Services Marketing Project – Matching Service Capacity to Fluctuating Demand ______________________________________________________________ _____________ 1.0 EXECUTIVE SUMMARY Unlike manufacturing operations, services processes are denied the luxury of stockpiling service products before they can be consumed, nor do they have detailed knowledge of actual upcoming demand. Thus, the characteristics of services negate the opportunity to plan for the service performance, and require the service to prepare for every eventuality, ordering materials arbitrarily, hiring staff, paying for variable costs such as lighting and heating, and often storing materials to await final purchase. The ability to accurately predict future individual purchases would amend these drawbacks, reducing costs, increasing efficiency, increasing customer satisfaction and ultimately, increasing customer loyalty. Thus, the move towards customer relationship management (CRM) should result in an escalating pattern of increased loyalty, further increasing customer participation, allowing better preparation for each customer, which in turn, increases customer loyalty. ______________________________________________________________ _____________ MBS Marketing - 1 -
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
1.0 EXECUTIVE SUMMARY
Unlike manufacturing operations, services processes are denied the luxury of
stockpiling service products before they can be consumed, nor do they have detailed
knowledge of actual upcoming demand. Thus, the characteristics of services negate
the opportunity to plan for the service performance, and require the service to prepare
for every eventuality, ordering materials arbitrarily, hiring staff, paying for variable
costs such as lighting and heating, and often storing materials to await final purchase.
The ability to accurately predict future individual purchases would amend these
drawbacks, reducing costs, increasing efficiency, increasing customer satisfaction and
ultimately, increasing customer loyalty. Thus, the move towards customer relationship
management (CRM) should result in an escalating pattern of increased loyalty, further
increasing customer participation, allowing better preparation for each customer,
which in turn, increases customer loyalty.
This paper looks at the issue of perishability, what it is and how it affects service
efficiency, and discusses ways to offset the difficulties faced by services marketers by
extending the demand time horizon to allow adequate planning and preparation. Thus,
forecasting techniques will be highlighted to shine a light on medium-to-long-term
demand patterns. Finally, the paper will undertake a detailed investigation into a
relatively new area of marketing, CRM, and ask the question whether CRM may offer
the service provider with an accurate and timely means for planning demand.
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
2.0 RESEARCH METHODOLOGY
In compiling information for the group carried out secondary research. This secondary
research essentially involved searching through services textbooks to find relevant
information and through journal articles via databases such as Business Source
Premier and Emerald Fulltext.
3.0 LIMITATIONS
As the research topic involves proposing a new framework for services
marketing, there was no previous path to traverse, thus, literature from
operations, marketing, and e-commerce were explored.
The reviewers’ did not have adequate time in which to carry out empirical
work to support the proposals made in the paper however the group would
strongly recommend future empirical research to be carried out relating to this
new topic.
Given the nature of the paper, space constraints limited the amount of detail
the researchers could devote to particular issues in the topic.
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
4.0 NATURE OF SERVICE CAPACITY
Business-to-consumer services operate at the coalface of the supply chain, creating
services in real-time for a variety of different consumers. This gives rise to 5
characteristics pertaining to services, intangibility, inseparability, heterogeneity,
perishability, and a lack of ownership (Fisk, Grove & John, 2000; Zeithaml & Bitner,
2003; Palmer, 2001). All these characteristics are interconnected and derived from the
fact that a service is essentially a performance by the services provider and an
experience to the consumer (Fisk, Grove & John 2000). A performance is an
intangible action, often using tangible elements to provide some subjective benefit to
the consumer. Because of the intangible nature of services, a service is regarded as
perishable because they cannot be stored (Cowell, 1984; Fisk, Grove & John, 2000;
Lovelock & Wirtz, 2004; Palmer, 2001; Zeithaml & Bitner, 2003). This inability to
store service products, coupled with the position of service businesses in the supply
chain and the fluctuating demand that they experience, this causes difficulties in
matching capacity and is the main cause of inefficiency in service operations.
