Service Demand Management

INTRODUCTION

Since the services can't be stored as an inventory

for future use, and since services are perishable,
hence the demand becomes critical.

• Once the demand is not catered, it's lost for ever.

• The best a marketer can do is to minimise to

some extent by careful planning and adopting some
strategies.
Factors which affect
demand fluctuation
Factors which affect demand fluctuation

Expansion or Boom

• Contraction and Recession

• Technological Developments

• Demographics

• Natural and Other Disasters

1. DEMAND /
CAPACITY
VARIATIONS
DEMAND / CAPACITY VARIATIONS

At any given moment, a fixed-capacity services may face one of four

conditions:

1. Excess demand - the level of

demand exceeds maximum
available capacity, with the result
that some customers are denied
service and business is lost.
DEMAND / CAPACITY VARIATIONS

2. Demand exceeds optimum

capacity—no one is actually
turned away, but conditions
are crowded and all customers
are likely to perceive a decline
in service quality
DEMAND / CAPACITY VARIATIONS

3. Demand and supply are well

balanced at the level of optimum
capacity—staff and facilities are
busy without being overtaxed,
and customers receive good
service without delays.
DEMAND / CAPACITY VARIATIONS

4. Excess capacity—demand is
below optimum capacity and
productive resources are
underutilized, resulting in low
productivity. In some instances, this
poses a risk that customers may
find the experience to be inferior.
DEMAND / CAPACITY VARIATIONS:

You will notice that we have drawn a

distinction between maximum
capacity and optimum capacity. when
demand exceeds the maximum
available capacity, some potential
customers may be turned away and
their business could be lost forever.
DEMAND / CAPACITY VARIATIONS

When the demand level is

between optimum and maximum
capacity, all customers can be
served but there's risk that they
may receive inferior service and
thus become dissatisfied
DEMAND / CAPACITY VARIATIONS

When the demand level is

below the optimum
capacity, some customers
may perceive inferior
service and thus become
dissatisfied.
2. UNDERSTANDING
DEMAND PATTERNS
DEMAND PATTERNS

Marketers need to understand the pattern or way the demands behave, with respect to time, place and person.

Then the relevant strategies for matching demand and capacity can be developed in services marketing.

Sketching Demand Patterns : Companies need to keep a track record

or log book where all the demands are recorded on daily, weekly,
monthly, seasonal, and yearly basis, and graphical chart, sketch or a
report can be made. After a few years, a set of patterns can be
accurately predicted.
DEMAND PATTERNS

Foreseeable/ Predictable Cycles: Then some easily predicted or

foreseeable cycle can be made. On that basis services can be
planned. Ex. Health check-ups in hospitals, in a lean.

Random Demand Variations: Some other service demands are not

easily predictable, or they occur randomly, even the cause can be
ascertained. Say health care or insurance when a flood or earthquake
occurs.

Demand Patterns by Market Segments: Another more specialised

database keeping is done for different demand pattern of customers of
different segments. E.g., for a group of family the bonus time is holiday
time, whereas for another group this is insurance premium pay time.
3. UNDERSTANDING
CAPACITY
CONSTRAINTS
CAPACITY CONSTRAINTS

Capacity of a company is defined as the

ability to meet the demand and the extent
which it can do it. For production of good:
this can be expanded or contracted easily
But for services it is difficult, as four critic
factors are involved. This are done with
utmost care, planning, cost effective
measures. These are a) Time, b)
Labour, c)Equipment and d)Facility.
Time

Time is limited and mostly specialised professionals have this

constraints, they can't take up more than the time permits and
have to be idle if there are none.

This can be tackled by business houses I opening shop for

extended hours when the demand is more and vice versa.

Say doctors can have more consulting hours when there is

demand. The service providers must be willing to accept the
change in situation. (Types of services - Legal, Consulting,
Accounting, Medical).
Labour

• Labour or workers are another area of constraint. Beyond

the full work load it's hard to cater to more. On the other
hand temporary employment is not available sufficiently in
skilled category.

• This can be tackled by out sourcing the workers to a

contractors who has a large work force with him.

• He can adjust between several companies, but again the

difference in the skill is a bottleneck. (Types of services- Law
firm, Consulting Firm, Accounting Firm, Health Clinic)
Equipment

• Like machinery, transport etc. are needed more in no. when

there's a bigger demand. For a limited period a company can't
buy extra equipment or machinery.

• But these can be managed by careful planning like having

sufficient equipment for the minimum level in a cycle say a year
with down/maintenance time, and out sourcing the additional
demand by accurate prediction as far as possible. (Types of
Services - Network Services, Delivery services,
Telecommunications, Utilities, Health Club)
Facility

• These are mostly the infrastructure like premises,

building, hotel rooms, restaurant tables, class rooms, etc.,
which can't be increased easily or quickly.

But to some extent they can be enhanced, like two shifts

in the class rooms, adding a few tables and rearranging
them in a restaurant, adding more compartments in a
train, more flights for air travel, etc. (Types of Services
-Hotels. Restaurants. Hospitals. Airlines.
4. STRATEGIES TO
MATCH DEMAND
AND CAPACITY
INTRODUCTION
• The most important job of the service
marketer is balancing and matching the
demand and capacity.

• This can be achieved by three ways

– 4 (a) Demand shifting to match the capacity
– 4 (b) Adjusting capacity to meet demand
– 4 (c) Creating demand inventory
4 (a) Demand shifting to match the capacity
INTRODUCTION TO DEMAND SHIFTING

• In a particular demand cycle there should

be minimum occasions for demand being
more, or the idle capacity, with the least
extra cost.

• This can be done as already given and by

shifting demand
Demand Shift
• There are some services where the demand can
be shifted, that means the timings can be changed
without much discomfort, like use of telephone or
Internet etc.

