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CHAPTER 13:
MANAGING DEMAND AND CAPACITY
CHAPTER TOPICS
The Underlying Issue: Lack of Inventory Capability
Capacity Constraints
Demand Patterns
Strategies for Matching Capacity and Demand
Yield Management: Balancing Capacity Utilization, Pricing, Market Segmentation, and Financial
Return
Waiting Line Strategies: When Demand and Capacity Cannot Be Matched
Technology Spotlight: Information and Technology Drive Yield Management Systems
Global Feature: Cemex Creatively Manages Chaotic Demand for Its Services
Strategy Insight: Combining Demand (Marketing) and Capacity (Operations) Strategies to Increase
Profits
CHAPTER OBJECTIVES
1. Explain the underlying issue for capacity-constrained services: lack of inventory capability.
2. Present the implications of time, labor, equipment, and facilities constraints combined with variations
in demand patterns.
3. Lay out strategies for matching supply and demand through (a) shifting demand to match capacity or
(b) adjusting capacity to meet demand.
4. Demonstrate the benefits and risks of yield management strategies in forging a balance among
capacity utilization, pricing, market segmentation, and financial return.
5. Provide strategies for managing waiting lines for times when capacity and demand cannot be aligned.
LECTURE TIPS & AIDS
1. This chapter is very amenable to a discussion based around an in class exercise that asks students to
chart the demand patterns and develop strategies for a local business. This exercise is described in
the active learning activities that follow (activity number 4). A short lecture can introduce or wrap up
this activity.
A guest speaker from a capacity-constrained industry can also be an excellent way to explore this
topic. Airline, hotel or resort managers are good choices. They can discuss the challenges they face
as well as strategies they have used to overcome capacity issues.
QUESTIONS TO USE WITH CHAPTER OPENING VIGNETTE
Chapter 13: How to Fill Over 600 Rooms 365 Days of the Year
1. What key concepts from Chapter 13 are exemplified by the actions of the Phoenician Hotel and the
Lotte New York Palace Hotel in the opening vignette? Be as specific as possible.
2. Discuss the pros and cons of the strategies employed by the Phoenician Hotel and the Lotte New York
Palace Hotel. Make sure to consider the service marketing concepts you’ve learned as well as
branding implications for these luxury properties.
ACTIVE LEARNING ACTIVITIES
1. In a small group, discuss examples of times you have had to wait during a service experience.
Answer the following questions for the services you discuss, using the material on pp. 404-410 as a
reference:
Did the wait seem long or short to you? Why?
Did the service business do anything to make your wait more tolerable? If so, what? If not,
what might the company have done?
Did other customers have to wait? How did they impact your experience in any way?
2. This assignment requires an on-site evaluation of “queuing behaviors.” In an unobtrusive way,
observe a queue for 20 minutes (this can also include waiting room situations). Spend some time
observing the queue and different customers in line. Then take notes describing where you are in
relationship to the queue, the service for which people are waiting, and the general mood of the
queue. What are people in line doing, and how are others reacting? Do you think customers expected
the line? Did it enhance or detract from their service experience? Write a paper summarizing your
observations, thoughts, and reactions.
3. Identify several services that can be inventoried for use at a later date than they are actually produced.
Has technology played a role in the ability to inventory the service? If so, how?
4. To further explore issues in managing supply and demand, ask students to select a service (or,
alternatively, the instructor may provide a list of services). Then, have the students work through the
following questions:
Chart the demand pattern for this service. Is it predictable?
What is the constraint(s) on capacity?
What strategies could be used to match demand and capacity by:
(a) shifting demand to meet capacity?
(b) adjusting capacity to meet demand?
Is a waiting line strategy needed? If yes, what type of approach would you use? If no, why
not?
Is yield management relevant in this context? If yes, how would you use it? If no, why not?
5. The topic of waiting for service delivery is a very interesting one to discuss in a classroom setting. To
prepare students to take an active role in the lecture, students might be asked during the meeting prior
to the discussion of this chapter to do the following:
Your assignment is to choose a service, either one you have been involved in (as a customer) or
one you are very familiar with, that can (and, perhaps, often does) require a moderate or high
level of waiting by the customer for the service to be delivered. You should attempt to pick a
unique service (that is, one that few people in the class are likely to select).
The following questions pertain to the service you have selected. In addition to answering the
questions on this sheet, you should be prepared to answer any (or all) of these questions in class.
Students may be randomly selected to illustrate various waiting concepts by discussing their
responses to these questions.