According to Zeithaml and Bitner (2003) in order to manage fluctuating demand in a
service business, it is essential to have a distinct comprehension of demand patterns,
why they change from time to time, and also the niche of the market in which demand
will peak at certain times. “Sharp fluctuations in demand are a bane in the lives of
many managers” (Lovelock & Wirtz, 2004). If service marketers are not able to
anticipate the peaks and troughs in demand for services the concept of perishability
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
4.1 Perishability
As stated earlier, perishability means that services, in contrast to goods, “cannot be
saved, stored, resold or returned” (Zeithaml & Bitner, 2003, p.22). Generally services,
which process people and physical objects are subject to greater capacity restrictions
than information based services, services such as transportation, health care,
entertainment and maintenance all suffer from this perishability problem (Lovelock &
Wirtz, 2004). For example, an empty seat in a bus or cinema represents capacity lost
forever, as it cannot be resold at a later time. The perishability characteristic of
services suggests that services cannot be inventoried. Therefore activities of demand
predicting and planning capacity are challenging but critical.
However, perishability is a problem for both goods manufacturers and services. All
physical products not sold directly after production (i.e. from a specific customer
order) incur storage costs, depreciation, the risk of damage, pilferage, and
obsolescence. However, services do not create tangible products, and the potential to
use the physical and human resources do not perish, only the opportunity to utilise
them is lost. Thus, nothing perishes but time. Manufacturers have the ability to utilise
time more efficiently due to their ability to decouple production from consumption.
As illustrated in figure 1 below, J.D.Thompson introduced the idea of a technical core
where a firm can operate efficiently “if it operated as if the market [can] absorb [a]
single kind of product at a continuous rate and as if the inputs flowed continuously at
a steady rate and with specified quality”(Thompson, J.D. 1967, as cited in (Bateson,
1999)pp. 81-82). Central to his argument is that uncertainty creates inefficiency. Thus,
a manufacturer can produce products irrespective of demand due to their ability to
store its produce (at least in the short-term), thus operations can “push” productivity at
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
a steady and efficient rate, optimising resources and utilising available time. The
differences between manufacturing and service operations are outlined below.
Thus manufacturing can match their potential performance with the opportunity to do
so, as the product can be absorbed by buffering, storing the material products until
required by the customer through a retail outlet, or alternatively, purchased and used
by a service provider when the end consumer demands it. For example, a
manufacturer of hair driers can and may produce 100 hair driers a day as these
products can be stored in a warehouse, along the distribution channel, or in a retail
outlet awaiting purchase. Taking this example further, consider some of these
products as inputs to a hair salon, where a stylist can complete 20 hairstyles a day, but
may only be demanded to perform 12 styles because of the flexible nature of demand.
Flow of activities “pushed” for optimum efficiency
Inputs Services Resources(Fixed & Flexible)
Periodic Output
Demand
Flow of activities “pulled” by fluctuating demand
Flow of activities “pulled” by fluctuating demand
(Flannery, Perry and Faller 2004)
Figure 1: Potential for manufacturing efficiency due to decoupling activities compared to service operations
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
The services part of figure 1 above can be visualised as the servuction system (Eiglier &
Langeard, 1987) reproduced below (figure 2). In the model, the customer is present in the
servicescape where the service operation and customer consumption of the product occurs
simultaneously.
Bateson (1999 pg. 83) describes the servuction system as “a operations nightmare,
since it is impossible to use inventories and impossible to decouple the system from
the market. Instead of measuring demand a at a continuous rate, the system is linked
directly to a market that frequently varies dramatically from day to day, hour to hour,
and even minute to minute”. Bateson states that the closest to the servuction system
comes to Thompson’s ideal is the invisible part of the service. These invisible systems
may include the marketing, financing, maintenance, human resources, and purchasing
functions needed to aid and administer the front-house staff in their actions. Many of
these functions may be outsourced or require inputs from service and product
providers further down the supply chain, yet each adds to the service provided by the
company. However, even in the invisible part of the servuction system, Bateson
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
suggests that the customisation taking place may introduce uncertainty into the
system. Thus, the service provider must position its operations to either be flexible
enough to adjust to fluctuating demand and heterogeneous needs, standardised enough
to build on economies of scale and “production” efficiencies, or have prior warning of
customer needs and purchase times to allow resource planning and preparation. A
comparable analogy would be driving a car with no lights, dim lights, or having full
headlights on to anticipate and adjust to the terrain ahead. Thus the firm needs to
understand the nature of its demand by customers, either through accurately deducing
demand through forecasting techniques and by analysing past behaviours of their
customers through adequate information technology systems and data mining. Thus
the next topic will be directed at forecasting techniques.
