheuseofpricing.
Nonmonetarycosts,too,mayhaveasimilareffect.Forinstance,ifcustomerslearnthey
arelikelytofaceincreasedtimeandeffortcostsduringpeakperiods,thosewhodislike
spendingtimewaitingincrowdedandunpleasantconditionswilltrytocomeduringless
busytimes.Similarly,cheaperpricesmayencourageatleastsomepeopletochangethe
timingoftheirbehavior,whetheritisforshopping,travel,orsendinginequipmentfor
repair.
Forthemonetarypriceofaservicetobeeffectiveasademandmanagementtool,
managersmusthavesomesenseoftheshapeandslopeofaproductsdemandcurve.They
mustunderstandhowthequantityofservicedemandedrespondstochangesinthepriceper
unitataparticularpointintime.Itsalsoimportanttodeterminewhetherthedemand
curveforaspecificservicevariessharplyfromonetimeperiodtoanother.Forinstance,will
thesamepersonbewillingtopaymoreforaweekendstayinahotelonCapeCodin
summerthaninwinter(whentheweathercanbefreezing)?Theanswerisprobablyyes.
Ifso,verydifferentpricingschemesmaybeneededtofillcapacityineachtimeperiod.
Whencapacityislimited,however,thegoalinaprofitseekingbusinessshouldbetomake
asmuchuseofthecapacityaspossibleforthemostprofitablesegmentsatanygiventime.
Capacityavailabilitywillbeprioritizedforthefirmsmostvaluablesegments.Airlines,for
instance,holdacertainnumberofseatsforbusinesspassengerspayingfullfareandplace
manyconditionsonfaresfortourists(usingnonphysicalratefencessuchasrequiring
advancepurchaseandaSaturdaynightsstay).Thisistopreventbusinesstravelersfrom
takingadvantageofcheapfaresdesignedtoattracttouristswhocanhelpfilltheaircraft.
Pricingstrategiesofthisnatureareknownasrevenuemanagementandarediscussedin
Chapter6.
Change Product Elements

Sometimes,pricingalonewillbeineffectiveinmanagingdemand.TheOpeningVignetteis
agoodcaseinpoint.Ifthereisnosnowforskiingopportunities,noskierswouldbuylift
ticketsforuseonamidsummerdayatanyprice.Itisthesameforavarietyofother
seasonalbusinesses(Figure9.14).Thus,educationalinstitutionsofferweekendandsummer
programsforadultsandseniorcitizens.Smallpleasureboatsoffercruisesinthesummer
andadocksidevenueforprivatefunctionsinwintermonths.Thesefirmsrecognizethatno
amountofpricediscountingislikelytobringinbusinessoutofseason.Therefore,anew
serviceproducttargetedatdifferentsegmentsisneededtoencouragedemand.

Figure9.14.Bedandbreakfastinnsaredependentontheseasonaltideof
tourists.

Duringthecourseofa24hourperiod,therecanbeproductvariations.Somerestaurants
provideagoodexampleofthis.Theychangemenusandlevelsofserviceatdifferenttimes
oftheday,varylightinganddecor,andopenorclosethebar.Thegoalistoappealto
differentneedswithinthesamegroupofcustomers,toreachouttodifferentcustomer
segments,ortodoboth,accordingtothetimeofday.Productelementscanalsobe
changedtoincreasecapacityduringpeakperiods.Forexample,thelunchmenuisdesigned
tocontainonlydishesthatarefasttoprepareduringthebusylunchperiod.
Modify the Place and Time of Delivery

Ratherthantryingtochangedemandforaservicethatcontinuestobeofferedatthesame
timeinthesameplace,firmscanalsochangethetimeandplaceofdelivery.Thefollowing
basicoptionsareavailable:
Varythetimeswhentheserviceisavailable.Thisstrategyshowschangingcustomer
preferencebydayofweek,byseason,andsoon.Forexample,peopleusuallyhavemore
timetowatchmoviesonweekends.Therefore,therearemoretimeslotsforshowson

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weekendsthanonweekdays.Similarly,retailersalsotendtostayopentilllateronFridays
andSaturdaysastherearemoreshoppersonthosedays.Shopsmayalsoextendtheirhours
inthedaysleadinguptoChristmasorduringschoolholidayperiods.
Offertheservicetocustomersatanewlocation.Oneapproachistooperatemobileunits
thattaketheservicetocustomers,ratherthanrequiringthemtovisitfixedsiteservice
locations.Travelinglibraries,mobilecarwashservices,inofficetailoringservices,home
deliveredmealsandcateringservices,andvansequippedwithprimarycaremedical
facilitiesareexamplesofthis.Acleaningandrepairfirmthatwishestogeneratebusiness
duringlowdemandperiodsmightofferfreepickupanddeliveryofmovableitemsthatneed
servicing.
Promotion and Education

Eveniftheothervariablesofthemarketingmixremainunchanged,communicationefforts
alonemaybeabletohelpsmoothdemand.Signage,advertising,publicity,andsales
messagescanbeusedtoeducatecustomersaboutthetimingofpeakperiodsandencourage
themtomakeuseoftheserviceatoffpeaktimeswhentherewillbefewerdelays.

ExamplesincludeUSPostalServicerequeststoMailEarlyforChristmas,and
communicationsfromsalesrepstoindustrialmaintenancefirmsadvisingcustomersof
periodswhenpreventivemaintenanceworkcanbedonequickly.Inaddition,management
canaskservicepersonnel(orintermediariessuchastravelagents)toencouragecustomers
withflexibleschedulestofavoroffpeakperiods.
Changesinpricing,productcharacteristics,anddistributionmustbecommunicatedclearly.
Ifafirmwantstoobtainaparticularresponsetovariationsinmarketingmixelements,it
must,ofcourse,informcustomersfullyabouttheirchoices.AsdiscussedinChapter7,short
termpromotionsthatcombinebothpricingandcommunicationelements,aswellasother
incentives,mayprovidecustomerswithattractiveincentivestoshiftthetimingofservice
usage.
Notalldemandisdesirable.Somedemandsareunrelatedtoafirmsserviceortakeup
moreofthefirmsservicecapacitythanisdesired.Suchundesirabledemandcanbe
discouragedthrougheducationandcommunication.Discouragingundesirabledemandmay
helptokeeppeakdemandlevelswithintheservicecapacityoftheorganization.For
example,ServiceInsights9.1showshowamarketingcampaignwasusedtoreduce
undesirabledemandforemergencyservicesandfreeupcapacity.Manycallsto911numbers
arenotreallyproblemsthatfire,police,orambulanceservicesshouldbesolving.Suchcalls
makeitdifficultfortheorganizationtorespondtotherealneedsofitstargetcustomers.

