*

Demonstrate the benefits and risks of yield management strategies in forging a balance among capacity utilization, pricing, market segmentation, and financial return.

Provide strategies for managing waiting lines for times when capacity and demand cannot be aligned.

Perishability implications for demand and supply

Present the implications of time, labour, equipment, and facilities constraints combined with variations in demand patterns.

Strategies for matching supply and demand through: (a) shifting demand to match capacity or (b) adjusting capacity to meet demand.

Source: C. Lovelock, Getting the Most Out of Your Productive Capacity, in Product Plus (Boston: McGraw Hill, 1994), chap. 16, p. 241.

Capacity UtilisationVolume Demanded

*Table 8.1 indicates that there are four potential supply levels at which a firm can operate: greater than maximum supply, maximum supply, optimum supply and less than optimum supply.

Greater than maximum supply reflects demand that exceeds the absolute maximum level of a firms supply. Having stretched supply as far as possible, the firm still cannot satisfy demand. Under this scenario, customers are being turned away.

Maximum supply means that the firm is operating at 100 per cent. This is the maximum level it can operate at without having to turn customers away.

Optimum supply represents a balance between supply and demand. The firm is operating at a level that enhances the customers experience and effectively and efficiently uses the resources it has available. Generally, optimum capacity is considered to be between 70 and 90 per cent of the maximum supply level. Customers are not being turned away as they are when demand is greater than maximum supply.

Finally, demand can sometimes be less than optimum supply . In this case there are not enough customers and the firms resources are being under-utilised. The following section looks at the implications of these four supply levels in greater detail.

*Table 8.1 indicates that there are four potential supply levels at which a firm can operate: greater than maximum supply, maximum supply, optimum supply and less than optimum supply.

Greater than maximum supply reflects demand that exceeds the absolute maximum level of a firms supply. Having stretched supply as far as possible, the firm still cannot satisfy demand. Under this scenario, customers are being turned away.

Maximum supply means that the firm is operating at 100 per cent. This is the maximum level it can operate at without having to turn customers away.

Optimum supply represents a balance between supply and demand. The firm is operating at a level that enhances the customers experience and effectively and efficiently uses the resources it has available. Generally, optimum capacity is considered to be between 70 and 90 per cent of the maximum supply level. Customers are not being turned away as they are when demand is greater than maximum supply.

Finally, demand can sometimes be less than optimum supply . In this case there are not enough customers and the firms resources are being under-utilised. The following section looks at the implications of these four supply levels in greater detail.

Time, labor, equipment, and facilitiesOptimal versus maximum use of capacity

Charting demand patternsPredictable cyclesRandom demand fluctuationsDemand patterns by market segmentCapacity ConstraintsDemand Patterns

Nature of the Constraint

Type of Service

Time

Legal

Consulting

Accounting

Medical

Labor

Law firm

Accounting firm

Consulting firm

Health clinic

Equipment

Delivery services

Telecommunication

Network services

Utilities

Health club

Facilities

Hotels

Restaurants

Hospitals

Airlines

Schools

Theaters

Churches

Use signage to communicate busy days and times.Offer incentives to customers for usage during nonpeak times.Take care of loyal or regular customers first.Advertise peak usage times and benefits of nonpeak use.Charge full price for the serviceno discounts.Use sales and advertising to increase business from current market segments.Modify the service offering to appeal to new market segments.Offer discounts or price reductions.Modify hours of operation.Bring the service to the customer.

Demand Too HighDemand Too Low

Shift Demand

List down five different service brands practicing strategies to shift demand for both: High demand and Low demand situations.

*Table 8.3 summarises the various strategies that can be used to adjust demand. The first column of this table highlights the element of the marketing mix on which the strategy focuses, while the second column identifies the overall strategy. The final columns identify the tactics that can be used when demand is too high and needs to be reduced, and the tactics for when demand is low and needs to be increased. Again, not all tactics will be suitable for all services. Much will depend on the nature of the particular service and, as with supply, several tactics can be used in combination.

*Table 8.3 summarises the various strategies that can be used to adjust demand. The first column of this table highlights the element of the marketing mix on which the strategy focuses, while the second column identifies the overall strategy. The final columns identify the tactics that can be used when demand is too high and needs to be reduced, and the tactics for when demand is low and needs to be increased. Again, not all tactics will be suitable for all services. Much will depend on the nature of the particular service and, as with supply, several tactics can be used in combination.

Stretch time, labor, facilities and equipment.Cross-train employees.Hire part-time employees.Request overtime work from employees.Rent or share facilities.Rent or share equipment.Subcontract or outsource activities.Perform maintenance, renovations.Schedule vacations.Schedule employee training.Lay off employees.

Demand Too HighDemand Too Low

List down five different service brands practicing strategies to adjust capacity for both: High demand and Low demand situations.

