DEMAND MANAGEMENT IN
SERVICES
At the end of this module the learning
outcomes are:
• What is demand management?
• What are the capacity constraints?
• What strategies can be used to manage
demand?
• Understand the concept of waiting in services
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DEMAND MANAGEMENT IN
SERVICES
Suggested readings
Services Marketing
by
Zeithmal and Bitner, 2nd edition
Chapter 14
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DEMAND MANAGEMENT IN
SERVICES
Demand management
• Services
• Cannot be stored
• Perishable
• Simultaneous production and consumption.
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DEMAND MANAGEMENT IN
SERVICES
COMMON SITUATIONS
• Vacant seat in
• Airlines
• Hotel
• Restaurant
• Lawyer sitting idle. Loss of billing
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DEMAND MANAGEMENT IN
SERVICES
Lack of inventory means:
• Excess demand
• Demand exceeds optimum capacity
• Demand and supply are balanced at the
level of optimum capacity
• Excess capacity.
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DEMAND MANAGEMENT IN
SERVICES
Excess demand.
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Demand exceeds supply
Loss of customers
Existing customers.
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Deterioration in services
Overcrowding
Overuse of facilities
Example:
Saturday movie at 8.00 p.m. in PVR multiplex.
Going to Sagar restaurant in Delhi at 8.00 p.m.
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DEMAND MANAGEMENT IN
SERVICES
Demand exceeds optimum capacity.
• Supply not created according to demand.
• Constant overuse.
• Cannot deliver consistent quality.
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DEMAND MANAGEMENT IN
SERVICES
Demand and supply are balanced at the
level of optimum capacity
• All facilities
• Used at optimum level
• Customers
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Receive optimum services
No delays
Ideal Situation
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DEMAND MANAGEMENT IN
SERVICES
Excess Capacity
• Demand less than the capacity
• All resources under-utilised
• Customers receive excellent services
• No waiting
Examples
• Morning show at PVR multiplex
• Going to bar at 4 p.m.
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DEMAND MANAGEMENT IN
SERVICES
Demand Fluctuation
• Different Type
Wide Fluctuation
• Telecommunications
Heavy traffic during day
Low traffic during night
• Hospital
Sometimes no patient
Many patients
Lack of bed
Disaster
Earthquake
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DEMAND MANAGEMENT IN
SERVICES
Narrower Fluctuation
• Insurance
• Banking
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DEMAND MANAGEMENT IN
SERVICES
Understanding capacity constraints
• Restaurant
• No. of Seats: 50
• Customers waiting: 200
• Can we increase seats to 200
• Unfortunately not always possible
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DEMAND MANAGEMENT IN
SERVICES
CONSTRAINTS
Depending on the service, constraints
can be
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Time
Labour
Equipment
Facilities
Combination of the above.
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DEMAND MANAGEMENT IN
SERVICES
Time Constraint
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Staff operating at peak capacity
•
Demand exceeds supply
Income tax consultant
•
People pay income tax
•
File return
•
Last day of return
•
Seek advice of a consultant
•
Many customers are waiting on the last day
Time constraint of handling so many customers on the
last day
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DEMAND MANAGEMENT IN
SERVICES
Equipment constraint
Federal Express
• Delivery of mail
Greeting Cards
Christmas
New Year day
• Huge demand
Availability of trucks is a constraint
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DEMAND MANAGEMENT IN
SERVICES
STRATEGIES FOR MATCHING CAPACITY
AND DEMAND
Two Strategies
• Shifting demand to match capacity
• Flexing capacity to meet demand
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DEMAND MANAGEMENT IN
SERVICES
Shifting Demand to Match Capacity
• Capacity (Supply) is fixed
• Shift /Change demand to match supply
• Shift demand to lean seasons
• Not always possible
• How can we do this?
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DEMAND MANAGEMENT IN
SERVICES
Various methods to shift demand
• Vary the service offering
• Communicate with customers
• Modify timing and location of service
delivery
• Differentiate on price
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DEMAND MANAGEMENT IN
SERVICES
Vary the service offering
Whistler Mountain, Canada
• Snow Skiing facilities
• Only in winter?