ServiceInsights9.1:DiscouragingDemandforNon

emergencyCalls
Haveyoueverwonderedwhatitsliketobethepersonwhosendsoutthe
emergencyvehiclesforanemergencytelephoneservicesuchas911?People
differwidelyinwhattheyconsidertobeanemergency.
ImagineyourselfinthehugecommunicationsroomatPoliceHeadquarters
inNewYork.Agrayhairedsergeantistalkingpatientlybyphonetoawoman
whohasdialed911becausehercathasrunupatreeandshesafraidits
stuckthere.Maam,haveyoueverseenacatskeletoninatree?the
sergeantasksher.Allthosecatsgetdownsomehow,dontthey?Afterthe
womanhashungup,thesergeantturnstoavisitorandshrugs.Thesekinds
ofcallskeeppouringin,hesays.Whatcanyoudo?Thetroubleis,when
peoplecalltheemergencynumberwithcomplaintsaboutnoisypartiesnext
door,pleastorescuecats,orrequeststoturnoffleakingfirehydrants,they
maybeslowingresponsetimestofires,heartattacks,orviolentcrimes.
Atonepoint,thesituationinNewYorkCitygotsobadthatofficialswere
forcedtodevelopamarketingcampaigntodiscouragepeoplefrommaking
inappropriaterequestsforemergencyassistancethroughthe911number.
Theproblemwasthat,whatmightseemlikeanemergencytothecallera
belovedcatstuckupatree,anoisypartythatwaspreventingatiredperson
fromgettingneededsleepwasnotalife(orproperty)threateningsituation
ofthetypethatthecitysemergencyservicesshouldbecalledontosolve.So
acommunicationscampaign,usingavarietyofmedia,wasdevelopedto
urgepeoplenottocall911unlesstheywerereportingadangerous
emergency.Forhelpinresolvingotherproblems,theywereaskedtocalltheir
localpolicestationorothercityagencies.

Inventory Demand through Waiting Lines and Queuing Systems


LO8
Knowhowtousewaitinglinesandqueuingsystemstoinventorydemand.
Oneofthechallengesofservicesisthattheycannotnormallybestoredforlateruse.A
hairstylistcannotprepackageahaircutforthefollowingdayitmustbedoneinrealtime.
Inanidealworld,nobodywouldeverhavetowaittoconductaservicetransaction.
However,firmscannotaffordtoprovidealotofextracapacitythatwouldnotbeusedmost
ofthetime.
Inbusinesseswheredemandregularlyexceedssupply,managersoftencantakestepsto
inventorydemand.Thistaskcanbeachievedinoneoftwoways:(1)byaskingcustomersto
waitinlineusuallyonafirstcome,firstservedbasis,or(2)byofferingcustomersthe
opportunitytoreserveorbookspaceinadvance.However,itshouldbenotedthatifthe
queuingandreservationsystemsareinplaceatthesametime,customerswaitingina
queuemightfeelthatitisunfairthattheyhavetoqueue,andtheothersjustjumpqueue
becausetheyhadmadeareservationearlier.Hence,itmaynotbeadvisabletouseboth
systemsatthesametime,unlesstheperceptionsofunfairnessarecarefullymanaged.We
willdiscusswaitlineandqueuingsystemsinthissection,andreservationsystemsinthe
next.

Waiting Occurs Everywhere

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Waiting Occurs Everywhere


Waitingissomethingthatoccurseverywhere.Nobodylikestowaitortobekeptwaiting
(Figure9.15).Itsboring,timewasting,andsometimesphysicallyuncomfortable,especially
ifthereisnowheretositorifyouareoutdoors.Almosteveryorganizationfacesthe
problemofwaitinglinessomewhereinitsoperation.Peoplearekeptwaitingonthephone,
listeningtorecordedmessageslikeyourcallisimportanttous.Theylineupwiththeir
supermarketcartstocheckouttheirgrocerypurchases,andtheywaitfortheirbillsaftera
restaurantmeal.Theysitintheircarswaitingtoenterdriveincarwashesandtopayat
tollbooths.

Figure9.15.Hertzhelpsitscustomerstoavoidthetimeandhassleof
waitinginline.

Physicalobjectswaitforprocessing,too.Customersemailssitincustomerservicestaffs
inboxes,applianceswaittoberepaired,andcheckswaittobeclearedatabank.
Ineachinstance,acustomermaybewaitingfortheoutcomeofthatworkananswertoan
email,anappliancethatisworkingagain,andacheckcreditedtoacustomersbalance.

Managing Waiting Lines


Theproblemofreducingcustomerwaitingtimeoftenrequiresavarietyofapproaches.
Increasingcapacitybyaddingmorespaceormorestaffisnotalwaysthebestsolutionin
situationswherecustomersatisfactionmustbebalancedagainstcostconsiderations.
Managersshouldconsideravarietyofways,including:
1.Rethinkingthedesignofthequeuingsystem.
2.Installingareservationssystem.
3.Tailoringthequeuingsystemtodifferentmarketsegments.
4.Managingcustomersbehaviorandtheirperceptionsofthewait.
5.Redesigningprocessestoshortenthetimeofeachtransaction.
Points1to4arediscussedinthenextfewsectionsofthischapter.Point5isdiscussedin
Chapter8oncustomerserviceprocessredesign.Disneyland,calledTheHappiestPlaceon
Earth,hastakenthebusinessofmanagingwaitlinesveryseriously(seeServiceInsights
9.2).

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ServiceInsights9.2:DisneyTurnsQueueManagementinto

aScience
HaveyoueverbeeninaqueueatDisneyland?Veryoften,wemaynot
realizehowlongwehavebeenwaiting,astherearemanysightstosee
whilewequeue.Wemaybewatchingavideo,lookingatothercustomers
enjoyingthemselves,orreadingthevariouspostersonthewall.Asour
waitingtimeisoccupied,wemaynotrealizethatalongtimehaspassed.
Disneyhastakenthemanagementofwaitinglinestoanotherlevel.AtWalt
DisneyWorld,thereisaDisneyOperationalCommandCenter,wherethe
techniciansaremonitoringqueuesthroughoutthethemeparktomakesure
thattheyarenottoolongandpeoplearemovingalong.Tothem,patienceis
notavirtueinthethemeparkbusiness.InsidetheCommandCenter,
computerprograms,videocameras,digitalmapsofthepark,andothertools
helptechnicianstospotwheretheremightbequeuesthataretoolong.Once
thereisawaitproblem,theywillsendastafftofixtheproblemimmediately.
Awaitproblemmaybedealtwithinseveralways.Forexample,theymay
sendaDisneycharactertoentertainthewaitingcustomers.Alternatively,they
candeploymorecapacity.Ifthereisalongqueueforaboatride,thenthey
willdeploymoreboatssothatthequeuemovesfaster.SinceDisneyWorldis
dividedintodifferentlands,ifthereislesscrowdinonelandcomparedto
another,theymayrerouteaminiparadetowardthatarea,sothatthecrowds
willfollowandthecrowddistributionbecomesmoreeven.Theyhavealso
addedvideogamestowaitareas.
WiththeCommandCenterinplace,theyhavemanagedtoincreasethe
averagenumberofridesthatavisitortoMagicKingdomnormallytakes,from
nineridestotenrides.Disneycontinuestoexperimentwithdifferenttypesof
technologytohelpthemmanagecustomerwaitingtime.Theyare
experimentingwithsmartphonetechnologyatthemomenttoseehowitcan
beusedtohelpthemtomanagewaitinglines.Disneydoesallthisinthe
hopethatcustomerswillnotbefrustratedbythewaits,andwillreturnmore
often.
Source:BrooksBarnes,DisneyTacklesMajorThemeParkProblem:
Lines,TheNewYorkTimes,December27,2010,
http://www.nytimes.com/2010/12/28/business/media/28disney.html
(http://www.nytimes.com/2010/12/28/business/media/28disney.html) ,accessedMarch12,

