Services Marketing

Managing Demand and Capacity : Overview

A clear understanding of demand patterns and capacity constraints will help an organization design suitable strategies to match them both. Demand and capacity can be matched either by shifting demand and stretching or aligning capacity to meet demand. Shifting demand involves varying original offer to meet the current demand, communicating the periods of peak and low demand to the customers, altering timings of service delivery to spread the demand across the peak and slack periods, and finally adopting price differentiation strategy to meet the demand fluctuations.

Capacity can be managed to meet the demand by stretching the four primary resources namely time, labor, equipment, and facilities. Further, when it is not possible to stretch these factors, an organization can vary the basic mix and use these resources creatively to meet the demand fluctuations. This strategy is popularly known as 'chase demand'.

This can be done by hiring part-time employees, outsourcing activities, sharing or modifying facilities, renting or moving equipment, cross-training employees and finally by scheduling downtime delivery periods of low demand. Apart from matching demand and capacity, an organization may also try to create a demand inventory.

The first step is to deal with the waiting line or queue at the time of service delivery. One way is to adopt the first-come first-serve principle. When it is not possible to do so, organizations can solve the problem through market segmentation. Other strategies involve serving those customers who require the services on an emergency basis first, reducing the time of transaction, serving important customers first, or by serving customers who contribute the most to the organization's profits.

Organizations should consider the psychological feelings of the customers while they are waiting and make the process more tolerable for them. This can be achieved by keeping customers busy while waiting, involving them in activities related to the service, reducing their anxiety by informing them about the current situation and the duration of waiting. Customers have to be explained the reasons why the service delivery was taking so long and why some of them were served first.

Organizations should understand the customers'tendency to wait for longer periods depending on the value of the service and their irritability while waiting alone. Additionally, by adopting reservation systems, organizations can spread the demand equally across peak and slack periods.

Chapter 8 : Overview