Elgar Encyclopedia

of Services

Edited by

Faïz Gallouj
(Editor-in-Chief)
Professor of Economics and member of CLERSE-CNRS, University of
Lille, France
Camal Gallouj
Professor of Management Science and member of CEPN-CNRS,
University of Sorbonne Paris-Nord, France
Marie-Christine Monnoyer
Emeritus Professor of Management Science, University of Toulouse 1
and Catholic Institute of Toulouse, France
Luis Rubalcaba
Professor of Economics, University of Alcalá, Spain
with the assistance of Markus Scheuer
Rheinisch-Westfalisches Institut für Wirtschaftsforschung, Essen,
Germany

ELGAR ENCYCLOPEDIAS IN THE SOCIAL SCIENCES

 Contents
List of contributors xvii Farm Advisory Services 36
Preface and acknowledgments xxiii Pierre Labarthe
High-Speed Rail Services 38
SECTION 1 TERTIARIZATION AND Marie Delaplace
SERVICES: DEFINITIONS AND THEORIES Hospital Retailing 40
Naïla Gallouj
1.1 Definitions and classifications
Industrial Services 42
Architectural (or Assembled) Services 3 Heidi M. E. Korhonen
Faridah Djellal Insurance Services 43
Characteristics of Services 5 Debora Allam-Firley
Sabine Benoit Introduction to Web Services 46
The Concept of Services in EU Legal Jens Neuhüttler
Texts 7 Knowledge-Intensive Business
Damien Broussolle Services (KIBS) 47
Gadrey’s Service Triangle 9 Liudmila Bagdonienė
Faïz Gallouj Knowledge-Intensive Social Services (KISS) 52
Industry Borders and the Size of the Benoît Desmarchelier
Services-Producing Sector 11 M-Tourism Services 53
Damien Broussolle Stephane Bourliataux-Lajoinie and Arnaud
Service Classification 13 Riviere
Luis Rubalcaba and Ernesto Solano Management Consultants: From Pariah to
Service Definition 17 Hegemon? 55
Luis Rubalcaba Matthias Kipping
Service Ontology 19 The Many Service Dimensions of Agriculture 59
Aarre Laakso and Luis Rubalcaba Camal Gallouj
Services in National Accounts 21 Professional Service Firms 64
Damien Broussolle Michael Smets, Jeffrey Peo and Ian Rodgers
The “Services Worlds” 22 Public Health Services 65
Faïz Gallouj Ida Gremyr
Publishing and Editing as a Service 66
Marie-Pierre Vaslet
1.2 Sectors and activities
Touristic Services 69
Big Four Audit and Accounting Firms 25 Rimante Hopeniene
Camal Gallouj and Nizar Gallouj Transportation and Logistics Services 71
Construction as a Service 29 Bernd Bienzeisler
Jan Bröchner
Cultural and Creative Industries 31 1.3 Structural change, tertiarization
Lars Fuglsang and markets
E-Services 33 Demand-Driven Services 74
Ada Scupola Zhaohao Sun
Factoryless Goods Producing Firms 35 Household Services Consumption 77
Damien Broussolle Elena Mañas and Patricia Gabaldon
viii elgar encyclopedia of services
Input-Output and Services 80 Ibn Khaldun and the Many Ways to Make
José A. Camacho and a Living 117
Mercedes Rodríguez Camal Gallouj and Faïz Gallouj
Market Forms in Services 83 The Increasing Complexity and the
Henk L. M. Kox “What-How” Transformation 118
Camal Gallouj
Productivity and Performance in Services 88
Andres Maroto Sanchez Information Economy, Knowledge Economy,
Intangible and New Economy . . .
Services Economic Growth 92
What Next? 119
Luis Rubalcaba and Ernesto Solano
Camal Gallouj
Servindustrial Economy 96
Jean Fourastié and the Logic behind the
Aku Valtakoski and Javier Reynoso
Three-Sector Model 122
Structural Change and Tertiarization in Camal Gallouj
Developing Countries 97
Jean Gadrey: Characterizing Services
Gisela Di Meglio and Jorge Gallego
and Service Relationships 123
Camal Gallouj
1.4 Services in economic and management
thought: concepts and theories Joachim Singelmann: Toward a Refined
Classification of Services 126
Alfred Sauvy, Services and the Camal Gallouj