2012.

Different Queue Configurations


Therearedifferenttypesofqueues,andthechallengeformanagersistoselectthemost
suitabletype.Figure9.16showsdiagramsofseveraltypesyouhaveprobablyexperienced
yourself.

Figure9.16.Alternativequeueconfigurations.

Insingleline,sequentialstages,customersproceedthroughseveralservingoperations,as
inacafeteria.Somestages,however,maytakelongertoprocessthanpreviousstages.
Manycafeteriashavelinesatthecashregisterbecausethecashiertakeslongertocalculate
howmuchyouoweandtoreturnchangethantheserverstaketoplacefoodonyourplate.
Parallellinestomultipleserversoffermorethanoneservingstation.Thisallows
customerstoselectoneofseverallinesinwhichtowait.Banksandticketwindowsare
commonexamples.Thedisadvantageofthisdesignisthatlinesmaynotmoveatequal
speed.Haveyoueverchosenwhatlookedliketheshortestqueue,onlytowatchin
frustrationasotherqueuesmovedattwicethespeedofyours,justbecausesomeonein
yourlinehasacomplicatedtransaction?
Asinglelinetomultipleservers,commonlyknownasasnake,Thistypeofwaitingline
solvestheproblemoftheparallellinestomultipleserversmovingatdifferentspeeds.This
methodiscommonlyusedatpostofficesandairportcheckins(Figure9.17).

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Figure9.17.Postofficesusethesinglelinetomultipleserversapproachto
controlhumantraffic.

Designatedlinesinvolveassigningdifferentlinestocategoriesofcustomers.Examples
includeexpresslines(forinstance,for12itemsorless)andregularlinesatsupermarket
checkouts,anddifferentcheckinstationsforfirstclass,businessclass,andeconomyclass
airlinepassengers.
Takeanumbersavescustomerstheneedtostandinaqueue.Thisprocedureallowsthem
tositdownandrelax(ifseatingisavailable)ortoguesshowlongthewaitwillbeanddo
somethingelseinthemeantime.Ofcourse,customersthenrisklosingtheirplaceifearlier
customersareservedfasterthanexpected.Usersofthismethodincludelargetravel
agents,governmentoffices,andoutpatientclinicsinhospitals.
Waitlist.Restaurantsoftenhavewaitlistswherepeopleputtheirnamesdownandwait
untiltheirnameisannounced.Therearefourcommonwaysofwaitlisting:(1)partysize
seating,wherethenumberofpeopleismatchedtothesizeofthetable(2)VIPseating,
whichinvolvesgivingspecialrightstofavoredcustomers(3)callaheadseating,which
allowspeopletotelephonebeforearrivaltoholdslotsonthewaitlistand(4)largeparty
reservations.Ifcustomersarefamiliarwithwaitlistingtechniques,theyarelikelytoview
themtobefair.Ifnot,VIPseatingisviewedasespeciallyunfairbyguestswhodontenjoy
theprioritytreatment.

Companiescanuseacombinationofqueuesinthesamelocation.Forinstance,acafeteria
withasingleservinglinemightoffertwocashregisterstationsatthefinalstage(Figure
9.18).Similarly,patientsatasmallmedicalclinicmightvisitasinglereceptionistfor
registration,proceedsequentiallythroughmultiplechannelsfortesting,diagnosis,and
treatment,andconcludebyreturningtoasinglelineforpaymentatthereceptionistsdesk.

Figure9.18.Singlequeuingsystemsincafsusuallyhavemorethanone
cashregisterstations.

Researchsuggeststhatselectingthemostsuitabletypeofqueueisimportanttocustomer
satisfaction.AnatRafaeliandhercolleaguesfoundthatthewaythequeuesinawaiting
areaarelaidoutcanproducefeelingsofinjusticeandunfairnessincustomers.Customers
whowaitedinparallellinestomultipleserversreportedgreaterdissatisfactionwiththe
fairnessoftheservicedeliveryprocessthancustomerswhowaitedinasingleline(snake)
toaccessmultipleservers.Thisresultwasdespitethefactthatbothgroupsofcustomers
waitedthesameamountoftimeandwereinvolvedincompletelyfairserviceprocesses.
6

Theissueofperceivedfairnesscomesaboutbecausewaitingcustomersoftenobserve

howclosetheyaretogettingserved.Perhapsyouvewatchedresentfullyasotherdiners
whoarrivedatabusyrestaurantlaterthanyouweregivenpriorityandcuttingthequeue.
Itdoesntseemfairespeciallywhenyouarehungry!

Virtual Waits
Oneoftheproblemsofwaitinginlineisthewasteofcustomerstime.Thevirtualqueue
strategyisacreativewayoftakingthephysicalwaitingoutofthewaitaltogether.Instead,
customersregistertheirplaceinlineonacomputer,whichestimatesthetimeatwhich
theywillreachthefrontofthevirtuallineandshouldreturntoclaimtheirplace.

ServiceInsights9.3describesthevirtualqueuingsystemsusedintwoverydifferent
industries:athemeparkandacallcenter.