1. Describe the service you have selected.
2. Describe the conditions where you, as a customer, may have to wait for delivery of this
service.
3. What impact can waiting (or, alternatively, not having to wait) have on the customer's overall
evaluation of the service delivery process? Explain.
4. What do customers typically do while they are waiting for service?
5. How does a typical firm in this industry handle situations where customers have to wait to
receive this service?
6. In what ways could a firm in this industry change the service delivery process so that
customers do not have to wait? Explain.
7. In what ways could a firm in this industry change the servicescape so that customers do not
have such a poor experience when they have to wait? Explain.
8. When might other customers enhance (or diminish) your waiting experience?
9. When might you, as the customer, be able to enhance your waiting experience in receiving
this service?
POTENTIAL VIDEO CLIPS TO USE IN ILLUSTRATING CHAPTER 13 CONCEPTS
“Spanglish” – Jack Clasky (Adam Sandler) is a chef at a restaurant that reviews a great
review from a food critic. As a result of the review, however, a four-month wait for reservations
becomes the norm. Jack is concerned about losing the causal, neighborhood feel of the restaurant, as
most of the customers will be coming from outside of the neighborhood. In this clip, Jack has an
interaction with the restaurant manager and voices these concerns, illustrating the difficulty service
firms can have in managing demand and capacity.
“Honeymoon in Vegas” - 1Jack Singer (Nicholas Cage) is at the end of a long line of
customers waiting to buy a plane ticket. The man at the front of the line (not flying that day) is taking
a very long time and asking many questions. Jack yells at the other customer to buy his ticket and get
out of line so that customers flying that day can purchase their tickets. This clip can be used to
illustrate the frustration customers face when waiting in line.
Seinfeld episode “The Chinese Restaurant” – In this episode Jerry, George, and Elaine go to
dinner at a Chinese restaurant and spend the entire episode waiting for a table. A very humorous
depiction of what customers think about when they have to wait for service.
“Miss Congeniality” – Early in this movie, an FBI agent (Sandra Bullock) gets an
early-morning call at home. As a result, she leaves her house quickly in her car with her siren blaring
on the hood. She screeches to a stop with her car and runs into a Starbucks store, using her authority
to skip to the beginning of a long line of customers waiting to buy coffee. This clip could be used to
show how, at least in the U.S., customers want their waits to be “fair.” The fact that a customer, even
if a police officer, got to go to the front of the line without having to wait would NOT be perceived as
a fair wait by those who were in line long before she arrived.
POSSIBLE WEB SITES FOR CHAPTER 13
Company Location
Air Berlin www.airberlin.com
American Airlines www.AA.com
California Department of Motor Vehicles (DMV)
Cemex www.cemex.com
Marriott International www.marriotthotels.com
Ritz-Carlton Phoenix www.ritzcarlton.com/hotels/phoenix/
Whistler Mountain www.whistlerblackcomb.com
Yellow Transportation www.yrcw.com
APPROPRIATE CASES FOR CHAPTER 13
From previous Zeithaml, Bitner, and Gremler Services Marketing text:
Merrill Lynch: Supernova [included in the sixth edition of this text: Zeithaml, Bitner, and
Gremler (2013) Services Marketing: Integrating Customer Focus Across the Firm, New York,
NY: McGraw-Hill Companies]
JetBlue: High Flying Airline Melts Down in Ice Storm [included in the sixth edition of this text:
Zeithaml, Bitner, and Gremler (2013) Services Marketing: Integrating Customer Focus Across the
Firm, New York, NY: McGraw-Hill Companies]
Shouldice Hospital Limited (Abridged) [included in the fifth edition of this text: Zeithaml, Bitner,
and Gremler (2009) Services Marketing: Integrating Customer Focus Across the Firm, New
York, NY: McGraw-Hill Companies]
Hong Kong Disneyland [included in the fifth edition of this text: Zeithaml, Bitner, and Gremler
(2009) Services Marketing: Integrating Customer Focus Across the Firm, New York, NY:
McGraw-Hill Companies]
easyCar.com [included in the fourth edition of this text: Zeithaml, Bitner, and Gremler (2006)
Services Marketing: Integrating Customer Focus Across the Firm, New York, NY: McGraw-Hill
Companies]
Virgin Atlantic Airways [included in the third edition of this text: Zeithaml and Bitner (2003)
Services Marketing: Integrating Customer Focus Across the Firm, New York, NY: McGraw-Hill
Companies]
From other sources:
Carnival Cruise Lines [Harvard Business School Case 9-806-015, 2005]