*During periods of high demand service firms seek to expand capacity or supply as much as possible, using the strategies summarised in table 8.2, like increasing staffing levels and acquiring additional space. Conversely, during periods of low demand firms try to reduce supply of resources such as staff as a way of minimising expenses. Generally, supply is constrained by one of more of the following four elements (Bitner & Ziethaml 2001): facilities the actual building or location from which the service may be offered equipment , such as pizza ovens, kitchen equipment, crockery and cutlery in a restaurant labour the staff, who may range from unskilled to professionals and can be employed on a full-time, part-time or casual basis time the hours during which the service is available; for example, a people-based service like an accountancy practice may normally operate between 9 a.m. and 5 p.m. from Monday to Friday, while an equipment based service like an ATM is available 24 hours a day, seven days a week.

Some elements being more important than others for different types of services. For example, some professional services such as accounting firms and medical practices require highly skilled and trained staff for core functions. This type of labour is typically not as flexible or as easily manipulated as the relatively untrained staff required for a fast-food restaurant.

*During periods of high demand service firms seek to expand capacity or supply as much as possible, using the strategies summarised in table 8.2, like increasing staffing levels and acquiring additional space. Conversely, during periods of low demand firms try to reduce supply of resources such as staff as a way of minimising expenses. Generally, supply is constrained by one of more of the following four elements (Bitner & Ziethaml 2001): facilities the actual building or location from which the service may be offered equipment , such as pizza ovens, kitchen equipment, crockery and cutlery in a restaurant labour the staff, who may range from unskilled to professionals and can be employed on a full-time, part-time or casual basis time the hours during which the service is available; for example, a people-based service like an accountancy practice may normally operate between 9 a.m. and 5 p.m. from Monday to Friday, while an equipment based service like an ATM is available 24 hours a day, seven days a week.

Some elements being more important than others for different types of services. For example, some professional services such as accounting firms and medical practices require highly skilled and trained staff for core functions. This type of labour is typically not as flexible or as easily manipulated as the relatively untrained staff required for a fast-food restaurant.

Loss of competitive focus

Customer alienation

Employee morale problems

Incompatible incentive and reward systems

Lack of employee training

Inappropriate organization of the yield management function

Employ operational logicmodify operationsadjust queuing system

Establish a reservation process

Differentiate waiting customersimportance of the customerurgency of the jobduration of the service transactionpayment of a premium price

Make waiting fun, or at least tolerable

Source: J. A. Fitzsimmons and M. J. Fitzsimmons, Service Management, 4th ed. (New York: Irwin/McGraw-Hill, 2004), chap. 11, p. 296.

unoccupied time feels longer than occupied timepreprocess waits feel longer than in-process waitsanxiety makes waits seem longeruncertain waits seem longer than known, finite waits

unexplained waits seem longer than explained waitsunfair waits feel longer than equitable waitsthe more valuable the service, the longer the customer will waitsolo waits feel longer than group waits

Discuss three major ways that service prices are perceived differently from goods prices by customers

Articulate the key ways that pricing of services differs from pricing of goods from a companys perspective

Demonstrate what value means to customers and the role that price plays in value

Describe strategies that companies use to price services

Customer knowledge of service prices:Service variability limits knowledgeProviders are unwilling to estimate pricesIndividual customer needs varyCollection of price information is overwhelmingPrices are not visibleRole of non-monetary costs:Time costsSearch costsConvenience costsPsychological costsPrice as an indicator of service quality

Demand-basedCost-basedCompetition-basedP= DC+OC+ProfitChallenges: 1. Costs difficult to trace. 2. Labor is more difficult to price than materials. 3. Costs may not equal the value that customers perceive the services are worth.Challenges: 1. Small firms may charge too little to be viable. 2. Heterogeneity of services limits comparability. 3. Prices may not reflect customer value.Challenges: 1. Monetary price must be adjusted to reflect the value of non-monetary costs. 2. Information on service costs is less available to customers; hence, price may not be a central factor.

Value is low price.Value is everythingI want in a service.Value is thequality I get for the price I pay.Value is all thatI get for all that I give.

Value is low price. Discounting Odd pricing Synchro-pricing Penetration pricing

Value is everythingI want in a service. Prestige pricing Skimming pricing

Value is the quality I get for the price I pay.Value pricingMarket segmentation pricing

Value is all that I get for all that I give. Price framing Price bundling Complementary pricing Results-based pricing

Value is low price.Value is everythingI want in a service.Value is the quality I get for the price I pay.Value is all that I getfor all that I give.DiscountingOdd pricingSynchro-pricingPenetration pricing

Prestige pricingSkimming pricing

Value pricingMarket segmentation pricing

Price framingPrice bundlingComplementary pricing Results-based pricing

**Table 8.1 indicates that there are four potential supply levels at which a firm can operate: greater than maximum supply, maximum supply, optimum supply and less than optimum supply.