Spillover Theory 100 Jonathan Gershuny and the Self-Service
Camal Gallouj Society 127
Allan Fisher and the Tertiary Sector 101 Faïz Gallouj
Camal Gallouj Public Service Logic 129
Circular Economy and Services 102 Stephen P. Osborne
Camal Gallouj and Céline Viala Quaternary Sector 133
Colin Clark and the Generalization of the Camal Gallouj
Three-Sector Model 103 Service-Dominant Logic 134
Camal Gallouj Angeline Nariswari and
Complex Systems, Risk Economics and Stephen L. Vargo
Services: Giarini’s Contribution 104 Service Ecosystems 137
Camal Gallouj Kaisa Koskela-Huotari
Daniel Bell and the Post-Industrial Society 105 Service: From Smith to Hill 139
Faïz Gallouj Damien Broussolle
The Experience Economy and Service Service Science 142
Experiences 106 Paul P. Maglio
Jon Sundbo
Services and Schumpeter 144
Frédéric Bastiat and Services 110 Michael Peneder
Jon Murphy
The Three-Sector Model 145
The Functional and Performance Economy Camal Gallouj
in Services 111
Walter R. Stahel Victor Fuchs and Services 147
Camal Gallouj
Harry Greenfield and the Focus on Producer
Services 114 What did Marx Say on Services? 148
Camal Gallouj Damien Broussole
Heinrich Storch and “Internal Goods” 115 William J. Baumol and Services 149
Faïz Gallouj Benoît Desmarchelier
 contents ix
SECTION 2 MANAGING SERVICES, Sourcing Business Services 201
SERVICES IN MANAGEMENT Wendy van der Valk
and Kostas Selviaridis
2.1 Organization and operations
Time and Services 205
Balancing Demand and Capacity in Services 153 Camal Gallouj
Patricia Chew and Jochen Wirtz Worlds of Production and Performance in
Core Services and Peripheral Services 157 Services 207
Faridah Djellal and Camal Gallouj Faïz Gallouj
Corporate Digital Responsibility (CDR) in
Services 158 2.2 Service marketing and strategy
James Tarbit, Nicole Hartley, Werner Kunz
Communication in Services 213
and Jochen Wirtz
Ronan Divard
Digital Servitization of Manufacturing Firms 162
Consumer Resistance in Services 216
Theoni Paschou
Abdelmajid Amine
Front Office Versus Back Office 163
Customer Journey 219
Camal Gallouj and Jean-Claude Pacitto
Asbjørn Følstad and
Lean Management in Services 165 Ragnhild Halvorsrud
Daryl Powell
E-servicescape/Cyberscape 220
Logistics in Service Organizations 166 Mark S. Rosenbaum and
Gilles Paché Germán Contreras Ramírez
Low Cost in Services 169 Information Asymmetry and Uncertainty in
Camal Gallouj Service Markets 221
Camal Gallouj
Product-Service Systems 172
Valérie Mathieu Luxury Service Consumption 223
Jonas Holmqvist, Jochen Wirtz and
Public-Private Partnerships for Service
Martin P. Fritze
Provision 173
Veiko Lember Management of Franchise Chains in
Services 225
Service Blueprint 176
Rozenn Perrigot
Faïz Gallouj
Multi/Omni and Cross-Channel Distribution 226
Service Growth in Product Firms 178
Huan Liu and Peter C. Verhoef
Christian Kowalkowski
Positioning a Service 230
Service Industrialization 180
Ronan Divard
Uday Karmarkar
Pricing in Services 232
Service Operations 183
Frédéric Jallat
Richard Metters
Quality Signaling on Service Markets 236
Service Outsourcing: Delineating the Scope
Camal Gallouj
of the Firm 187
Bertrand V. Quélin Ranking in Services 239
Camal Gallouj and Hind Marzak
Servitization and Advanced Services 192
Ahmad Beltagui, Tim Baines, Relationship Marketing in Services 242
Andreas Schroeder and Ali Ziaee Bigdeli Adrian Palmer
Servuction Systems 196 Satisfaction in Service Experiences 245
Muriel Jougleux Elodie Mallor and Sylvie Llosa
Smart Product-Service Systems 199 Self-Service and Customer Participation 249
Kentaro Watanabe Audrey Bonnemaizon and Sandrine Cadenat
x elgar encyclopedia of services