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ServiceInsights9.3:WaitinginaVirtualQueue

Disneyiswellknownforitseffortstogivevisitorstoitsthemeparks
informationonhowlongtheymayhavetowaittorideaparticularattraction
andforentertainingguestswhiletheyarewaitinginline.However,the
companyfoundthatthelongwaitsatitsmostpopularattractionswerestilla
majorsourceofdissatisfaction,andsocreatedaninnovativesolution.
ThevirtualqueueconceptwasfirsttestedatDisneyWorld.Atthemost
popularattractions,guestswereabletoregistertheirplaceinlinewitha
computerandwerethenfreetousethewaittimevisitingotherplacesinthe
park.Surveysshowedthatguestswhousedthenewsystemspentmore
money,sawmoreattractions,andhadsignificantlyhighersatisfaction.After
furtherrefinement,thesystemnownamedFastpasswasintroducedatthe
fivemostpopularattractionsatDisneyWorldandsubsequentlyextendedto
allDisneythemeparksworldwide.Itisnowusedbymorethan50million
guestsayear.
Fastpassiseasytouse.WhenguestsapproachaFastpassattraction,theyare
giventwoclearchoices:obtainaFastpassticketthereandreturnatthe
appointedtime,orwaitinastandbyline.Signsindicatehowlongthewaitis
ineachinstance.TousetheFastpassoption,guestsinserttheirpark
admissionticketsintoaspecialturnstileandreceiveFastpassticketsstating
returntimes.Guestshavesomeflexibilitybecausethesystemallowsthema
60minutewindowbeyondtheprintedreturntime.
JustliketheFastpasssystem,callcentersalsousevirtualqueues.Thereare
differenttypesofvirtualqueuingsystemsforcallcenters.Thefirstin,firstout
queuingsystemisverycommon.Whencallerscallin,theywillheara
messagethatinformsthemoftheestimatedwaittimeforthecalltobetaken
byanagent.Thecallercan(1)waitinthequeueandgetconnectedtoan
agentwhenhisturnarrives,or(2)choosetoreceiveacallback.Whenthe
callerchoosesthisoption,hehastoenterhistelephonenumberandtellhis
name.Hethenhangsupthephone.However,hisvirtualplaceinthequeue
iskept.Whenheisnearlyattheheadofthequeue,thesystemcallsthe
customerbackandputshimattheheadofthequeuewhereanagentwill
attendtohimnext.Inbothsituations,thecustomerisunlikelytocomplain.In
thefirstsituation,itistheirchoicetowaitinthequeue,andthepersoncan
stilldosomethingelseashealreadyknowstheestimatedwaittime.Inthe
secondsituation,thepersondoesnothavetowaitforverylongbefore
reachinganagent.Thecallcenteralsobenefitsbecausetherearefewer
frustratedcustomersthatmaytakeupthevaluabletimeoftheagentsby
complainingabouthowlongtheyhavetowait.Inaddition,firmsalsoreduce
abortedormissedcallsfromcustomers.
Source:DuncanDickson,RobertC.Ford,andBruceLaval,Managing
RealandVirtualWaitsinHospitalityandServiceOrganizations,Cornell
HotelandRestaurantAdministrationQuarterly46,February2005,5268
VirtualQueue,Wikipedia,www.en.wikipeidao.org/wiki/virtual_queuing
(http://www.en.wikipeidao.org/wiki/virtual_queuing) ,accessedMarch12,2012.

Theconceptofvirtualqueueshasmanypotentialapplications.Cruiseships,allinclusive
resorts,andrestaurantscanallusethisstrategyifcustomersarewillingtoprovidetheircell
phonenumbersorremainwithinbuzzingrangeofafirmoperatedpagersystem.

Queuing Systems Can Be Tailored to Market Segments


Althoughthebasicruleinmostqueuingsystemsisfirstcome,firstserved,notallqueuing
systemsareorganizedinthatway.Marketsegmentationissometimesusedtodesign
queuingstrategiesfordifferenttypesofcustomers.Allocationtoseparatequeuingareas
maybebasedonanyofthefollowing:
Urgencyofthejob.Atmanyhospitalemergencyunits,anurseisassignedtogreet
incomingpatientanddecidewhichpatientsrequireprioritymedicaltreatmentandwhich
patientscansafelybeaskedtoregisterandthensitdownwhiletheywaitfortheirturn.
Durationofservicetransaction.Banks,supermarkets,andotherretailservicesoften
haveexpresslanesforshorter,lesscomplicatedtasks.
Paymentofapremiumprice.Airlinesusuallyofferseparatecheckinlinesforfirst
classandeconomyclasspassengers.Therearealsomorestaffattendingtopassengersin
thefirstclassline,resultinginreducedwaitsforthosewhohavepaidmorefortheirtickets.
Atsomeairports,premiumpassengersmayalsoenjoyfasterlanesforthesecuritycheck.
Importanceofthecustomer.Membersoffrequentflyerclubsfrequentlygetpriority
waitlisting.Forexample,thenextseatthatbecomesavailableisgiventoaplatinumcard
holderoftheairlinesloyaltyprogram.Thesememberscanalsojumpthequeuewith
priorityaccesstocallcenters.Evenwhentravelingeconomyclass,membersoffrequent
flyerclubscanusetheshorterbusinessclasscheckinlines.

Customer Perceptions of Waiting Time


LO9
Understandhowcustomersperceivewaitsandhowtomakewaitinglessburdensomefor
them.
Peopledontlikewastingtheirtimeonunproductiveactivitiesanymorethantheylike
wastingmoney.Customerdissatisfactionwithdelaysinreceivingserviceoftencan
stimulatestrongemotions,evenanger.

Infact,ithasbeenfoundthatifcustomersare

dissatisfiedwiththewait,theymustbemoresatisfiedwiththeservicetohavethesame
levelofloyaltyascustomerswhoweresatisfiedwiththewait.

The Psychology of Waiting Time


Servicemarketersrecognizethatcustomersexperiencewaitingtimeindifferentways,
dependingonthecircumstances.Whyaresomepeoplewillingtowaitfor50%oftheirtime
atanamusementpark,butcomplainiftheyhavetowaitfor20minutesforataxi?David
Maisterandotherresearchershavethefollowingsuggestionsonhowtousethepsychology
10

ofwaitingtomakewaitslessstressfulandunpleasantforcustomers(Figure9.19).

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Figure9.19.Whilewaiting,timecanseemtopassveryslowly.

Unoccupiedtimefeelslongerthanoccupiedtime.Whenyouaresittingaround
withnothingtodo,timeseemstocrawl.Servicefirmsshouldgivecustomerssomethingto
doortodistractthemwhilewaitingsotheyarelessbored(Figure9.20).Forexample,
BMWcarownerscanwaitincomfortinBMWservicecenterswherewaitingareasare
furnishedwithdesignerfurniture,plasmaTVs,WiFihotspots,magazines,andfreshly
brewedcappuccinos.Manycustomersevenbringtheirownentertainmentintheformofa
cellphonewithmessagingandgames,oraniPad.

Figure9.20.Keepingoccupiedbyreadingmagazineswillmakethewaitfor
thespatreatmentfeelshorter.

