1. Services Marketing unit-4B,5 B MBA-3 rd 2009-11 Managing service delivery Balancing demand and capacity

2. Topics Service blueprinting Design and layout of service delivery Capacity and demand management.

3. Learning Objectives To understand the role of design and lay out in service delivery To be familiarise with the process of blueprinting of a service process To understand the role of customer in the service delivery process To understand the relationship between Capacity and demand To understand the use of an effective reservation system

4. Service Characteristics Intangible Performance not the object Process = experience = importance Inseparable Design Customer’s involvement Into the delivery process Educate customers “how it works” Personal information = Important Managing customer behaviour Perishable Demand and Capacity balance Promote specific periods when necessary Capacity can’t be stored Inventory demand Use resources productively = increasing capacity Issues in service delivery

5. Service Blueprinting: Key Components 1. Define standards for front stage activities 2. Specify physical evidence 3. Identify principal customer actions 4. ------------ line of interaction (customers and front stage personnel)-------- 5. Front stage actions by customer-contact personnel 6. ------------ line of visibility (between front stage and backstage)-- ------------ 7. Backstage actions by customer contact personnel 8. Support processes involving other service personnel 9. Support processes involving IT

6. Simplified Example: Blueprinting a Hotel Visit Physical Evidence Customer Actions Employee Actions Face-to-face Front Stage Phone Contact Backstage Make reservation Rep. records, confirms Arrive, valet park Check-in at reception Doorman greets, valet takes car Enter data Valet Parks Car Make up Room Register guest data Receptionist verifies, gives key to room Go to room Hotel exterior, lobby, employees, key Elevator, corridor, room, bellhop Line of Interaction Line of Visibility

7. Developing a Blueprint – Some Basic Advice Identify key activities in creating and delivering the service (theatrical metaphor) Distinguish between front stage, what customers experience, and back stage Chart activities in sequence Show how interactions between customers and employees are supported by backstage activities and systems Establish service standards for each step Identify potential fail points Focus initially on “big picture” later, can drill down for more detail in specific areas

8. Service Firms as Teachers: Well-trained Customers Perform Better Firms must teach customers roles as co- producers of service Customers need to know how to achieve best results Education can be provided through: –Brochures –Advertising –Posted instructions –Machine-based instructions –Websites, including FAQs –Service providers –Fellow customers Employees must be well-trained to help advise, assist customers

9. The Problem of Customer Misbehavior – Identifying and Managing “Jaycustomers” What is a jaycustomer? A customer who behaves in a thoughtless or abusive fashion, causing problems for the firm itself, employees, other customers Why do jaycustomers matter? Can disrupt processes Affect service quality May spoil experience of other customers Can you give some examples of jaycustomers?

10. Six Types of “Jaycustomer” Thief – seeks to avoid paying for service Rule breaker – ignores rules of social behaviour and/or procedures for safe, efficient use of service Belligerent – angrily abuses service personnel (and sometimes other customers) physically and/or emotionally Family Feuders – fight with other customers in their party Vandal – deliberately damages physical facilities, furnishings, and equipment Deadbeat – fails to pay bills on time What should a firm do about them? Try to avoid attracting potential jaycustomers Institute preventive measures Control abusive behavior quickly Take legal action against abusers BUT firm must act in ways that don’t alienate other customers

11. Balancing supply and demand

12. Relating Demand to Capacity: Four Key Concepts Excess demand: too much demand relative to capacity at a given time Excess capacity: too much capacity relative to demand at a given time Maximum capacity: upper limit to a firm’s ability to meet demand at a given time Optimum capacity: point beyond which service quality declines as more customers are serviced

13. Variations in Demand Relative to Capacity VOLUME DEMANDED TIME CYCLE 1 TIME CYCLE 2 Maximum Available Capacity Optimum Capacity (Demand and Supply Well Balanced Low Utilization (May Send Bad Signals) Demand exceeds capacity (business is lost) Demand exceeds optimum capacity (quality declines) Excess capacity (wasted resources) CAPACITY UTILIZED Lovelock and Wirtz (2004:260)

14. Defining Productive Capacity in Services Physical facilities to contain customers Physical facilities to store or process goods Physical equipment to process people, possessions, or information Labour used for physical or mental work Public/private infrastructure—e.g., highways, airports, electricity, internet bandwidth.