Service Climate 252 Employee Empowerment in Services 299
Benjamin Schneider Conrad Lashley
Service Failure, Recovery and Complaint “Good Jobs vs Bad Jobs”: Dualism in
Handling 254 the Service Labor Market 301
Chiara Orsingher Camal Gallouj
Service Franchising 257 Human Resource Management (HRM)
Rozenn Perrigot and Employment in Services 302
John R. Bryson
Service Guarantee 259
Benedetta Crisafulli Human Resource Management (HRM)
Consultants and Private Personnel Services:
Service Level Agreement (SLA) 261
Shaping the Labor Market 305
Gilberto Perez
Camal Gallouj
Service Quality Models 262
Knowledge Management in Management
Emel Yarimoglu
Consultancy 307
Service Robots and AI in the Frontline 265 Szilvia Mosonyi
Stefanie Paluch, Jochen Wirtz and
Pedagogical Servuction in Higher Education 310
Werner Kunz
Catherine Lapassouse Madrid
Services and Customer Deviance 269
Professional Identity in Services 312
Jean-Baptiste Suquet
Per Echeverri
Servicescape 272
Retaining Business and Professional
Mark S. Rosenbaum and
Service Employees 314
Germán Contreras Ramírez
John R. Bryson
Social Franchising 275
Service Employment Systems 315
Rozenn Perrigot
Damien Broussolle
Standards and Certifications for Services 276
Up or Out System in Consultancy 317
Grete Rusten
Camal Gallouj
Strategic Alliances of Service Firms 279
Brian Tjemkes and Olivier Furrer
Strategies for Developing Customer Loyalty SECTION 3 INNOVATION IN SERVICES,
for Services 282 SERVICES IN INNOVATION
Jochen Wirtz and Patricia Chew
3.1 Definitions, concepts, theories and
Understanding Consumer Behavior in the measurement
Service Encounter 286
Jochen Wirtz and Patricia Chew Assimilation Approaches to Innovation in
Services 322
Faïz Gallouj
2.3 Employment, HRM in services The Assimilation-Demarcation-Integration
(ADI) Framework for Innovation in Services 323
“Bullshit Jobs”, Service Jobs? 293
Faridah Djellal
Camal Gallouj
Bricolage and Ad Hoc Innovation 325
Creative Class 294
Lars Fuglsang
Camal Gallouj
Characteristics-Based Approaches for
Customers as “Partial Employees” of
Innovation in Services 327
Service Organizations 295
Paul Windrum
Camal Gallouj, Philippe Jourdan
and Valérie Jourdan Demarcation Approaches to Innovation in
Services 331
Emotional Work and Services 297
Faïz Gallouj
Catherine Maman
 contents xi
Innovations in Smart Service Systems 333 Intellectual Property Rights and Service
Jens Neuhüttler and Walter Ganz Innovation 367
Doris Schartinger
Integration Approaches to Innovation in
Services 336 Intrapreneurship in Services 371
Faïz Gallouj Jon Sundbo
Inversion Approaches to Innovation in Living Labs for Service Innovation 372
Services 338 Lars Fuglsang
Faridah Djellal
New Service Development: Key Concepts
Measuring Innovation in Services 339 and Performance Drivers 375
Anna Serena Vergori and Nicola De Liso Bo Edvardsson and Bård Tronvoll
Public-Private Innovation Networks in Practice-Based Innovation in Services 379
Services (PPINSs) 342 Marja Toivonen
Alessandra Marasco
Quality Standards and Innovation in Services 382
Public Service Innovation Networks (PSINs) 343 Christiane Hipp
Faïz Gallouj and Nizar Gallouj
R&D in Services 383
The Reverse Product Cycle Model (Barras) 346 Jari Kuusisto and Liting Selina Liang
Faridah Djellal
Service Design and Innovation 386
Service Innovation in OECD Manuals 347 Birgit Mager
Anthony Arundel
Service Innovation and Ethics and
Services and Community Innovation Societal Issues 388
Surveys 349 Jacob Dahl Rendtorff
Maria Savona
Social Entrepreneurship and Service
Social Innovation and Services 351 Innovation 391
Luis Rubalcaba Ada Scupola
“Up or Out” System and Innovation in