Solowaitsfeellongerthangroupwaits.Itisnicetowaitwithpeoplewhomyou
know.Talkingtofriendsisonewayofhelpingtopassthetimewhilewaiting.
Physicallyuncomfortablewaitsfeellongerthancomfortablewaits.Myfeet
arekillingme!isoneofthemostoftenheardcommentswhenpeopleareforcedtostandin
lineforalongtime.Whethertheyareseatedorstanding,waitingisunpleasantifthe
temperatureistoohotortoocold,oriftheresnoprotectionfromrainorsnow.
Preandpostprocesswaitsfeellongerthaninprocesswaits.Waitingtobuya
tickettoenterathemeparkisdifferentfromwaitingtorideonarollercoasteronceyoure
inthepark.
Unfairwaitsarelongerthanequitablewaits.Perceptionsaboutwhatisfairor
unfairsometimesvaryfromonecultureorcountrytoanother.IntheUnitedStates,
Canada,orBritain,forexample,peopleexpecteverybodytowaittheirturninlineandare
likelytogetirritatediftheyseeothersjumpingaheadorbeinggivenpriorityforwhat
seemstobenogoodreason.Whenpeopleperceivethatwaitingisfair,itreducesthe
negativeeffectofwaiting.
Unfamiliarwaitsseemlongerthanfamiliarones.Peoplewhouseaserviceoften
knowwhattoexpectandarelesslikelytoworrywhilewaiting.Neworoccasionalusers
willoftenwondernotonlyaboutthelengthofthewaitbutalsoaboutwhatwillhappen
next.
Uncertainwaitsarelongerthanknown,finitewaits.Althoughanywaitmaybe
frustrating,weusuallycanadjustiftheyknowhowlongtheyareexpectedtowait.Imagine
waitingforadelayedflightandnotbeingtoldhowlongthedelayisgoingtobe(Figure
9.21).Youdontknowwhetheryouhavethetimetogetupandwalkaboutintheterminal
orwhethertostayatthegateincasetheflightiscalledanyminute.

Figure9.21.Uncertainwaitforadelayedflightcancausefrustration.

Unexplainedwaitsarelongerthanexplainedwaits.Haveyoueverbeenina
subwayoranelevatorthathasstoppedfornoapparentreason,withoutanyonetellingyou
why?Inadditiontouncertaintyaboutthelengthofthewait,theresaddedworryabout
whatisgoingtohappen.Hastherebeenanaccidentontheline?Willyoubestuckforhours
withstrangers?
Anxietymakeswaitsseemlonger.Canyourememberwaitingforsomeonetoshow
upatthearrangedmeetingtime,andworryingaboutwhetheryouhadgottenthetimeor
locationcorrect?Whilewaitinginunfamiliarlocations,especiallyoutdoorsandatnight,
peopleoftenworryabouttheirpersonalsafety.
Themorevaluableorimportanttheservice,thelongerpeoplewillwait.
Peoplewilloftenqueueupovernightunderuncomfortableconditionstogetgoodseatstoa
majorconcertorsportseventthatisexpectedtoselloutfast.

Inventory Demand through Reservation Systems


LO10
Knowhowtousereservationsystemstoinventorydemand.
Asanalternative,orinaddition,towaitinglines,reservationsystemscanbeusedto

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inventorydemand(Figure9.22).Asksomeonewhatservicescometomindwhenyoutalk
aboutreservationsand,mostlikely,theywillciteairlines,hotels,restaurants,carrentals,
andtheaters.Suggesttermswithsimilarmeaningsasbookingsorappointmentsand
theymayaddhaircuts,visitstoprofessionalssuchasdoctorsandconsultants,vacation
rentals,andservicecallstofixanythingfromabrokenrefrigeratortoaneuroticlaptop.
Therearemanybenefitsinhavingareservationsystem:

Figure9.22.Mostlibrarieshaveareservationsystemforbooks,
magazinesandaudiovisualmaterials.

Customerdissatisfactionduetoexcessivewaitscanbeavoided.Oneaimofreservationsis
toguaranteethatservicewillbeavailablewhencustomerswantit.Customerswhohold
reservationsshouldbeabletoavoidqueuesbecausetheyhavebeenguaranteedserviceata
specifictime.
Reservationsallowdemandtobecontrolledandsmoothedoutinamoremanageable
way.Awellorganizedreservationsystemallowstheorganizationtochangedemandfor
servicefromafirstchoicetimetoearlierorlatertimes,fromoneclassofservicetoanother
(upgradesanddowngrades),andevenfromfirstchoicelocationstoalternativeones.In
thisway,therecanbehighercapacityutilization.
Reservationsystemsallowtheimplementationofrevenuemanagementandpresellingof
aservicetodifferentcustomersegments(seeChapter6onrevenuemanagement).For
example,requiringreservationsfornormalrepairandmaintenanceallowsmanagementto
makesurethatsometimewillbekeptfreeforhandlingemergencyjobs.Sincetheseare
unpredictable,higherpricescanbechargedandthesebringwiththemhighermargins.
Datafromreservationsystemsalsohelporganizationstoprepareoperationaland
financialprojectionsforfutureperiods.Systemsvaryfromasimpleappointmentbookusing
handwrittenentriesforadoctorsoffice,toacentral,computerizeddatabankforanairlines
globaloperations.
Thechallengeindesigningreservationsystemsistomakethemfastanduserfriendlyfor
bothstaffandcustomers.Manyfirmsnowallowcustomerstomaketheirownreservations
onaselfservicebasisviatheirwebsites.Whethertalkingwithareservationagentor
makingtheirownbookings,customerswantquickanswersaboutwhetheraserviceis
availableatapreferredtimeandatwhatprice.Theyalsoappreciateitifthesystemcan
providefurtherinformationaboutthetypeofservicetheyarereserving.Forinstance,cana
hotelassignaspecificroomonrequest?Orcanitatleastassignaroomwithaviewofthe
lakeratherthanonewithaviewoftheparkinglot?Somebusinessesnow,infact,chargea
feeformakingareservation(seeServiceInsights9.4).NorthwestAirlinescharges$15to
reservesomeofthemostdesirableeconomyclassseats,andAirCanadacharges$12for
11

advancedseatreservationsoncertainflights.

Ofcourse,problemsarisewhencustomersfailtoshoworwhenservicefirmsoverbook.
Marketingstrategiesfordealingwiththeseoperationalproblemsincluderequiringa
deposit,cancelingnonpaidreservationsafteracertaintime,andprovidingcompensationto
victimsofoverbooking(seeChapter6onrevenuemanagement).

