PowerPoint

to accompany

Chapter 7
Balancing productive
capacity and
demand

VII Objectives (1)

• Describe what is meant by productive capacity

in a service context.
• Distinguish the different supply–demand
situations that service firms with fixed capacity
may face.
• Explain and use capacity management
techniques to meet variations in demand.
• Explain and analyse patterns and determinants
of demand for different customer segments.

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Gibson and Fraser: Business Law 4e © 2009 Pearson Education Australia

VII Objectives (2)

• Identify the five basic demand management

strategies and techniques.
• Apply the marketing mix elements to reduce
fluctuations in demand.
• Explain the psychology of waiting and its
implications for designing queuing systems.
• Describe the importance of reservations
systems to inventory demand.

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VII Defining productive capacity

1. Physical facilities designed to host customers

2. Physical facilities designed for storing or
processing goods
3. Service-provision equipment used to process
people, possessions or information
4. The number, experience and expertise of
personnel

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Gibson and Fraser: Business Law 4e © 2009 Pearson Education Australia

VII The capacity challenge

• Stretch or shrink existing capacity levels

• Adjusting capacity to match demand

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VII Adjusting capacity to match demand (1)

• Schedule downtime during periods of low

demand
• Cross-train employees
• Use part-time employees
• Invite customers to perform self-service (co-
production)

Copyright © 2011 Pearson Australia (a division of Pearson Australia Group Pty Ltd) –9781442517011/Lovelock/Services Marketing/5th edition

Gibson and Fraser: Business Law 4e © 2009 Pearson Education Australia

VII Adjusting capacity to match demand (2)

• Ask customers to share

• Create flexible capacity
• Rent or share extra facilities and equipment

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VII Understanding the patterns

and determinants of demand

Figure 7.1
Identifying variations in demand by time period
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Gibson and Fraser: Business Law 4e © 2009 Pearson Education Australia

 PowerPoint
to accompany

VII Emergency demand

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Gibson and Fraser: Business Law 4e © 2009 Pearson Education Australia

VII

Copyright © 2011 Pearson Australia (a division of Pearson Australia Group Pty Ltd) –9781442517011/Lovelock/Services Marketing/5th edition

11

VII Demand and supply imbalance

Figure 7.2
Implications of variations in demand relative to
capacity
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12

Gibson and Fraser: Business Law 4e © 2009 Pearson Education Australia

VII Strategies for managing demand (1)

• Basic approaches to managing demand

• Using marketing mix elements to shape demand
patterns
• Inventorying demand through queuing and
reservations

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13

VII Strategies for managing demand (2)

• Inventory demand through a reservation system

• Create alternative demand for otherwise wasted
capacity

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Gibson and Fraser: Business Law 4e © 2009 Pearson Education Australia

VII Basic approaches to managing demand

1. Take no action and leave demand to find its own levels

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15

VII Basic approaches to managing demand

1. Take no action and leave demand to find its

own levels
2. Reduce demand in peak periods
3. Increase demand in low periods
4. Inventory demand until capacity becomes
available

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Gibson and Fraser: Business Law 4e © 2009 Pearson Education Australia

VII Using marketing mix elements
to shape demand patterns

• Pricing strategies
• Product variations
• Modifying the timing and location of delivery
• Communication efforts

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17

VII

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Gibson and Fraser: Business Law 4e © 2009 Pearson Education Australia

VII Inventorying demand
through queuing and reservations (1)

• Managing customer behaviour through queuing

systems
• Why waiting lines occur
• Managing waiting lines
• Different queue configurations

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19

VII Inventorying demand

through queuing and reservations (2)

• Virtual waits
• Queuing systems can be tailored to market
segments
• Cultures and queues
• Psychological considerations in waiting

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Gibson and Fraser: Business Law 4e © 2009 Pearson Education Australia

VII The Psychology of Waiting
• People feel longer when
happens:
• Unoccupied time
• Unexplained waits
• Physically uncomfortable
waiting
• New or occasional users
• Unfair waits
• Unknown/uncertain waits
• Preprocess > in-process waits
21
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21 • Waiting alone

VII Inventory demand

through a reservation system

Benefits include:
• Customer dissatisfaction due to excessive waits
can be avoided
• Reservations make it easier to control and
smooth out demand
• It enables revenue management and serves to
pre-sell a service to different customer segments
• Data from reservation systems also help
organisations to prepare operational and
financial projections for future periods

Copyright © 2011 Pearson Australia (a division of Pearson Australia Group Pty Ltd) –9781442517011/Lovelock/Services Marketing/5th edition

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Gibson and Fraser: Business Law 4e © 2009 Pearson Education Australia

VII Create alternative demand
for otherwise wasted capacity

• Use capacity for service differentiation

• Reward your best customers and build loyalty
• Customer and channel development
• Reward employees
• Barter-free capacity

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VII Effective demand and capacity

management requires information (1)

• Historical data
• Forecasts of the level of demand for each major
segment
• Segment-by-segment data
• Cost data

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Gibson and Fraser: Business Law 4e © 2009 Pearson Education Australia

VII Effective demand and capacity
management requires information (2)

• Meaningful variations in demand levels and

composition
• Customer attitudes
• Customer opinions

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PowerPoint
to accompany

Chapter 7
Q&A

26

Gibson and Fraser: Business Law 4e © 2009 Pearson Education Australia