SERVICE

DEMAND &
SUPPLY
Management of customer demand
• The task of managing markets &
ensuring a good fit between demand &
supply is usually very much complex
for services than for goods.

• Because goods manufacturers are

able to separate production from
consumption, they have the ability to
hold stock of goods that can be
moved to even out regional imbalances
in supply & demand.
Eight different demand situations
• Negative Demand
Occurs when most or all segments in a
market possess negative feelings towards a
service.Example-Medical services are
perceived as unpleasant & are purchased
only in distress.
• No Demand
Occurs where a product is perceived by
certain segment as being of no
value.Example- In the financial service
sector,young people often see savings &
pension policies as being of no value to
them.
• Latent Demand
Occurs when an underlying need or service
exists but there is no product that can
satisfy need at an affordable prices to
customers.Example- within the travel
market, a latent demand for leisure travel
to Australia exists,prevented from being
actual demand by high costs of airfares.
• Faltering Demand
Is characterized by a steady fall in sales
which is more than a temporary
downturn.Example-Corner shops have often
found themselves facing a faltering
demand.
• Irregular Demand
Is characterized by a very uneven
distribution of demand through time.
• Full Demand
Exists where demand is currently at a
desirable level & one which allows the
organization to meet its objectives.
• Overfull Demand
Occurs where there is excess demand
for a service on a permanent
basis.Example-A pop group may find
that tickets for all its concerts are
sold out very quickly.
• Unwholesome Demand
Occurs when an organization receives
demand for a service which it would prefer
not to have.It may be forced to meet the
demand because of legal requirements.
• Example-
Post office cannot refuse to deliver letters
for customers who are very expensive to
service
4 basic scenarios that can result from
different combinations of capacity &
demand
1. Excess demand.

2. Demand exceeds optimum capacity.

3. Demand & supply are balanced at the

level of optimum capacity.

4. Excess capacity.
 Capacity Constraints
• Time
For some service business,time is primary
constraint.Example-
Lawyer,Consultant,Hairdresser
• Labor
The firm that employs a large no.of service
providers,labor or staffing level can be a
constraint.Example-A law firm,A university
dept.,consulting firm.
• Equipment
It can be a critical constraint.Example-for
trucking or air-freight delivery services,the
trucks or airplanes needed to service demand
may be a capacity location.
Understanding demand patterns
• Charting demand patterns

• Predictable cycles

• Random demand fluctuations

• Demand patterns by management

 Strategies for matching capacity &
demand
1. Shifting demand to match capacity.
it tells to match demand fluctuations themselves by
shifting demand to match existing supply.Example-
Many business travelers are not able to shift their
needs for airline,car rental & hotel services but they
can shift the timings of trip.
2. Vary the service offering.
This general strategy is to adjust capacity to match
fluctuations in demand.Example-Whistler Mountain,a
ski resort in Vancouver,Canada offers its facilities
for executive development & training programs
during summer when snow skiing is not possible.
3. Shift demand
• Offer incentives to customers for usage
during non peak times.
• Advertise peak usage time & benefits of
non peak use.
• Take care of loyal or “regular customers
first.
• Offer discounts or price-reductions.
• Modify service offering to appeal new
market segment.
• Bring service to customers.
4.Communicate with customers
• Let the customers know about the times of
peak demand periods so they can choose to
use service at alternative times & avoid
crowding or delays.

• Example-signs in banks & post offices that

let customers know their busiest hours &
busiest days of the week can serve as a
warning,allowing customers to shift their
demand to another time,if possible.
5. Modify timing & location of
service delivery
• Some firms adjust their hours & days of
service delivery to more directly reflect
customer demand.Example-historically,U.S
Banks were open only during “bankers’ hours”
from 10a.m to 3p.m every weekday.obviously
these hours did not match the times when
most people preferred to do their personal
banking.
• Example- Theaters also accommodate
customers schedules by offering matinees
on weekends & holidays’ when people are
free during the day for entertainment
6. Differentiation on price
• A common response during periods of slow demand
is to discount the price of the service.
• Example- business travelers are far less price
sensitive than are families traveling for pleasure.
7. Flexing capacity to meet demand
• Stretch existing capacity
• Stretch time
• Stretch labor
• Stretch time labor,facilities & equipments-cross
train employees,hire part time employees,request
overtime work from employees.
• 8. Stretch facilities
• Stretch equipment-Computers, telephone
lines & maintenance equipment can often be
stretched beyond what would be considered
the maximum capacity for short periods to
accommodate peak demand.
• 9. Align capacity &demand fluctuations
• The basic strategy us sometimes known as
“chase demand” strategy.
• By adjusting service resources creatively,
organizations can in effect chase the demand
curves to match capacity with customer
demand patterns.
• Specific actions can be taken:-
• Use part time employees
• Rent or share facilities or equipments.
• Schedule down periods of low demand.
• Cross-train employees
• Modify or move facilities or equipments
 Yield Management
• Yield management is a term that has been
attached to a variety of methods, matching
demand & supply in capacity constrained
services.
• Using yield management models, organizations
can find the best balance at a particular point
in time among the prices charged, the segments
sold to, & the capacity used.
• Its goal is to produce best possible financial
return from a limited available capacity.
• It’s a process of allocating the right type of
capacity to the right customer at right price so
as to maximize revenue or yield.