ServiceInsights9.4:PaytoGetThatHardtoGetTable

Reservation!
PrimeTimeTablesisanexclusiveonlinecompanythathelpscustomerstoget
tablereservations.Whatissospecialaboutthat?Well,PrimeTimeTablesis
abletogetreservationsatthemostpopulardiningspots,whereonlypeople
whoaresomebodyorhavetherightconnectionscansecureatable.Manyof
thosereservationsarenotopentotheordinarydiner.Thecompanyisableto
getatableonaspecificdayandonshortnotice.Currently,thecompany
focusesonareaswhereitisdifficulttogetreservations,namelyNewYork
City,Philadelphia,andtheHamptons.Individualspayamembershipfeeof
$500tojoinand$45foreachreservationmade.
PascalRiffaud,theentrepreneurbehindthisidea,isthepresidentof
PersonalConciergeInternational,aleadingcompanyprovidingexclusive
conciergeservicesintheUnitedStates.Duringhisworkexperienceas
PresidentofPersonalConcierge,Riffaudbuiltalargenetworkofcontacts
withexclusiverestaurants,allowinghimtoobtainthosehardtoget
reservations.
Hisclientsweredelightedwithhisserviceandkeptfloodinghimwith
requestsforreservations.However,therehavebeenprotestsfromrestaurant
ownerswhofeelheisupsettingtheirreservationsmanagementsystemsand
sellingtheirtables.EventhoughRiffauddoescancelunsoldreservations,
restaurantownersfeelthesecouldhavebeensoldtoothercustomerswho
reallywantedatable.Restaurantsmayhavetorethinkthewaytheyhandle
reservations!
Source:K.Severson,Now,for$45,anInsidersAccesstoHotTables,
TheNewYorkTimes,31,January2007,available:
http://www.primetimetables.com(http://www.primetimetables.com) ,accessed
March12,2012.

Reservation Strategies Should Focus on Yield


Increasingly,servicefirmsarelookingattheiryieldthatis,theaveragerevenue
receivedperunitofcapacity.Theaimistoincreasethisyieldinordertoimprove
profitability.AsnotedinChapter6,revenuemanagementstrategiesthatachievethisgoal
arewidelyusedinsuchindustrieswithrelativelyfixedcapacitylikepassengerairlines,
hotels,andcarrentals.Revenuemanagementsystemsbasedonmathematicalmodeling

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areofgreatestvalueforservicefirmsthatfinditexpensivetomodifytheircapacitybut
12

incurrelativelylowcostswhentheysellanotherunitofavailablecapacity.

Yieldanalysisforcesmanagerstorecognizetheopportunitycostofsellingcapacityfora
givendatetoacustomerfromonemarketsegmentwhenanothermightsubsequently
yieldahigherrate.Thinkaboutthefollowingproblemsfacingsalesmanagersfordifferent
typesofserviceorganizationswithcapacitylimitations:
Shouldahotelacceptanadvancebookingfromatourgroupof200roomnightsat$140
eachwhensomeofthesesameroomnightsmightpossiblybesoldlateratshortnoticeto
businesstravelersatthefullpostedrateof$300?
Shouldarailroadwith30emptyfreightcarsacceptanimmediaterequestforashipment
worth$1,400percar,orholdthecarsforafewmoredaysinthehopeofgettingpriority
shipmentthatwouldbetwiceasvaluable?
Shouldaprintshopprocessalljobsonafirstcome,firstservedbasis,withaguaranteed
deliverytimeforeachjob,orshoulditchargeapremiumrateforrushwork,andtell
customerswithstandardjobstoexpectsomevariabilityincompletiondates?
Decisionsonsuchproblemsneedtobehandledwithinformation.Goodinformation,based
ondetailedrecordkeepingofpastusageandsupportedbycurrentmarketintelligence,isthe
keytoallocatingtheinventoryofcapacityamongdifferentsegments.Thedecisiontoaccept
orrejectbusinessshouldbebasedonrealisticestimatesoftheprobabilitiesofobtaining
higherratedbusinessandawarenessoftheneedtomaintaincurrentcustomer
relationships.Informationmayhavetobecollectedthroughspecialstudies,suchas
customersurveysorreviewsofsimilarsituations.Itmayalsobenecessarytocollect
informationoncompetitiveperformancebecausechangesinthecapacityorstrategyof
competitorsmayrequirecorrectiveaction.
Whennewstrategiesareunderconsideration,operationsresearchersoftencancontribute
usefulinsightsbydevelopingsimulationmodelsoftheeffectofchangesindifferent
variables.Suchanapproachisparticularlyusefulinservicenetworkenvironments,suchas
themeparksandskiresorts,wherecustomerscanchoosebetweenmultipleactivitiesatthe
samesite.MadeleinePullmanandGaryThompsonmodeledcustomerbehaviorataski
resort,whereskierscanchoosebetweendifferentliftsandskirunsofvaryinglengthsand
levelsofdifficulty.Throughanalysis,theywereabletofindoutthepotentialfutureeffectof
liftcapacityupgrades(biggerorfasterchairlifts),capacityexpansionintheformofmore
landforskiing,industrygrowth,daytodaypricevariations,customerresponseto
13

informationaboutwaittimesatdifferentlifts,andchangesinthecustomermix.

Figure9.23showscapacityallocationinahotelsetting.Demandfromdifferenttypesof
customersvariesnotonlybydayoftheweekbutalsobyseason.Theseallocationdecisions
bysegmentarecapturedinreservationdatabasesthatareavailableworldwide.Theytell
reservationpersonnelwhentostopacceptingreservationsatcertainprices,eventhough
manyroomsmaystillremainunbooked.Loyaltyprogrammembers,whoaremainly
businesstravelers,areobviouslyaverydesirablesegment(Figure9.24).

Figure9.23.Settingcapacityallocationtargetsbysegmentforahotel.

Figure9.24.Somebankswillworkwithairlinestoofferairmailsloyalty
creditcardtobusinesstravelers.

Similarchartscanbedrawnformostbusinesseswithcapacitylimitations.Insome
instances,capacityismeasuredintermsofseatsforagivenperformance,seatmiles,or
roomnights.Inotherinstances,itmaybeintermsofmachinetime,labortime,billable
professionalhours,vehiclemiles,orstoragevolume.

Chapter Summary
LO1Atanyonetime,afirmwithlimitedcapacitycanfacedifferentdemand
supplysituations:excessdemand,demandthatexceedsidealcapacity,wellbalanced
demandandsupply,orexcesscapacity.
Whendemandandsupplyarenotinbalance,firmswillhaveidlecapacityduringlow
periods,buthavetoturnawaycustomersduringpeakperiods.Thissituationpreventsthe
efficientuseofproductiveassetsanderodesprofitability.
Firmsthereforeneedtotryandbalancedemandandsupplythroughadjustingcapacity
and/ordemand.