• What do you do in summer?
• Skiing not possible
• Development and training programs
• For various people category
• Corporate executives
• Professionals
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DEMAND MANAGEMENT IN
SERVICES
Vary the service offering
Airlines
• Change plane configuration
• Depending on situation• No first class
• Only economy class
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DEMAND MANAGEMENT IN
SERVICES
Los Angeles Hospital
• Lean season
• Movie productions allowed
• Featuring on hospitals
• Is it always possible?
• Can you change hospitals into movie theatres
• What are the implications
• Is image at stake
• Many organisations refrain from this?
Handle with care
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DEMAND MANAGEMENT IN
SERVICES
Communicate with customers
• How to shift demand
• Inform peak demand period
• Customers can choose some other time
• Off peak times
• Benefits
Happy customers
More satisfied
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DEMAND MANAGEMENT IN
SERVICES
. Modify
Timing and Location of Service
Delivery
• Organizations adjust their timings / days of service
delivery
Banking industry
• Earlier banking hours
• Working hours 10.00 am to 2.00 pm
• Now banking hours
Afternoon hours
Evening hours
• Banks open on Sunday
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DEMAND MANAGEMENT IN
SERVICES
Differentiate on Price
• Low demand
• Use price
• Customer sensitivity of demand is critical
Example
• Business travellers are less price sensitive
compared to leisure travellers
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DEMAND MANAGEMENT IN
SERVICES
What is the objective
• High capacity utilization without sacrificing profits
• Use of Price
• Every situation
Hotels
Restaurants
Movie halls
• Happy hours
Is lowering price always the right strategy
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DEMAND MANAGEMENT IN
SERVICES
Dangers of lowering price
• Price wars
• Competitors also lower prices
• Customers getting used to lower prices
• Airlines Industry
• Overused
• Many airlines have used this
• Very few airlines are profitable
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DEMAND MANAGEMENT IN
SERVICES
Flexing capacity to meet demand
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How can you change/flex capacity?
Adjust
Stretch
Align capacity to meet demand
What are organizational resources
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Time
People
Equipment
Facilities
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DEMAND MANAGEMENT IN
SERVICES
Various strategies to flex capacity
1. Stretch existing capacities
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Stretch Time
Stretch Labour
Stretch facilities
Stretch equipment
2. Align capacity with demand fluctuations
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Use part - time employees
Outsourcing
Rent or share facilities or equipment
Schedule downtime during periods of low demand
Cross-train employees
Modify or move facilities and equipment.
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DEMAND MANAGEMENT IN
SERVICES
Stretch time
•
Extend hours of services on a temporary basis
Archie's Greeting shop
•
Christmas, New Year, Valentines day
•
Open for longer time
Doctor clinic
•
Winters
9.30 to 12.30, 6 to 8.p.m.
•
Summer
8.30 to 1.00 , 5 to 9 p.m.
•
Why
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More patients.
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More diseases in summer
Stretch capacity by Stretching time
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DEMAND MANAGEMENT IN
SERVICES
Stretch Labour
• Employees work for longer hours
• Peak demand
Banks
• Peak demand
• Additional people deployed at front
counters/cashier
• Redeployed from back offices
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DEMAND MANAGEMENT IN
SERVICES
Stretch facilities
•
How can
Theatres
Restaurants
Classrooms
•
Can be expanded on temporary basis.
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DEMAND MANAGEMENT IN
SERVICES
Stretch facilities
Railways
• Summer rush
• Peak demand
• What does railways do?