• The prices are more during the peak period and

less in slack period.

• But there is a limitation, it is not practical in a

restaurant, if there is no additional capacity, then
the firm looses customer who go to another.
Methods of Demand Shift

(1) Varying the original services

offer Bigger service providers
offering smaller services during
low demand period. Like
marriage caterers offering
smaller parties of birthday,
business gatherings etc.
Methods of Demand Shift

(2) Communicating with the customers y the

effective communication, the service
marketer can explain the practical situation
to the potential customers, so that they can
shift their requirement timings. Again this is
applicable to a small portion of cases, where
choices are available. Some customers are
by nature rush avoiders, so to some extent
the nature takes care of the shifting.
Methods of Demand Shift

(3) Altering the service delivery timings Earlier banks used to work from 10
am to 2 pm. Now the scheduled banks have working hours 10 to 3.30, and
the new generation private banks have 9.30 to 4.30 timings, and some
even are open on Sundays. This is apart from the 24-hr ATMs.
Methods of Demand Shift

(4) Price differentiation This concept works on the basis of the economy of
supply and demand. Having a differential pricing as mentioned earlier, say
for bars daytime is low priced. But here there is a limitation - it doesn't
apply to many services or many customers. Also there is a danger of
attracting another segment or dissatisfying the target segment. The
marketer has to be very particular about the price sensitivity of the
customers.
Strategies for demand shifting to Match Capacity
DEMAND TOO HIGH
• Use signage to communicate busy
days and times.
• Offer incentives to customers for
usage during non-peak times.
• Take care of loyal or regular
customers first.
• Advertise peak usage times and
benefits of non-peak use.
• Charge full price for the service -no
discounts.
DEMAND TOO LOW
• Use sales and ads to increase
business from current market
segments.
• Modify the service offering to apply to
new market segments.
• Offer discounts or price reduction.
• Modify Hours of operation.
• Bring the service to the customer.
4 (b) Adjusting capacity to meet demand
Adjusting capacity to Meet Demand

• Managing the following entities have been

discussed earlier

• Time, Labour, Equipment and Facility.

Align Capacity with Demand Fluctuations

• Another set of options involves tailoring

the overall level of capacity to match
variations in demand.

• This strategy is known as "Chase Demand

Strategy".
Methods of aligning Capacity with Demand Fluctuations

(1) Schedule downtime during periods of low demand. To ensure that 100
percent of capacity is available during peak periods, repairs and
renovations should be conducted when demand is expected to be low.
Employee holidays should also be taken during such periods.
Methods of aligning Capacity with Demand Fluctuations

(2) Use part-time employees. Many organizations hire extra workers during
their busiest periods. Examples include postal workers and retail store
clerks during the pre-Christmas season, extra staff in tax preparation firms
at the end of the financial year, and additional hotel employees during
holiday periods and major conventions.
Methods of aligning Capacity with Demand Fluctuations

(3) Rent or share extra facilities and equipment. To limit investment in fixed
assets, a service business may be able to rent extra space or machines at
peak times. Firms with complementary demand patterns may enter into
formal sharing agreements.
Methods of aligning Capacity with Demand Fluctuations

(4) Cross-train employees. Even when the service delivery system appears
to be operating at full capacity, certain physical elements—and their
attendant employees may be under-utilized. if employees can be cross-
trained to perform a variety of tasks, they can be shifted to bottleneck
points as needed to help increase total system capacity.
Methods of aligning Capacity with Demand Fluctuations

(5) Modify or move Facilities and Equipment. Sometimes it is possible to

adjust, move, or creatively modify existing capacity to meet demand
fluctuations. Like Hotel conference halls may be partitioned into two or
three halls when the demand occurs.
Strategies for Flexing Capacities to Match Demand

DEMAND TOO HIGH DEMAND TOO LOW

• Stretch time, labour, facilities and • Perform maintenance, renovations.
equipment.
• Cross-train the employees. • Schedule vacations.
• Hire part-time employees. • Schedule employee training.
• Request over-time work from • Lay-off employees.
employees.
• Rent or share facilities.
• Rent or share equipment.
• Sub-contract or out source activities.
4 (c) Creating demand inventory
Creating Demand inventory

But since services are

performances, they can't
Apart from matching In an ideal world, typically be stored for
demand and nobody would ever later use during periods
of excess demand. In
capacity, an have to wait to
businesses where
organization may conduct a transaction demand regularly
also try to create a at a service exceeds supply,
demand inventory. organization. managers often try to
manage demand in one
of two ways:
Creating Demand Inventory

1. By asking customers to wait in

2. By offering them the opportunity
line (queuing), usually on a first-
to reserve or book space in
come, first-served basis This is
advance This is known as the
known as Queuing system like
Reservation system - like railway
waiting line (Queue) for turn in a
travel.
dental clinic.
Queuing system
• The first step is to deal with the waiting line or queue at
the time of service delivery. One way is to adopt the first-
come first-serve principle.

• When it is not possible to do so, organizations can solve

the problem through market segmentation.

• Other strategies involve serving those customers who

require the services on an emergency basis first,
reducing the time of transaction, serving important
customers first, or by serving customers who contribute
the most to the organization's profits.
Queuing system
• Organizations should consider the psychological feelings of the
customers while they are waiting and make the process more
tolerable for them. This can be achieved by:

– keeping customers busy while waiting, involving them in activities

related to the service, reducing their anxiety by informing them about the
current situation and the duration of waiting.
– Keeping the customers be explained the reasons why the service
delivery was taking so long and why some of them were served first.

• Organizations should understand the customers‘ tendency to wait

for longer periods depending on the value of the service and their
irritability while waiting alone.
Reservation system
• Additionally, by adopting reservation
systems, organizations can spread the
demand equally across peak and slack
periods.