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LO2Thebuildingblocksforeffectivecapacityanddemandmanagementare:
Defineproductivecapacity.
Usecapacitymanagementtools.
Understanddemandpatternsanddriversbyacustomersegment.
Usedemandmanagementtools.
LO3Whenwerefertomanagingcapacity,weimplicitlymeanproductive
capacity.
Thereareseveraldifferentformsofproductivecapacityinservices:physicalfacilitiesfor
processingcustomersphysicalfacilitiesforprocessinggoodsphysicalequipmentfor
processingpeople,possessionsorinformationandlaborandinfrastructure.
LO4Capacitycanbemanagedinanumberofways,including:

Stretchingcapacitysomecapacityareelasticandmorepeoplecanbeservedwiththe
samecapacitythroughcrowding(e.g.,inasubwaycar),extendingoperatinghours,or
speedingupcustomerprocessingtimes.
Adjustingcapacitytomorecloselymatchdemandby(1)schedulingdowntimeduringlow
periods,(2)crosstrainingemployees,(3)usingparttimeemployees,(4)inviting
customerstoperformselfservice,(5)askingcustomerstosharecapacity,(6)designing
capacitytobeflexible,and(7)rentingorsharingextrafacilitiesandequipment.
LO5Tomanagedemandeffectively,firmsneedtounderstanddemandpatterns
anddriversbymarketsegment.Differentsegmentsoftenexhibitdifferentdemand
patterns(e.g.,routinemaintenanceversusemergencyrepairs).Oncefirmshavean
understandingofthedemandpatternsoftheirmarketsegments,theycanusemarketing
strategiestoreshapethosepatterns.

LO6Demandcanbemanagedinthefollowingfivebasicways:
Takenoaction,andleavedemandtofinditsownlevels.
Reducedemandduringpeakperiods.
Increasedemandduringlowperiods.
Inventorydemandthroughwaitinglinesandqueuingsystems.
Inventorydemandthroughreservationsystems.
LO7Thefollowingmarketingmixelementscanbeusedtohelpsmoothout
fluctuationsindemand:
Usepriceandnonmonetarycustomercoststomanagedemand.
Changeproductelementstoattractdifferentsegmentsatdifferenttimes.
Modifytheplaceandtimeofdelivery(e.g.,throughextendedopeninghours).
Promotionandeducation(e.g.,mailearlyforChristmas).

LO8Waitinglineandqueuingsystemshelpfirmsinventorydemandovershort
periodsoftime.Therearedifferenttypesofqueueswiththeirrespectiveadvantagesand
applications.Queuingsystemsincludesinglelinewithsequentialstages,parallellinesto
multipleservers,singlelinetomultipleservers,designatedlines,takinganumber,andwait
list.
Notallqueuingsystemsareorganizedonafirstcome,firstservedbasis.Rather,good
systemsoftensegmentwaitingcustomersby:
Urgencyofthejob(e.g.,hospitalemergencyunits).
Durationoftheservicetransaction(e.g.,expresslanes).
Premiumservicebasedonapremiumprice(e.g.,firstclasscheckincounters).
Importanceofthecustomer(e.g.,frequenttravelersgetprioritywaitlisting).
LO9Customersdontlikewastingtheirtimewaiting.Firmsneedtounderstand
thepsychologyofwaitingandtakeactivestepstomakewaitinglessfrustrating.We
discussed10possiblesteps,includingkeepingcustomersoccupiedorentertainedwhile
waiting,informingcustomershowlongthewaitislikelytobe,providingthemwithan
explanationofwhytheyhavetowait,andavoidingperceptionsofunfairwaits.

LO10Effectivereservationsystemsinventorydemandoveralongerperiodof
timeandofferseveralbenefits.They:
Helptoreduceorevenavoidcustomerswaitinginqueuesandtherebyavoid
dissatisfactionduetoexcessivewaits.
Allowthefirmtocontroldemandandsmoothitout.
Enabletheuseofrevenuemanagementtofocusonincreasingyieldbyreservingscarce
capacityforhigherpayingsegments,ratherthanjustsellingoffcapacityonafirstcomefirst
servebasis.

Unlock Your Learning

ThesekeywordsarefoundwithinthesectionsofeachLearningObjective(LO).Theyare
integraltounderstandingtheservicesmarketingconceptstaughtineachsection.Havinga
firmgraspofthesekeywordsandhowtheyareusedisessentialtohelpingyoudowellon
yourcourse,andintherealandverycompetitivemarketingsceneoutthere.

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Chapter9.BalancingDemandandCapacityEssentialsofServicesMarketing,SecondEdition

LO11Excesscapacity
2Excessdemand
3Fixedcapacityservice
4Maximumcapacity
5Optimumcapacity
LO26Buildingblocks

7Managecapacity
8Managedemand
9Productivecapacity
10Understanddemand
LO311Equipment

12Infrastructure
13Labor
14Physicalfacilities
LO415Adjustingcapacity

16Capacitylimitations
17Chasingdemand
18Crosstrainemployees
19Downtime
20Flexiblecapacity
21Parttimeemployees
22Selfservice
23Stretchingcapacity
LO524Demandbysegment

25Demandpatterns
26Managedemand
27Patternsofdemand
28Queuingsystems
29Seasonal

LO630Fivebasicapproaches
31Increasedemand
32Inventorydemand
33Managingdemand
34Queuingsystem
35Reducedemand
36Reservationsystem
37Takenoaction
38Waitinglines

LO739Demandmanagementtool
40Nonmonetarycosts
41Placeofdelivery
42Price
43Productelements
44Promotionandeducation
45Timeofdelivery
46Undesirabledemand
LO847Snake

48Takeanumber
49Designatedlines
50Managingwaitinglines
51Multipleservers
52Parallellines
53Queueconfigurations
54Sequentialstages
55Singleline
56Virtualqueue

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Chapter9.BalancingDemandandCapacityEssentialsofServicesMarketing,SecondEdition

57Virtualwaits
58Waitlist

LO959Equitablewaits
60Explainedwaits
61Finitewaits
62Inprocesswaits
63Occupiedtime
64Perceptionsofwaitingtime
65Postprocesswaits
66Preprocesswaits
67Psychologyofwaitingtime
68Solowaits
69Uncertainwaits
70Unexplainedwaits
71Unfairwaits
72Unfamiliarwaits
73Unoccupiedtime
LO1074Inventorydemand

75Reservationstrategies
76Reservationsystems
77Revenuemanagementsystems
78Yieldanalysis

Howwelldoyouknowthelanguageofservicesmarketing?Quizyourself!

Notfortheacademicallyfaintofheart

Foreachkeywordyouareabletorecallwithoutreferringtoearlierpages,give
yourselfapoint(andapatontheback).Tallyyourscoreattheendandseeifyou
earnedtherighttobecalledaservicesmarketeer.

Score
015ServicesMarketingisdoneagreatdisservice.
1630Themidnightoilneedstobelit,pronto.
3145Iknowwhatyoudidntdoallsemester.
4660Acloseshavewithsuccess.
6175Now,goforthandmarket.
7678Thereshouldbeamarketingconceptnamedafteryou.