4.2 Forecasting
In business, forecasting is usually associated with figures such as the annual sales
forecast. In the social sciences, however, forecasts may be produced in qualitative
form, thus, there are two general forms of forecasting, qualitative (verbal), and
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
Quantitative techniques, however, are often employed for shorter, tactical planning.
The most important of these techniques are; “period actuals and percentage changes,
moving annual total, cumulative totals, Z charts, exponential smoothing, time-series
analyses, multiple regression analysis, [and] leading indicators” (Mercer 1999, p.
317). In general, most of these techniques allow for four components in any such
forecast (Mercer 1999):
Trend: This takes historical data and extrapolates the ongoing growth, or decline, of
the service by fitting a straight, or occasionally curved, line.
Cycle: This takes into account any wavelike changes over the years, such as the four-
year cycle purportedly a feature of the national economy. The problem for forecasters
is determining whether this is a truly repeatable fluctuation or the start of a longer-
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
Season: Many services, such as the hospitality service sector, are seasonal in nature
and this pattern is overlaid on the others. If the service is highly seasonal, such as
toyshops with their Christmas peak, this pattern may be the biggest factor in
determining future demand.
4.3 Understanding Demand Patterns
Predictable cycles (Zeitaml & Bitner, 2003) are an element of understanding demand
patterns of consumers. Essentially it involves examining a graph which details
demand levels. From this graph one may be able to analyse if there is a predictable
cycle, be it daily (where demand variations occur by the hour), weekly (by the day),
monthly (or by the day/week). If there is a predictable table one may then be able to
understand the underlying cause. If one takes the example of attendances at a soccer
match, the results and performance of the team will in all likelihood be linked to
demand for tickets. Should the team reach the cup final then demand for tickets will
be high, however if the team are languishing in mid table then demand will be a lot
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
less. Of course predicting demand for the service may not be as simple as the above
example, however, generally high peaks or low troughs in demand may be linked to
such variables as the company’s performance or reputation.
4.4 Fluctuations In Demand Threaten Service Productivity
Lovelock & Wirtz (2004), outline four scenarios, which fixed capacity service providers, may
be faced with, illustrating the problems associated with the supply and demand of services.
a) Firstly service marketers may face excess demand, where the level of demand is greater
than the maximum obtainable capacity, the implication of this occurrence is that some
customers do not receive the service and potential revenue is gone.
b) The second scenario is that demand exceeds optimum capacity. Here everybody receives
the service, but conditions are cramped for the patrons. Customers here are likely to be
dissatisfied and perceive a lack of quality with this service.
c) Excess capacity occurs when demand is below optimum capacity, and both human
resources and physical facilities are not used to their maximum potential resulting in low
productivity. The low use may give customers a negative perception of the service, as few
people are using the service it may be seen as inefficient, expensive, unnecessary, or even
lacking in quality.
d) Finally demand and supply may also be well balanced. This is the ideal scenario for service
businesses. Staff members are kept active without being overburdened and consumers can
receive satisfactory service without discomfort or time delay.
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
Ultimately, the best information on future customer purchasing decisions can only be
obtained by getting the customer to notify the service of their intention to purchase,
when they will be using the service, and what exactly they require from the service.
New developments in customer relationship management (CRM) may pave the way
for such a goal.
5.0 CUSTOMER RELATIONSHIP MANAGEMENT
5.1 What Is Customer Relationship Management
With the numerous communications innovations and the increased use of the Internet
Customer Relationship Management (CRM) has grown in importance in the past
number of years. However like much else that became popular during the dotcom era
there is debate as to whether CRM is a just a mere buzzword or whether it is a
fundamentally new way of conducting business (Kutorov, 2003).