3.2 Organization and strategy for innovation Consulting Firms 393
Camal Gallouj
Artificial Intelligence in Services 356
Cristina Mele and Tiziana Russo-Spena User/Consumer-Based Innovation
in Services 395
Blockchain and Innovation in Services 359 Olivier Furrer, Mikèle Landry,
Tiziana Russo-Spena and Cristiana Mele Chloé Baillod, Rodoula Tsiotsou and
Design Thinking for Public Service Ben Liu
Innovation 360
Maria Taivalsaari Røhnebæk 3.3 Sectoral approaches to innovation
Dynamic Capabilities for Service in services
Innovation in the Digital Era 361
The “Retail Accordion” Model of Hollander 401
Paulo Antônio Zawislak, Carlai de Oliveira
Camal Gallouj
Netto, Rafael Toassi Crispim and Guilherme
Freitas Camboim The “Big Middle” Model of Innovation and
Change in Retailing 403
Employee Involvement in Service Innovation 363
Camal Gallouj
Marit Engen, Lars Fuglsang and Tiina
Tuominen Creative Innovation in Gastronomy
Services 404
Fablabs and Hackerspaces and Innovation
Cheryl Marie Cordeiro and Jaap W. van Hal
in Services 365
Laure Morel Digital Transformation in the Public
Sector 406
Global and National Cooperation in Service
Noella Edelmann, Nathalie Haug
Innovation 366
and Ines Mergel
Xavier Vence
xii elgar encyclopedia of services
Innovation and Knowledge Management in SECTION 4 SERVICES TRADE,
Consultancy Services 408 SERVICES SPACES
Faridah Djellal
4.1 Services: an international perspective
Innovation in Financial Services 409
Anne-Laure Mention Cloud-Based Services, Digital Platforms
Innovation in Health Services 414 and Internationalization 466
José Luis Navarro Espigares John R. Bryson
Innovation in Insurance Services 418 The COVID-19 Shock and Services Trade 467
Antonio Coviello Anirudh Shingal
Innovation in KIBS 420 Digital Services in the Food and Agriculture
David Doloreux, Richard Shearmur Sectors of Developing Countries 468
and Gabriel Baldassarri Heike Baumüller
Innovation in Postal Services 424 The General Agreement on Trade in
Bernhard Bukovc Services: A Work in Progress 470
Jean Philippe
Innovation in Professional Service Firms 427
Michael Smets, Ian Rodgers and Global Supply Chains: The Fragility of
Jeffrey Peo Delivery Service 472
Gilles Paché
Innovation in Restaurants 428
Craig Lee Gravity Models and Trade in Services 474
Peter M. Smith
Innovation in Social Services 429
Andreas Langer and Simon Güntner Indian Software Services 476
Anthony P. D’Costa
Innovation in Tourism and Hospitality 432
Anne-Mette Hjalager International Branding in Services 477
Mbaye Fall Diallo
Innovation in Transportation 434
Stephan Müller International Trade and Services 479
Mercedes Rodríguez and
KIBS in Innovation Systems 439 José A. Camacho
Ian Miles
Internationalization of Higher Education 481
“Local” Theories and Models of Innovation Jane Knight
in Retailing 445
Camal Gallouj Internationalization of Management
Consultancy 483
Open Banking Services 448 Johannes Glückler
Gilberto Perez
Internationalization of Services in
Platforming: A Logistical Service Emerging Countries 486
Innovation 449 Cristina Castro-Lucas
Gilles Paché
Knowledge Services Offshoring 488
Public Service Innovation 452 Kristin Brandl and Michael Mol
Antonello Zanfei
M-Services in Developing Countries 489
Service Innovation in Construction 457 Stephane Bourliataux-Lajoinie
Jan Bröchner and Arnaud Rivière
Service Innovation in Manufacturing Firms 458 Medical Tourism 490
Lars Witell Marina Gregoric
The “Wheel of Retailing” Model 461 Multinational Service Firms 492
Camal Gallouj Peter Enderwick
 contents xiii
Peer-to-Peer Sharing Platforms, from Gifts Services: Engine of Urban Economic
to International Exchanges 493 Growth 540
