978-0078112102 Chapter 13 Lecture Note

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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]