Companies are moving closer to their customers, going to greater efforts to find new
ways to create value for their customers, and transforming the customer relationship
into one of solution finding and partnering rather than one of selling and ordering
(Park & Kim, 2003). Gronroos (1990) defines relationship marketing in terms of
establishing, maintaining, enhancing, and commercialising relationships that fulfil the
objectives of both the buyer and the seller. The emphasis in CRM is on the customer
relationship is as opposed to the transactional exchange. Ovum, an independent
research company (as cited by Adebanjo 2003 pg. 570) defines Customer
Relationship Marketing (CRM) as “A management approach that enables
organisations to identify, attract and increase retention of profitable customers, by
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
managing relationships with them”. This is the definition of CRM to be used in this
paper.
5.2 CRM and Services Marketing
Despite the recent increase in popularity of CRM services organisations have
recognised the importance of establishing relationships for many years. Many service
organisations such as doctors, corner grocery stores and local post offices have
traditionally built up relationships with a number of loyal customers. However,
through CRM services organisations with large amounts of customers can now build
up detailed profiles on their customers and establish and maintain relationships with
them. Such large service organisations have numerous employees and it may be
unlikely that a customer will be served by the same front of house staff member on
separate visits. There are also likely to be many customer touch points (e.g. call
centres, the Website, e-mails and tellers) over a number of geographic locations
(Lovelock & Wirtz, 2004).
The purchase of a service, by its nature, has a higher degree of interaction than the
purchase of a product. This is due to the simultaneous production and consumption of
a service. Often a customer has to interact with the service provider for to benefit
from the service. This is particularly true with people processing services. This high
level of contact with the customer should give service organisations a distinct
advantage when engaging in CRM. It is far more difficult for a company producing
salt to engage in affective CRM than it is for an accounting firm. Also, different
services offer varying opportunities for implementation of CRM.
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
5.3 Why Service Organisations are Using CRM
The main reason marketers enter into relationships with their customers is to boost
profitability. Chattopadhyay (2001 pg. 136) states that, “nurturing and sustaining
relationships with customers ensures the feasibility and growth of company.”
Successful CRM practices have led to increased competitiveness for many services
organisations with greater revenues, higher profits and lower operational costs.
Effective and efficient CRM leads to increased customer satisfaction and higher
retention rates. Companies can gain answers to question through CRM such as ‘What
services are important to their customers,’ ‘Why do customers use their services’ and
‘How should they communicate to their customers’ (Reichheld, 1996).
CRM is a complicated process that gathers data from any interaction with a customer
creating a single detailed picture of the customer while identifying the customers most
important to the firm and predicting their buying behaviour. CRM software
technology allows firms to track and study customers’ behaviour making their best
customers easily identifiable. Marketing efforts and special offers can then be focused
on these customers rewarding them for their loyalty. The firm can also increase their
interaction with these customers through increased communications. This enables the
company to respond to their customers evolving needs, thus increasing satisfaction
and retention rates (Chen & Popovich, 2003).
The benefits of CRM are not all received by the company. Through CRM the
customers benefits from customisation, simplicity and convenience. They can also be
rewarded for their loyalty to a company. Customers are increasingly enticed through
discounts, special offers, and additional services. Another benefit is that at each
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
transaction a customer’s details and preferences are saved and are immediately
available the next time that customer receives the service.
5.4 CRM Technology
5.4.1 Data Warehouse Technology
Data warehouse technology is a tool commonly used in CRM. It gives the decision-
makers within the organisation immediate access to huge amounts of information
collected on the customer. This is achieved by combining the databases and operating
systems of each functional area are combined. Data warehouses can identify key
customers and important customer trends that would not otherwise be identified (Chen
& Popovich, 2003; Zeng, Chiang & Yen, 2003). It is far easier to build up a data
warehouse in services organisations due to the high level of contact with the
customer. A data warehouse will enable service organisation to better predict demand
patterns.