KnowYourESM
ReviewQuestions
1.Whatisthedifferencebetweenidealcapacityandmaximumcapacity?
Provideexamplesofasituationwhere(a)thetwomightbethesameand(b)
thetwoaredifferent.
2.Describethebuildingblocksformanagingcapacityanddemand.
3.Whatismeantbyproductivecapacityinservices?
4.Whyiscapacitymanagementparticularlyimportantforservicefirms?
5.Whatactionscanfirmstaketoadjustcapacitytomorecloselymatch
demand?
6.Howcanfirmsidentifythefactorsthataffectdemandfortheirservices?
7.Whatactionscanfirmstaketoadjustdemandtomorecloselymatch
capacity?
8.Howcanmarketingmixelementsbeusedtoreshapedemandpatterns?
9.Whataretheadvantagesanddisadvantagesofthedifferenttypesof
queuesforanorganizationservinglargenumbersofcustomers?Forwhich
typeofservicemighteachofthequeuingtypesbemoresuitable?
10.Howcanfirmsmakewaitingmorepleasantfortheircustomers?
11.Whatarethebenefitsofhavinganeffectivereservationsystem?

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Chapter9.BalancingDemandandCapacityEssentialsofServicesMarketing,SecondEdition

WorkYourESM
ApplicationExercises
1.Explainhowflexiblecapacitycanbecreatedineachofthefollowing
situations:(a)alocallibrary,(b)anofficecleaningservice,(c)atechnical
supporthelpdesk,(d)anInterflorafranchise.
2.Identifysomespecificexamplesoffirmsinyourcommunity(orregion)that
significantlychangetheirproductand/ormarketingmixinordertoincrease
patronageduringlowdemandperiods.
3.Selectaserviceorganizationofyourchoice,andidentifyitsparticular
patternsofdemandwithreferencetothechecklistprovidedinTable9.1and
answer:(a)Whatisthenatureofthisserviceorganizationsapproachto
capacityanddemandmanagement?(b)Whatchangeswouldyou
recommendinrelationtoitsmanagementofcapacityanddemandandwhy?
4.Reviewthe10suggestionsonthepsychologyofwaiting.Whicharethe
mostrelevantin(a)asupermarket(b)acitybusstoponarainy,dark
evening(c)adoctorsofficeand(d)aticketlineforafootballgame
expectedtobeasellout?
5.Giveexamples,basedonyourownexperience,ofareservationsystemthat
workedreallywellandofonethatworkedreallybadly.Identifyandexamine
thereasonsforthesuccessandfailureofthesetwosystems.What
recommendationswouldyoumaketobothfirmstoimprove(orfurther
improveinthecaseofthegoodexample)theirreservationsystems?

Endnotes
1 .KennethJ.KlassenandThomasR.Rohleder,CombiningOperationsandMarketing
toManageCapacityandDemandinServices,TheServiceIndustriesJournal21,(April
2001):130.

2 .BreffniM.Noone,SherylE.Kimes,AnnaS.Mattila,andJochenWirtz,TheEffectof
MealPaceonCustomerSatisfaction,CornellHospitalityQuarterly48,no.3(2007):231
245.

3 .BasedonmaterialinJamesA.FitzsimmonsandM.J.Fitzsimmons,Service
Management:Operations,Strategy,andInformationTechnology,6thed.NewYork:Irwin
McGrawHill,2008W.EarlSasser,Jr.,MatchSupplyandDemandinServiceIndustries,
HarvardBusinessReview54,(NovemberDecember1976):133140

4 .KennethJ.KlassenandThomasR.Rohleder,UsingCustomerMotivationsto
ReducePeakDemand:DoesItWork?TheServiceIndustriesJournal24,(September
2004):5370.

5 .KellyA.McGuireandSherylE.Kimes,ThePerceivedFairnessofWaitlist
ManagementTechniquesforRestaurants,CornellHotelandRestaurantAdministration
Quarterly47,(May2006):121134.

6 .AnatRafaeli,G.Barron,andK.Haber,TheEffectsofQueueStructureonAttitudes,
JournalofServiceResearch5,(November2002):125139.

7 .DuncanDickson,RobertC.Ford,andBruceLaval,ManagingRealandVirtualWaits
inHospitalityandServiceOrganizations,CornellHotelandRestaurantAdministration
Quarterly46,(February2005):5268.

8 .AnaB.CasadoDiazandFranciscoJ.MsRuiz,TheConsumersReactiontoDelays
inService,InternationalJournalofServiceIndustryManagement13,no.2(2002):118
140.

9 .FredericBielenandNathalieDemoulin,WaitingTimeInfluenceontheSatisfaction
LoyaltyRelationshipinServices,ManagingServiceQuality17,no.2(2007):174193.
10.ThissectionisbasedonDavidH.Maister,ThePsychologyofWaitingLines,inJ.A.
Czepiel,M.R.Solomon,andC.F.Surprenant,eds.TheServiceEncounter.Lexington(MA:
LexingtonBooks/D.C.Heath,1986,113123).PeterJonesandEmmaPeppiat,Managing
PerceptionsofWaitingTimesinServiceQueues,InternationalJournalofServiceIndustry
Management7,no.5(1996):4761.ClayM.Voorhees,JulieBaker,BrianL.Bourdeau,E.
DeanneBrocato,andJ.JosephCronin,Jr.ModeratingtheRelationshipsamongPerceived
WaitingTime,AngerandRegret,JournalofServiceResearch12,no.2,(November2009):
138155.KellyA.McGuire,SherylE.Kimes,MichaelLynn,MadelineE.Pullmanand
RussellC.Lloyd,AFrameworkforEvaluatingtheCustomerWaitExperience,Journalof
ServiceManagement21,no.3(2010):269290.Also,seethefindingsforwaitsituationsin
stressfulserviceencounterssuchasdentalappointmentsbyElizabethGelfandMiller,
BarbarahE.Kahn,andMaryFrancesLuce,ConsumerWaitManagementStrategiesfor
NegativeServiceEvents:ACopingApproach,JournalofConsumerResearch34,no.5
(2008):635648.
11.SusanCarey,NorthwestAirlinestoChargeExtraforAisleSeats,TheWallStreet
JournalMarch14,2006.
12.SherylE.KimesandRichardB.Chase,TheStrategicLeversofYieldManagement,
JournalofServiceResearch1,(November1998):156166AnthonyIngold,UnaMcMahon
Beattie,andIanYeoman,eds.,YieldManagementStrategiesfortheServiceIndustries,
2ndedn.London:Continuum,2000.
13.MadeleineE.PullmanandGaryM.Thompson,EvaluatingCapacityandDemand
ManagementDecisionsataSkiResort,CornellHotelandRestaurantAdministration
Quarterly43,(December2002):2536MadeleineE.PullmanandGaryThompson,
StrategiesforIntegratingCapacitywithDemandinServiceNetworks,JournalofService
Research5,(February2003):169183.

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