• Run additional trains
“Holiday Special”
Increase frequency of existing trains
• II tier AC to III tier AC
• Increase capacity
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DEMAND MANAGEMENT IN
SERVICES
Stretch Equipment
• Stretch beyond the maximum capacity
• To accommodate peak demand
Power generation utilities
• Peak Season
• Extreme winter
• Extreme summer
• Run additional generators
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DEMAND MANAGEMENT IN
SERVICES
ALIGN CAPACITY WITH DEMAND
FLUCTUATIONS
• Chase demand strategy
• Match capacity with demand patterns
• Use of the resources
Time, labour, equipment, facilities
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DEMAND MANAGEMENT IN
SERVICES
Use part – time employees
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Peak demand
Align labour resources with demand
Hire part – time employees
Hotels in Goa
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Dec – Jan peak season
Huge demand
Hotels hire part – time employees
Meet demand
Slack season
Lay off part time employees
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DEMAND MANAGEMENT IN
SERVICES
Rent or Share facilities or equipment
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Sharing facilities
Renting
Hotels in Goa
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Hotels own buses
Drop and pick – up passengers
Peak Season
Huge demand for short period
Renting buses
To meet peak demand?
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DEMAND MANAGEMENT IN
SERVICES
Schedule down time during periods
of low demand
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Facilities used at peak
Need maintenance
Conducted during off – season
Carrier Air conditioners
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Summer peak season
Winter slack season
Maintenance during winter season
People are occupied
Use peak season to attend complaints
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DEMAND MANAGEMENT IN
SERVICES
Cross–train employees
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Ability to perform more than one activity
Need less employees
Dominos
• Peak demand
• Home delivery
• Packing employees convert into delivery boys
• Vice – versa
• Can handle various types of activities
• Training imparted for various skills
Used in Banks, Airlines
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DEMAND MANAGEMENT IN
SERVICES
. Modify or move facilities
• Modification of capacities
and equipment
Budget Hotels
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Peak season
Big room converted into two smaller rooms
Create additional capacity
Slack season
Remove partition
Create bigger room
Charge higher Prices
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DEMAND MANAGEMENT IN
SERVICES
If Supply and Demand cannot be matched
or aligned, what would you do?
Look at waiting line strategies
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DEMAND MANAGEMENT IN
SERVICES
Waiting line strategies
• Inspite of best efforts
• Demand may exceed supply
• Not economical to increase supply
• Very costly
• Customers have to wait
How to make WAITING a better
experience
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DEMAND MANAGEMENT IN
SERVICES
WHERE WAITING HAPPENS
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At a doctor’s clinic
On telephone assistance
Customer care help lines
In a bank
At ATM
At petrol pumps
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DEMAND MANAGEMENT IN
SERVICES
WAITING – IS IT A PROBLEM
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Fast – paced society
People do not tolerate
People work for longer hours
Increasing stress in jobs
Tolerance level are low
Customers expect
Want efficient service
Less or no waiting
How to reduce / manage waiting?
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DEMAND MANAGEMENT IN
SERVICES
WAITING LINE STRATEGIES
• Employ operational logic
• Establish a reservation process
• Differentiate waiting customers
• Make waiting fun, or at least tolerable
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DEMAND MANAGEMENT IN
SERVICES
Employ operational logic
•
If waiting common, then operations need
improvements
Marriot Hotel
• Loyal customers
• Check-in
• Go straight to their allotted room
• Complete formalities in room
• No waiting
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DEMAND MANAGEMENT IN
SERVICES
Standard Chartered Bank
• Earlier
• Deposit and withdrawal counters were separate
• Heavy waiting at withdrawal counters
• Now single counter for withdrawal and deposit
• Less number of counters required
ABN AMRO Bank
• Cash delivery at residence
• Customers who do not want to wait
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DEMAND MANAGEMENT IN
SERVICES
Establish a reservation process
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Waiting cannot be avoided
Reservation System
Spread demand
Purpose
Guarantee that when customer arrives
Reduces waiting time
Shifts demand
What if “no – show”
Depends on analysis
Is the percentage high or low?
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DEMAND MANAGEMENT IN
SERVICES
Airlines
• No-show quite frequent
• Accurate prediction
• Over-booking common
• What do you do when all booked customers land
up?