Some of the benefits of data warehousing were outlined by (Chen & Popovich, 2003):
“Accurate and faster access to information to facilitate responses to customer
questions.”
“Data quality and filtering to eliminate to bad and duplicate data.”
“Extract, manipulate and drill-down data quickly from probability analysis,
customer profiling, and retention modelling.”
“Calculate total present value and estimate future value of each and every
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
5.4.2 Enterprise Resource Planning Systems and Operations Management
Enterprise Resource Planning (ERP) ties each function within a company together
including order management, manufacturing, human resources, financial systems and
distribution with customers and suppliers to create an overall system where data is
shared (Chen & Small, 1996). Operations management on the other hand is defined as
“management of the conversion process which transforms inputs such as raw material
and labor into outputs in the form of finished goods and services”. (Donnellen 2004)
ERP and operations management are not normally associated with manufacturing.
However increasingly services organisations are turning to these methods to create
better value for the customer. This is done through reducing product costs to
customers, making products more readily available, by providing faster service, by
providing customers with additional relevant information and by customising the
product to the customer’s specific needs (Chen & Popovich, 2003). Examples of these
systems being used in services organisations include the batch cooking practices in
McDonalds, Just-in-Time Systems in Nortel, and automatic inventory replenishment
at Wal-mart (Donnellen 2004).
5.4.3 The Impact of the Internet
The growth of the Internet has perhaps been the biggest single factor in the increased
popularity of CRM. Customers can now order online. Services like banking can now
take place 24 hours a day without the customer having to enter the physical
environment. Services can now be offered in ways that have traditionally been
impossible. Greater opportunities exist through CRM and the Internet to engage in
one-to-one marketing and permission marketing. Customers can benefit from greater
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
information and increased convenience. The Internet also represents an easy
convenient way for companies to collect data on their customers.
The diagram below (Figure 3) shows how information received from the various
customer touch points can be channelled through CRM technology and data
warehousing to assist back office and front office functions. This information will be
used to provide a more superior and more efficient service for the customer.
5.5 Ways to deal with Unpredictable Demand through CRM
The ultimate aim of CRM should be to have the customer as a partner who assists in
creating service efficiencies. By educating the customer it may become possible to
teach them to provide much of the service for themselves prior to entering the service
location. For example, much of a teller’s time in a bank is taken up filling in forms
and documents that a customer should be capable of completing. Tickets for a train
Customer Touch PointsReceivables and PayablesProfitability AnalysisProduction PlanningInventory ManagementShippingPayrollPersonnel Planning
Back Office Functions
Marketing Management
Order ManagementSales ManagementSales PlanningPricingAfter Sales Service
Front Office Functions
Adapted from (Chen & Popovich, 2003)
Figure 3: Assisting Service Functions Through CRM Technologies
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
could be pre-purchased by the customer before entering a train station thus reducing
interaction needed with service personnel. If the actual service process is minimised
the service can become more efficient. A further aim of CRM is for the customer to
provide ongoing feedback of their needs prior to the service encounter thus facilitating
capacity planning.
Figure 4 illustrates two different types of service encounters. Operation A is similar to
the servuction system. Most of the service process occurs in the front of house
situation. Much interaction occurs between the customer and the service provider as
well as between different customers. The service experience is more variable less
predictable. Customer experience of the service is significant. New or inexperienced
customers can lead to service inefficiencies. Most of the value of the service is added
in the front office. There is normally a relatively small back office. The large amount
of interactions that occurs in the front office along with high levels of unpredictability
often leads to problems of excess demand. However, Operation A most often occurs
in people processing services.
In Operation B only a minimal amount of front of house interaction occurs. Customer
experience and behaviour have very little impact on the service. Most of the value is
added in the back office, where many of the processes can be operationalised. Often
only a very small front office exists. This can lead to increased efficiencies, as the
service is less likely to be affected by customer behaviour. This reduces problems of
varying demand. The challenge exists for many service operations to operationalise
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
6.0 SOLUTIONS TO THE PERISHABILITY PROBLEM
(Hoffman & Bateson, 1997) outline possible solutions to the perishablility problem
which service marketers are often dealt with. The first set of strategies relates to 1)
controlling demand for services, while the next examines 2) controlling the supply of
services.
