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

1. Marketing of Infrastructure Services and Utilities Module 7
Module ~ 7

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DEMAND MANAGEMENT IN
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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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Suggested readings
Services Marketing
by
Zeithmal and Bitner, 2nd edition
Chapter 14

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Demand management
• Services
• Cannot be stored
• Perishable
• Simultaneous production and consumption.

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COMMON SITUATIONS
• Vacant seat in
• Airlines
• Hotel
• Restaurant
• Lawyer sitting idle. Loss of billing

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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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Excess demand.
• Demand exceeds supply
• Loss of customers
• Existing customers.
– 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 exceeds optimum capacity.
• Supply not created according to demand.
• Constant overuse.
• Cannot deliver consistent quality.

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Demand and supply are balanced at the
level of optimum capacity
• All facilities
• Used at optimum level
• Customers
• Receive optimum services
• No delays
Ideal Situation

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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 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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Narrower Fluctuation
• Insurance
• Banking

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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
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CONSTRAINTS
Depending on the service, constraints
can be
– Time
– Labour
– Equipment
– Facilities
– Combination of the above.

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Time Constraint
• 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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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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STRATEGIES FOR MATCHING CAPACITY
AND DEMAND
Two Strategies
• Shifting demand to match capacity
• Flexing capacity to meet demand

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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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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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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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Vary the service offering
Airlines
• Change plane configuration
• Depending on situation-
• No first class
• Only economy class

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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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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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. 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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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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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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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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Flexing capacity to meet demand
• How can you change/flex capacity?
• Adjust
• Stretch
• Align capacity to meet demand
• What are organizational resources
• Time
• People
• Equipment
• Facilities

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Various strategies to flex capacity
1. Stretch existing capacities
• Stretch Time
• Stretch Labour
• Stretch facilities
• Stretch equipment
2. Align capacity with demand fluctuations
• 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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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
• More patients.
• More diseases in summer
Stretch capacity by Stretching time

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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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Stretch facilities
• How can
Theatres
Restaurants
Classrooms
• Can be expanded on temporary basis.

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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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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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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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Use part – time employees
• Peak demand
• Align labour resources with demand
• Hire part – time employees
Hotels in Goa
• Dec – Jan peak season
• Huge demand
• Hotels hire part – time employees
• Meet demand
• Slack season
• Lay off part time employees

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Rent or Share facilities or equipment
• Sharing facilities
• Renting
Hotels in Goa
• 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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Schedule down time during periods
of low demand
• Facilities used at peak
• Need maintenance
• Conducted during off – season
Carrier Air conditioners
• Summer peak season
• Winter slack season
• Maintenance during winter season
• People are occupied
• Use peak season to attend complaints

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Cross–train employees
• 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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. Modify or move facilities and equipment
• Modification of capacities
Budget Hotels
• 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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If Supply and Demand cannot be matched
or aligned, what would you do?
Look at waiting line strategies

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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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WHERE WAITING HAPPENS
• At a doctor’s clinic
• On telephone assistance
• Customer care help lines
• In a bank
• At ATM
• At petrol pumps

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WAITING – IS IT A PROBLEM
• 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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WAITING LINE STRATEGIES
• Employ operational logic
• Establish a reservation process
• Differentiate waiting customers
• Make waiting fun, or at least tolerable

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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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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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Establish a reservation process
• 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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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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Differentiate waiting customers
• Would you accord priority
• First-come, first served
• Differentiation depends on
– Importance of the customer
– Urgency of the job.
– Duration of the service transaction
– Payment of a premium price

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Customer importance
• Old customers
• Loyal customers
• Given priority

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Job urgency
Hospital – Emergency
• Customer life at stake
• Provided immediate priority

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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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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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. 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 in-
process waits
• Anxiety makes waits seem longer

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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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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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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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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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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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Unexplained waits are longer than
explained waits
• Longer wait
• If explained fine
• Unexplained
• Causes problems
• Irritation to customers

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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 first-
come, first-served policy.

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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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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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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