• Compensated for not taking flight
• Incentives to get offloaded
• Some companies do not refund for no-show/
cancellation
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DEMAND MANAGEMENT IN
SERVICES
Differentiate waiting customers
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Would you accord priority
First-come, first served
Differentiation depends on
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Importance of the customer
Urgency of the job.
Duration of the service transaction
Payment of a premium price
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DEMAND MANAGEMENT IN
SERVICES
Customer importance
• Old customers
• Loyal customers
• Given priority
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DEMAND MANAGEMENT IN
SERVICES
Job urgency
Hospital – Emergency
• Customer life at stake
• Provided immediate priority
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DEMAND MANAGEMENT IN
SERVICES
Duration of the service transaction
• Short Jobs
• Priority through express lanes
DSOI-Club, Delhi
• Members vs. non-members
• Members
• Simple process
• Non – members
• To go through entire procedure.
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DEMAND MANAGEMENT IN
SERVICES
Payment of a premium price
• Creation of different services level
• Paying extra
Airlines
• First class passengers
Express check-in counters
No wait
•
Economy class passengers
Wait of 10 minutes
Not uncommon to see longer wait
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DEMAND MANAGEMENT IN
SERVICES
. Making waiting fun, or at least tolerable
• How do you handle wait?
• Are customers feeling bored?
• Unoccupied time feels longer than
occupied time
• Pre-process wait feels longer than inprocess waits
• Anxiety makes waits seem longer
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DEMAND MANAGEMENT IN
SERVICES
Making waiting fun, or at least tolerable
• Uncertain waits are longer than known, finite
waits
• Unexplained waits are longer than explained
waits
• Unfair waits are longer than equitable waits
• The more valuable the service, the longer the
customer will wait
• Solo waits feel longer than group waits
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DEMAND MANAGEMENT IN
SERVICES
Unoccupied time feels longer than
occupied time
• Unoccupied makes you bored
• How to make customers feel occupied
• Playing music on phone banking services
of Citibank
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DEMAND MANAGEMENT IN
SERVICES
Pre-process waits feel longer than in-process
waits
• Can wait be related to upcoming services
• Gets a feeling that “service has already started”
Examples
• Filling out medical details before meeting physician
• Order your dinner at waiting lounge
• Show videotape of upcoming Service
• Car service station-inspection at gate
• Show video of various processes/stages your car will go
through
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DEMAND MANAGEMENT IN
SERVICES
Anxiety makes wait seem longer
• Anxiety increases because of waiting
• How to deal with this.
Disney theme park
• Along the queue
• At various points
• How long the wait is?
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DEMAND MANAGEMENT IN
SERVICES
Uncertain waits are longer than known,
finite waits
• Certain wait
• Fine
• But when wait longer, customer’s anxious
• Reduce this
• By informing customers for delay
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DEMAND MANAGEMENT IN
SERVICES
Unexplained waits are longer than
explained waits
• Longer wait
• If explained fine
• Unexplained
• Causes problems
• Irritation to customers
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DEMAND MANAGEMENT IN
SERVICES
Unfair waits are longer than equitable
waits
• If you come first
• You expect first-come, first-served
• Problems
• If this is not followed
Organizations do not always follow firstcome, first-served policy.
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DEMAND MANAGEMENT IN
SERVICES
Airlines
Economy Class
– Long queues
First Class
– No queue
You get a feeling of unfairness, standing
in a queue for economy class.
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DEMAND MANAGEMENT IN
SERVICES
The more valuable the service, the longer
the customer will wait
• Customer making phone-call
• Customer meeting doctor
• Where he/she will be ready to wait
• Doctor
• Why
• Perceived to be more valuable
Customers for bypass heart surgery will wait
patiently even for a longer time.
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DEMAND MANAGEMENT IN
SERVICES
Solo waits feel longer than group waits
• Individual versus group
• As groups, feeling of wait is less
• Distractions
• Gossips
• Individual
• People tend to speak to other customers
during waiting
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