Daisy Bertrand Jean Philippe and Pierre-Yves Léo
The Role of Standards for Trade in Services 495
Knut Blind
Service Innovation in Developing Countries 499 SECTION 5 SOCIETAL CHALLENGES AND
Diego Aboal and Luis Rubalcaba PUBLIC POLICY
Service Offshoring 502 5.1 Societal challenges for services
Jean Philippe and Pierre-Yves Léo
Service Trade, Gender and Policies 503 Active Mobility Services 544
Pierre Sauvé Silvia Stuchi and Sonia Paulino
Services in Developing Countries 506 Base of the Pyramid (BoP) Service Research 547
Eduardo Raupp de Vargas Karla Cabrera, Ana Valdés and
Javier Reynoso
Services in the Balance of Payments 509
Damien Broussolle Capturing the Value of Public Services 549
Kirsi Hyytinen
Services Internationalisation 511
Jean Philippe and Pierre-Yves Léo Care Society, Care Services 552
Pascale Molinier
Services SMEs and International Trade 513
Hildegunn Kyvik Nordås Chinese Culture and its Impacts on the
Service Economy 554
Sen Bao and Marja Toivonen
4.2 Services: regional and local perspectives
Cultural Differences and Services 556
City as a Service 517 Olivier Furrer
Anna Viljakainen
Elderly Care Services in the Future:
Coworking, Third Places and Local The Role of Technology 559
Development 518 Hannamaija Tuovila,
Christine Liefooghe Kentaro Watanabe and Kirsi Hyytinen
E-Services in Urban Areas 521 Green Platforms Services for
Tommi Inkinen Sustainability 560
Andreas Pyka and Lea F. Stöber
The Geography of KIBS 522
Richard Shearmur and David Doloreux Integration Services for Refugees 564
Klara Foti
Intra-Urban Localization of Services 524
Lars Winther Islamic Financial Services 565
Eddy S. Fang
Last Mile Delivery Services 525
Emel Aktas Islamic Touristic Services 570
Camal Gallouj
Local Intensive Business Services (LIBS) 526
Magali Talandier New Services for Elderly People in Europe 574
Christian Bourret and Thérèse Depeyrot
Service Location and Retail Location 529
Jerome Baray Resilience and Renewal through Imposed
Service Innovation 576
Services and Urban Centers 534
Kristina Heinonen
Jean Philippe and Pierre-Yves Léo
Retail Services and Aging Consumers 577
Services Geography 536
Camal Gallouj
Bernadette Mérenne-Schoumaker
Science Museums as Educational Services 581
Services in Regional Development:
José Aureliano Martín Segura and
From Followers to Engines 538
César Pérez López
Camal Gallouj
xiv elgar encyclopedia of services
Service and “Servitude” 581 Good Practices in Promoting FDI
Isabel Pedraza-Acosta in Services 632
Roberto Echandi
Service and Aging 584
Samuel Guillemot Policies for Blockchain Adoption in
Education 635
Services and Religion 588
Varun Gupta, Chetna Gupta and Leandro
Camal Gallouj
Pereira
Service Inclusion 593
Policies for Co-Creation in Public
Rolf Rønning
Administrations 636
Services and Environment (Greening) 596 Francesco Mureddu
Brita Hermelin and Patrik Ström
Policies for Digital Transformation
Services and the Environmental Kuznets in Services 639
Curves 600 David Gago
Benoît Desmarchelier
Policies for Distributive Trades Services 640
Services Sector in Conflict Regions 601 Javier Casares
Rabeh Morrar
Policies for Health Services 641
Sexual Services and Escorts 604 Manuel García-Goñi
Camal Gallouj
Policies for Innovation in the
Street Services: Street Vendors and Service Public Sector 642
Providers 609 Eran Vigoda-Gadot
Camal Gallouj
Policies for Knowledge-Intensive Business
The Sustainability of Logistics and Services 647
Transportation Services 612 Luna Leoni and Urko Lopez Odriozola
Corinne Blanquart and
Thomas Zeroual Policies for Public-Private Innovation
Networks 650
Women and Services 614 K. Matthias Weber and
Heike Jacobsen Bernhard Dachs