Greater than maximum supply reflects demand that exceeds the absolute maximum level of a firms supply. Having stretched supply as far as possible, the firm still cannot satisfy demand. Under this scenario, customers are being turned away.

Maximum supply means that the firm is operating at 100 per cent. This is the maximum level it can operate at without having to turn customers away.

Optimum supply represents a balance between supply and demand. The firm is operating at a level that enhances the customers experience and effectively and efficiently uses the resources it has available. Generally, optimum capacity is considered to be between 70 and 90 per cent of the maximum supply level. Customers are not being turned away as they are when demand is greater than maximum supply.

Finally, demand can sometimes be less than optimum supply . In this case there are not enough customers and the firms resources are being under-utilised. The following section looks at the implications of these four supply levels in greater detail.*Table 8.1 indicates that there are four potential supply levels at which a firm can operate: greater than maximum supply, maximum supply, optimum supply and less than optimum supply.

Greater than maximum supply reflects demand that exceeds the absolute maximum level of a firms supply. Having stretched supply as far as possible, the firm still cannot satisfy demand. Under this scenario, customers are being turned away.

Maximum supply means that the firm is operating at 100 per cent. This is the maximum level it can operate at without having to turn customers away.

Optimum supply represents a balance between supply and demand. The firm is operating at a level that enhances the customers experience and effectively and efficiently uses the resources it has available. Generally, optimum capacity is considered to be between 70 and 90 per cent of the maximum supply level. Customers are not being turned away as they are when demand is greater than maximum supply.

Finally, demand can sometimes be less than optimum supply . In this case there are not enough customers and the firms resources are being under-utilised. The following section looks at the implications of these four supply levels in greater detail.*Table 8.3 summarises the various strategies that can be used to adjust demand. The first column of this table highlights the element of the marketing mix on which the strategy focuses, while the second column identifies the overall strategy. The final columns identify the tactics that can be used when demand is too high and needs to be reduced, and the tactics for when demand is low and needs to be increased. Again, not all tactics will be suitable for all services. Much will depend on the nature of the particular service and, as with supply, several tactics can be used in combination.*Table 8.3 summarises the various strategies that can be used to adjust demand. The first column of this table highlights the element of the marketing mix on which the strategy focuses, while the second column identifies the overall strategy. The final columns identify the tactics that can be used when demand is too high and needs to be reduced, and the tactics for when demand is low and needs to be increased. Again, not all tactics will be suitable for all services. Much will depend on the nature of the particular service and, as with supply, several tactics can be used in combination.*During periods of high demand service firms seek to expand capacity or supply as much as possible, using the strategies summarised in table 8.2, like increasing staffing levels and acquiring additional space. Conversely, during periods of low demand firms try to reduce supply of resources such as staff as a way of minimising expenses. Generally, supply is constrained by one of more of the following four elements (Bitner & Ziethaml 2001): facilities the actual building or location from which the service may be offered equipment , such as pizza ovens, kitchen equipment, crockery and cutlery in a restaurant labour the staff, who may range from unskilled to professionals and can be employed on a full-time, part-time or casual basis time the hours during which the service is available; for example, a people-based service like an accountancy practice may normally operate between 9 a.m. and 5 p.m. from Monday to Friday, while an equipment based service like an ATM is available 24 hours a day, seven days a week.

Some elements being more important than others for different types of services. For example, some professional services such as accounting firms and medical practices require highly skilled and trained staff for core functions. This type of labour is typically not as flexible or as easily manipulated as the relatively untrained staff required for a fast-food restaurant.*During periods of high demand service firms seek to expand capacity or supply as much as possible, using the strategies summarised in table 8.2, like increasing staffing levels and acquiring additional space. Conversely, during periods of low demand firms try to reduce supply of resources such as staff as a way of minimising expenses. Generally, supply is constrained by one of more of the following four elements (Bitner & Ziethaml 2001): facilities the actual building or location from which the service may be offered equipment , such as pizza ovens, kitchen equipment, crockery and cutlery in a restaurant labour the staff, who may range from unskilled to professionals and can be employed on a full-time, part-time or casual basis time the hours during which the service is available; for example, a people-based service like an accountancy practice may normally operate between 9 a.m. and 5 p.m. from Monday to Friday, while an equipment based service like an ATM is available 24 hours a day, seven days a week.

Some elements being more important than others for different types of services. For example, some professional services such as accounting firms and medical practices require highly skilled and trained staff for core functions. This type of labour is typically not as flexible or as easily manipulated as the relatively untrained staff required for a fast-food restaurant.