15. Crush chaos at Ikea store opening (Edmonton, North London 2005) The did not put in place the right infrastructure to deal with that. People became agitated and eventually they started trying to charges the doors One woman pushed her way forward screaming with excitement.

16. Capacity Management Strategies Level capacity (fixed level at all times) Stretch or shrink –offer inferior extra capacity at peaks (e.g. bus as alternative to train) –vary seated space per customer (e.g. elbow room, leg room) –extend/cut hours of service Chase demand (adjust capacity to match demand) –schedule downtime in low demand periods –use part-time employees –rent or share extra facilities and equipment –cross-train employees Flexible Capacity (vary mix by segment)

17. Predictable Demand Patterns and Their Underlying Causes (Table 9-1) Predictable Cycles of Demand Levels –day –week –month –year –other Underlying Causes of Cyclical Variations –employment –billing or tax payments/refunds –pay days –school hours/holidays –seasonal climate changes –public/religious holidays –natural cycles (e.g. coastal tides)

18. Alternative Demand Management Strategies Take no action –let customers sort it out Increase demand (when demand is too low) –lower prices –communication, including promotional incentives –vary product features to increase desirability –more convenient delivery times and places Reduce demand (When demand is too high) –higher prices –communication promoting alternative times Inventory demand by reservation system Inventory demand by formalized queuing

19. Alternative Queuing Configurations (Fig. 9-4) Single line, single server, single stage Single line, single servers at sequential stages Parallel lines to multiple servers Designated lines to designated servers Single line to multiple servers (“snake”) “Take a number” (single or multiple servers) 28 29 21 20 24 23 30 25 31 26 27 32

20. Tailoring Queuing Systems to Market Segments: Criteria for Allocation to Designated Lines Urgency of job –emergencies vs. non-emergencies Duration of service transaction –number of items to transact –complexity of task Payment of premium price –First class vs. economy Importance of customer –frequent users/loyal customers vs. others

21. Ten Propositions on the Psychology of Waiting Lines 1. Unoccupied time feels longer 2.Preprocess/postprocess waiting feel longer than in- process 3.Anxiety makes waiting seem longer 4.Uncertain waiting is longer than known, finite waiting 5.Unexplained waiting seems longer 6.Unfair waiting is longer than equitable waiting 7.Waiting alone feels longer than in groups 8.Physically uncomfortable waiting feels longer 9. Waiting seems longer to new or occasional users 10. People will wait longer for more valuable services Sources: Maister; Davis & Heineke; Jones & Peppiatt

22. Benefits of Effective Reservations Systems Controls and smoothes demand Pre-sells service Informs and educates customers in advance of arrival Customers avoid waiting in line for service (if service times are honoured, giving specific time) Data capture helps organizations prepare financial projections

23. Well- designed reservation system Fast & user friendly For customer & staff Can answer customer questions Options for self-service Accommodate preference Provide alternative choices When 1 st choice is unavailable Strategies for non-shows & over-booking

24. Setting Capacity Allocation Sales Targets for a Hotel by Segment and Time Period Out of commission for renovation Executive service guests Transient guests Weekend package Groups and conventions Airline contracts 100% 50% Week 7 (Low Season) MNights:Tu Time WThFSSn Executive service guests Transient guests W/E package Groups (no conventions) Airline contracts Week 36 (High Season) MTuWThFSSn Capacity (% rooms) (Fig. 9-5)

25. Information Needed for Demand and Capacity Management Strategies Historical data on demand level and composition, noting responses to marketing variables Demand forecasts by segment under specified conditions Fixed and variable cost data, profitability of incremental sales Site-by-site demand variations Customer attitudes towards queuing Customer evaluations of quality at different levels of capacity utilization