5.2 Public policy for services Policies for Service Innovation in

Developing Countries 652
Big Data Services and Policy Making 619 Luis Rubalcaba and Diego Aboal
Luis Rubalcaba, Leticia Rubalcaba Policies for Services Innovation in
and Aarre Laakso Enterprises 653
Competition Policy 621 Luis Rubalcaba and José Franco
Luis Rubalcaba Policies for Services Integration in
Deregulation in Services Network Industries Global Value Chains 657
within the European Union 623 Nanno Mulder
Damien Broussolle Policy Barriers to Trade in Services and
Educational Services and Policies: their Impact 659
Towards a System Approach 625 Martin Roy
Oscar Montes Pineda Policy for Services Statistics in a Digital
Employment Policies in the Services Sector 626 and Borderless Economy 660
Raquel Llorente Diego Aboal and Luis Rubalcaba
Entrepreneurship Policies for Public Libraries 628 Public Policies for Digital Co-Creation
Varun Gupta, Chetna Gupta and Leandro in Public Services 662
Pereira Noella Edelmann and Francesco Mureddu
Public Policies for Service Quality 663
Global Services Skills Policies 630 Luis Rubalcaba and Aarre Laakso
Javier Peña Capobianco
 contents xv
Public Policy and Sustainable Service- Services-Related Policies: An Overall
Oriented Business Model Innovation 666 Framework 675
Alberto Peralta Luis Rubalcaba
Regional Policies and the Services Services Trade Policy 677
Sector 668 Matteo Fiorini and Bernard Hoekman
Rubén Garrido-Yserte and
The Single Market and the Services
María-Teresa Gallo-Rivera
Directive 679
Regulation in Services 669 Damien Broussolle
Henk L. M. Kox
Tourism Policies 681
Regulation of False Self-Employment Francisco J. Navarro-Meneses
in Services 673
Anita Wölfl Index 685
 balancing demand and capacity in services
Balancing Demand and
Capacity in Services1
Demand fluctuations threaten profitability
The effective use of productive capacity is
imperative for limited capacity services facing
wide demand swings as excess capacity cannot
be kept aside for sale at a later date. Hence, staff,
labor, equipment and facilities should be utilized
as productively as possible. Service marketers,
working in collaboration with operations and
human resource departments can develop strat-
egies to balance demand and capacity to create
benefits for customers and improve business
profitability.
Variations in demand relative to capacity
There are four conditions that a fixed-capacity
service may face at any given moment.
1. Excess demand—when demand is higher
than the maximum available capacity. Some
customers are turned away and this results in
lost business.
2. Demand exceeds optimum capacity—while
no one is turned away, there may be a nega-
tive perception of service quality due to the
crowded conditions.
Capacity U lized
Maximum available
capacity
Op mum capacity
(Demand and supply are
well balanced)
Low U liza on
(May send bad signals)
Time Cycle 1
Source: Wirtz and Lovelock (2022), p. 334.
Figure 1 Implications of variations in demand relative to capacity
153
3. Demand and supply are well balanced at
the level of optimum capacity—this is the
ideal state for both staff and customers.
Staff and facilities are busy but not over-
worked, and customers receive prompt and
good service.
4. Excess capacity—when demand is below
optimum capacity, productive resources
are underutilized. Customers may have
doubts about the viability of the business
or may be disappointed as excess capac-
ity may negatively impact the service
experience.
Sometimes optimum and maximum capacities are
one and the same. For example, the excitement
level is increased at sports events when attend-
ance is at maximum capacity. With most other
services however, the service is better when it is
not operating at maximum capacity, such as in
a restaurant, where the staff may be rushed and
there may be errors and delays if it is at maximum
capacity.
Building blocks for managing capacity and
demand
When faced with fluctuating demand, service
firms can either adjust the level of capacity or
manage the level of demand. Adjusting capac-
ity requires an understanding of what productive
Volume Demanded
Demand exceeds capacity
(Business is lost)
Demand exceeds op mum
capacity
(Quality declines)
Exceeds capacity
(Wasted resources)
Time Cycle 2
Patricia Chew and Jochen Wirtz
154 elgar encyclopedia of services
capacity means and how it may be increased or
decreased. Managing demand requires a good
understanding of the various customer segments
and their demand patterns. Service firms nor-
mally use a mix of both approaches (Klassen and
Rohleder, 2001).
Figure 2 shows the four building blocks that
provide an integrative approach to balancing
capacity and demand.
Define productive service capacity
The productive capacity of service firms includes
facilities, equipment, labor and infrastructure.
1. Facilities can “hold” customers or goods.
People-processing services or mental-
stimulus-processing services like medical
clinics, cruise ships, theme parks and
college classrooms have facilities that “hold”
customers. Capacity constraint can be in the
form of furnishings like beds, rooms or seats.
Facilities that hold goods can store or process
goods that either belong to customers or are
being sold to them. Examples include parcel
collection boxes, warehouses and parking lots.
2. Equipment can be used to process people,
possessions or information. There is a large
range of equipment such as facial recogni-
tion or biometric systems, incinerator plants,
bank ATMs and temperature scanners. If
there is insufficient equipment, service may
be interrupted or stopped.
3. Labor is a key aspect of productive capacity
in all high-contact services and many low-
contact ones. If there is a staffing shortage,
service might be slow or rushed. Professional
services, in particular, rely on highly skilled
staff to create high value-added, informa-
tion-based output.
4. Infrastructure capacity can also be critical.
Many organizations depend on or need suf-
ficient public or private infrastructure like
airports, highways, electrical power lines
and fiber optic lines to enable them to deliver
quality service to their customers.
Manage capacity
Capacity can be stretched and adjusted (i.e.,
increased or reduced) to match varying levels of
demand.
Stretch capacity levels
Some capacity are able to absorb extra demand and
serve more people with the same level of capacity.
For example, during rush hour, many more people
can be squeezed into the same subway car under
sardine-like conditions. Similarly, the capacity of
service personnel can be stretched if they work
at increased efficiency levels for short periods of