1) CONTROLLING DEMAND FOR SERVICES
Creative pricing is frequently used by service industries to aid in levelling demand
fluctuations according to Hoffman and Bateson (1997). For example cinemas have for years
offered reductions on matinee shows in a bid to curb demand for later shows while also
profiting on attracting consumers to a day show while would probably have a low attendance
rate. Also by diverting some of the excess volume of customers to different time periods,
companies will be able to provide a better service during the traditional peak times. For
example in the cinema scenario, the queues for the shop will not be as long as less people will
be in the cinema. Kaspar, Van Helsingen and de Vries Jr. (2000) give the example of the
tourist industry who often attempt to attract customers in off peak periods like Spring and
Autumn by offering lower prices during these times, than in the peak Summer months.
A reservation system is another popular method of smoothing demand for a service.
Essentially it means that consumers can book a segment of a firm’s service for a
certain time period. Many service firms of a distinctly heterogeneous nature operate
such a policy including doctors, theatres and even tanning salons. However limitations
are also associated with this mechanism as outlined by Hoffman and Bateson (1997).
The first disadvantage relates to cost, an individual must operate the reservation
system, usually by answering a telephone, which adds to the expense of the overall
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
operation. However the Internet may be reducing the cost of this demand controlling
strategy as individuals and companies alike are able to used sophisticated software
devices to establish booking systems on-line. Another disadvantage of reservation
systems is that customers may not always show up on time or show up late. This may
then lead to services being unutilised and result in lost profits for service providers.
6.1 Demarketing
A third form of controlling demand for services is through a process called
demarketing. Two of the most popular forms of demarketing are general demarketing,
necessary when a company wants to reduce the requested level of demand, and
selective demarketing, which occurs when a company wishes to move away from a
certain niche of customers.
General demarketing can occur when temporary shortages occur due to an excess of
demand or shortage in supply. Christmas is one time of year when this scenario is
most likely to arise. There are many methods which marketing management can take
to reduce the demand for their offering. “This is largely accomplished by using the
classic marketing instruments in reverse” (Kotler & Levy, 1971, p.76). For service
marketers, the most feasible options are to limit advertising and sales promotion
expenditure or raise the price of the service.
Relating to chronic over popularity, general demarketing may be pursued in order to
maintain the quality of the product or service. If a disco attracts a high number of
club goers each week, so much so that valued customers are becoming dissatisfied,
demarketing may be undertaken. Methods, which could be undertaken, would be to
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
increase the price of admission or implement a stricter dress code. Product elimination
arises when a market entity wishes to remove a product or service that some
consumers still find desirable. Management must be careful to keep their loyal
customers happy, so keeping a limited amount in supply may be necessary.
Selective demarketing raises issues relating to social, legal and political implications.
Selective demarketing is often carried out when a company feels the new clients
whom it attracts are lowering the perceived quality of the offering. A basic form of
demarketing may occur if a well-established hotel starts to attract unwanted clientele
such as Hells Angels bikers. Loyal customers may well become unhappy with the
tarnished image they perceive the hotel as now possessing, the hotel may make rooms
unavailable to these bikers or forbid motorbikes to be parked on the premises. The
above move may well have many discriminatory implications
Another demand management strategy that may be used includes advertising and
promotion. According to (Johnston & Clark, 2001) a business such as a bookshop
may well stimulate demand for its products by organising appearance by authors to
sign copies of their books. However a flaw of this method as pointed out by Johnston
and Clark (2001), is that advertising may decrease the probability of any forecasting
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
6.2 CONTROLLING THE SUPPLY OF SERVICES
Supply strategies used to potentially solve perishability (or lack of efficiency) include
part-time employee utilisation, increased employee participation and capacity sharing.
