Lecture 9: Managing productive capacity and customer demand

Summary

This lecture explores the challenges of managing productive capacity and customer demand in services marketing. It defines capacity as a business’s ability to serve customers without sacrificing service quality and discusses the importance of balancing demand with available resources. The lecture highlights strategies such as adjusting capacity, using multi-skilled workers, forecasting demand, and employing dynamic pricing. Practical examples from sectors like public transport, ski resorts, and airlines illustrate how demand fluctuations impact service quality. The key takeaway is that effective management of capacity and demand is crucial for optimizing profitability and maintaining high service standards.

Takeaways

• 😀 Capacity refers to the extent to which a business can serve customers before service quality declines, not just the number of seats or physical resources.
• 😀 Demand is defined as the consumer's desire for a product, influenced by factors like price, time of day, seasonality, and customer characteristics.
• 😀 Services are perishable and cannot be stored, which makes managing capacity and demand critical for service industries.
• 😀 Service capacity imbalances can lead to either wasted resources (underutilized capacity) or degraded service quality (over-demand), both of which are undesirable.
• 😀 Fluctuations in demand occur in various industries, like rush hour for trains, holidays for beauty parlors, and school breaks for airlines, requiring dynamic management strategies.
• 😀 Effective forecasting and segmentation are essential to understand demand patterns and manage capacity accordingly.
• 😀 Adaptive service capacity allows some organizations, like hospitals or emergency services, to adjust more quickly to demand fluctuations than others.
• 😀 Strategies to manage capacity include adjusting operating hours, hiring part-time workers, sharing resources between services, and using dynamic pricing to control demand.
• 😀 Marketing techniques such as early booking promotions, special occasion marketing, and price incentives can help balance supply and demand.
• 😀 Data collection, including big data and trend analysis, helps organizations predict demand spikes and allocate resources efficiently, improving service delivery.
• 😀 Technology, like the Opal card in Sydney’s public transport system, facilitates more accurate tracking of customer behavior and better service management.

Q & A

What is meant by capacity in the context of services marketing?

Capacity refers to the extent to which a business can serve a number of customers before the quality of service begins to decline. It's not just about physical limits like seats or flights, but how effectively a market can be served before service quality suffers due to exceeding supply.

Why is managing capacity and demand a challenge in services marketing?

Managing capacity and demand is challenging because services are perishable and cannot be stored. For example, a hotel or airline may have available capacity that cannot be saved for future use, so fluctuations in demand can lead to lost opportunities or poor service quality if not managed well.

How do physical limitations impact capacity in services marketing?

Physical limitations, such as a limited number of seats in a hospital, theater, or restaurant, directly affect capacity. These limitations create challenges in meeting demand, especially during peak periods when demand exceeds the available supply.

What is the importance of forecasting demand in services marketing?

Forecasting demand is crucial because it helps businesses anticipate fluctuations and adjust their capacity accordingly. By understanding customer demand patterns, businesses can manage their resources effectively, ensuring that service quality remains high and customer satisfaction is maintained.

What is adaptive service capacity, and how does it vary across organizations?

Adaptive service capacity refers to an organization's ability to adjust its capacity in response to demand. For example, hospitals must maintain 24/7 availability, while businesses like banks or educational institutions may not need constant face-to-face interaction, allowing for more flexibility in service delivery.

Can you provide an example of demand fluctuations in public transport and how they affect capacity management?

An example of demand fluctuation in public transport is during rush hours when train stations like Epping and Macquarie in Sydney experience peak demand. This requires capacity adjustments, such as increasing train frequency, to meet the higher number of passengers during peak periods.

How do seasonal or time-dependent factors influence demand in services marketing?

Certain services experience higher demand during specific seasons or times of day. For instance, movie theaters are busier on weekends and holidays, beauty parlors see increased demand during festive seasons, and airlines experience higher demand during school holidays and business hours.

What are the implications of a mismatch between capacity and demand?

A mismatch between capacity and demand can lead to wasted resources, decreased service quality, or lost business. For example, if demand exceeds capacity, customers may experience poor service or be turned away, while unused capacity results in financial losses or inefficiency.

What are some strategies for managing capacity effectively in services marketing?

Strategies for managing capacity include stretching or shrinking capacity (e.g., adjusting flight schedules), employing a part-time workforce, sharing capacity with other businesses (e.g., joint ventures in the ski industry), and using technology like reservation systems or real-time tracking to optimize service delivery.

How can businesses manage demand during peak periods to ensure optimal service delivery?

Businesses can manage demand by adjusting prices during peak times, offering promotions, altering service offerings (e.g., simplifying the service during high demand), or incentivizing customers to schedule service during less busy times. Collecting data on customer behavior and trends is also vital for anticipating demand.