Building Blocks for Managing

Capacity and Demand

Define Producve Capacity Understand Demand Paerns

• Describe the forms of • Ask quesons that help understand demand paerns
producve capacity • Determine drivers of demand by segment

Manage Capacity Manage Demand

• Adjust capacity to match Insufficient capacity
demand • Use markeng mix
elements to reduce and
shi demand
• Inventory demand using
queuing systems
• Inventory demand using
reservaons systems
Insufficient Demand
• Use markeng mix
elements to increase
demand
• Create use for otherwise
wasted capacity

Figure 2 Building blocks for managing capacity and demand

Patricia Chew and Jochen Wirtz

 balancing demand and capacity in services
time, but this cannot be sustained as staff would
tire quickly if the periods were prolonged.
Another way to stretch capacity is to utilize
facilities for longer periods. For example, medical
clinics can extend their opening hours, with some
even staying open 24 hours.
Lastly, firms can reduce the average amount of
time that customers (or their possessions) spend in
process. Some restaurants implement a time limit
for buffet meals or offer a simpler menu during busy
times to reduce ordering times. Minimizing slack
time also helps reduce in-process time. For example,
a restaurant can clear tables, seat arriving diners and
present the menus fast, and present the bill promptly
to a group of diners relaxing at the table after a meal
(Noone et al., 2012; Kimes and Ho, 2019).
Adjust capacity to match demand
Adjusting capacity to match various levels
of demand, also known as chasing demand,
involves changing the overall capacity. Managers
can adjust capacity through the actions listed,
starting from the easiest to the more difficult
to implement (Fitzsimmons and Fitzsimmons,
2020; Sasser, 1976):
1. Schedule downtime during periods of low
demand. Maintenance and repair should be
scheduled during periods of anticipated low
demand. Employees could also take their
vacation days during such periods.
2. Cross-train employees. There may be
instances when some departments are oper-
ating at full capacity, while others may not
be. Therefore, if employees are cross-trained,
they can then be deployed to the bottleneck
points to increase total capacity. In hospi-
tals, for instance, administrative staff can be
cross-trained to assist in registration and sim-
ple triage when there is excess demand in a
crisis situation, like the COVID-19 pandemic.
3. Use part-time employees. Many firms
hire part-time employees during their busi-
est periods. For example, colleges may hire
part-time invigilators during examination
period or event companies may hire part-
time ushers during sports events.
4. Invite customers to perform self-service.
There may be a limit to the number of
employees that can be added. In such
instances, customers may be invited to per-
form self-service. For example, airports have
provided kiosks for self-check-in and restau-
rants may have self-ordering kiosks.
155
5. Ask customers to share. Capacity can be
stretched by asking customers to share a
unit of capacity normally meant for one indi-
vidual. For instance, many ride-hailing com-
panies provide shared rides for customers
going to similar destinations.
6. Create flexible capacity. When different
customer segments share the same capac-
ity, flexible capacity needs to be created. For
example, restaurants can have two-seater
tables that can be combined to seat four or
six customers.
7. Rent or share extra facilities and equip-
ment. To reduce expenditure on fixed assets,
a service firm may be able to rent extra space
or machines during peak times. For exam-
ple, a logistics company may rent transport
vehicles during peak periods. Two firms with
complementary demand patterns may enter
into formal sharing agreements. For exam-
ple, restaurants located in close proximity
serving different segments of customers and
which are busy at different times may share
robot servers.
Understand patterns of demand
Understanding the difference in demand patterns
of different market segments is key to manag-
ing demand. Good transactional data helps firms
to analyze demand patterns based on historical
purchases. Sophisticated machine learning algo-
rithms can predict customer demand based on
historical information such as the type of cus-
tomer, service requested and date and time of
day.
Manage demand