Part-time employee utilisation involves using additional staff to assist in times of peak
demand periods. This is particularly common during particular times of year, for
example many department stores and bars may take on additional staff during busier
periods such as Christmas and summer. Advantages of employing part-time staff at
these peak periods as stated by Hoffman and Bateson (1997) including lower labour
cost and a flexible workforce that can be employed when the need arises. However
part-time staff may lack the necessary skills to satisfy customers during moments of
truth.
A strategy that is becoming increasingly popular in managing demand is increased
customer participation. The logic behind this idea is to replace the work done by
employees of the business with work done by the customer. This strategy is becoming
more and more common in everyday services. One can look at the increasingly
popular at the example of a restaurant and how it has changed into a customer
participation service. In scenario one looks at the popular new method of carvery
lunches now operated by many restaurants. Here one queues for food and drinks
before going to the cash register and paying for the food, then the customer finds a
seat before consuming the product.
This differs greatly from scenario two and the traditional restaurant experience, where
a host/hostess finds a seat for the customer and then a waiter/waitress brings the
customer their food and beverages before giving them the bill. In the second scenario,
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
the consumer does not play an active role in service delivery and the service provider
has to do a lot more than in the first scenario. Also it is likely that in the first scenario
the consumer will not spend, as much time in the restaurant as in the second scenario.
Therefore in scenario one, the restaurant will be able to increase the potential number
of customers the restaurant can facilitate than in scenario two. Another prime example
of this strategy is ATM machines, which have helped to drastically cut down on the
in-branch transactions involving employees.
Capacity sharing is another method of increasing the supply of services. Here a
service business forms a type of service co-op with other service businesses, this
methods main advantage is cost cutting, the service provider by sharing the cost may
be able to offer this service which it may not be otherwise able to perform, due to high
fixed costs of equipment or premises. For example a bar and restaurant owner may
decide to operate in the one building in order to save on the high costs of rent and
light and heat. This can leave service providers with funds to spend on other areas
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
7.0 CONCLUSION
With technology for consumer analysis becoming more and more advance there is
greater ability for service marketers to build customer relations. In creating greater
rapport with the consumer, marketers may now be able to anticipate their needs and
wants, either by deduction through individual past trends, or by encouraging the
customer to notify the service in advance of their intent to purchase. By utilising the
technology and the wealth of individual information available, the service provider
can accurately match the individual’s needs by preparing to have the right materials
Services Marketing Project – Matching Service Capacity to Fluctuating Demand___________________________________________________________________________
Bateson, J. (1999) Managing Services Marketing: Text and Readings. Forth Worth, Dryden Press.Chen, I. & Popovich, I. (2003) Understanding customer relationship management. Business Process Management Journal, 9(5), pp. 672-688.Chen, I. & Small, M. (1996) Planning for advanced manufacturing technology: A research framework. International Journal of Operations & Production Management, 16(5), pp. 4-24.Cowell, D. W. (1984) The Marketing of Services. Oxford, Butterworth-Heinmann.Eiglier, P. & Langeard, E. (1987) Servuction. Paris, Mcgraw Hill.Fisk, R., Grove, S. & John, J. (2000) Interactive Services Marketing. New York, Houghton Mifflin.Hoffman, K. & Bateson, K. (1997) Essentials of Services Marketing. Forth Worth, The Dryden Press.Johnston, R. & Clark, G. (2001) Service Operations Management. Harlow, Pearson Education.Kutorov, R. (2003) Customer relationship management: strategic lessons and future directions. Business Process Management Journal, 9(5), pp. 566-571.Lovelock, C. & Wirtz, J. (2004) Services Marketing - People, Technology, Strategy. New Jersey, Pearson Education.Palmer, A. (2001) Principles of Service Marketing. London, McGraw-Hill.Reichheld, F. (1996) Learning from customer defections. Harvard Business Review, 74(2) March-April, pp. 56-69.Zeithaml, V. & Bitner, M.-J. (2003) Services Marketing - Integrating Customer Focus Across the Firm. New York, McGraw-Hill.Zeng, Y., Chiang, R. & Yen, D. (2003) Enterprise integration with advanced
information technologies. Information Management and Computer Security, 11(3), pp. 115-122.