When service firms have a clear understanding of
the demand patterns of different market segments,
they can use four approaches to manage demand.
Strategic use of excess capacity
Firms may still have excess capacity during
certain time periods despite careful planning to
manage capacity and demand. Innovative firms
can create alternative “demand” with their excess
capacity. Anticipated excess capacity can be stra-
tegically allocated to build relationships with cus-
tomers, suppliers, employees and intermediaries
(Ng et al., 1999). Possible uses for excess capacity
include:
Patricia Chew and Jochen Wirtz
156 elgar encyclopedia of services
Table 1 Demand management strategies for different capacity situations
Capacity situation
Four approaches Excess demand Insufficient demand
to managing (insufficient capacity) (excess capacity)
demand
Take no action • Customers may avoid future use after • Capacity is wasted and customer
encountering long waits and disorganized experience may be disappointing, such
queuing. as for spectator sports events.
Manage Reduce demand in peak periods: Increase demand in low periods:
demand through
• Increase prices to reduce demand and • Decrease prices with caution to ensure
marketing mix
increase profits. all relevant costs are covered.
elements
• Change product elements (e.g., offer products • Change product elements (find
needing less processing time). alternative value propositions for
• Modify time and place of delivery (e.g., service during low-peak seasons).
extend operating hours). • Use communications and distribution
• Use communication to encourage use during but balance the trade-offs between
off-peak periods. demand levels and profitability.
Note that capacity should be prioritized for
highly profitable segments and shifted for lower
yield segments.
Inventory • Queue configuration should match service • Not applicable, but data like the type
demand using a process. and number of transactions can be
queuing system • Have priority queuing for the most attractive collected through the queuing system.
segments and shift others to off-peak periods. The same applies to reservation systems
• Provide separate queues based on urgency, below.
duration and premium pricing of service.
• Keep customers occupied so perceptions
of waits are shorter and make waits more
comfortable.
Inventory • Prioritize less price-sensitive and more • Allow customers to choose their
demand using important customer segments, and reserve preferred time slots, thereby also
a reservation capacity for them. showing the availability of capacity.
system • Shift other customers to off-peak periods.

1. Use capacity for service differentiation. to have an understanding of the service

When there is excess capacity, service
employees can focus on loyalty build-
ing through outstanding customer service
to “wow” customers, like paying special
attention to them or allocation of preferred
seats.
2. Reward your best customers and build
loyalty. As part of the loyalty program, have
special promotions, ensuring the current rev-
enues are not affected.
3. Customer and channel development. Give
prospective customers and intermediaries
free or heavily discounted trials.
4. Reward employees. In the tourism or food
and beverage industries, for instance, excess
capacity can be enjoyed by employees and
their family. This also allows employees
from the customer’s perspective and can
lead to employee satisfaction, loyalty and
performance.
5. Barter free capacity. Service firms often
can save costs and increase capacity utili-
zation by bartering capacity with their own
suppliers. Advertising space, airline seats
and hotel rooms are among the most com-
monly bartered services.
Patricia Chew and Jochen Wirtz
Note
1. This entry is based on Jochen Wirtz and Christopher
Lovelock (2022), Services Marketing: People,
Technology, Strategy, 9th ed., New Jersey: World
Scientific, Chapter 9.

Patricia Chew and Jochen Wirtz

 core services and peripheral services 157
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Klassen, K. J., Rohleder, T. R. (2001), “Combining
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Ng, I. C. L., Wirtz, W., Lee, K. S. (1999), “The strategic
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Wirtz, J., Lovelock, C. (2022), Services Marketing:
People, Technology, Strategy, New Jersey: World
Scientific, Chapter 9, 9th edition.

Patricia Chew and Jochen Wirtz