CLASSIFICATION OF SERVICES

Services usually refer to processes and not physical products. Services can be segmented into
clusters that share certain market relevant characteristics.

1. On the basis of degree of involvement of customer

o People processing- The customer has to be present at the place of delivery in

order to experience or consume the service

o Possession processing - The customer presence is not required but his physical
possession or property needs to be deposited for service

o Mental stimulus processing- Customer's mental attention is required in order

to experience the service

o Information processing- In this case dates, knowledge, information are

gathered and analyzed for the use of clients

2.On the basis of service tangibility

o Pure tangibles - Cell phone on rent - no service or intangibles are associated.

o Major tangible with minor intangibles - Tangible good with accompanying

services

o Minor tangibles with major intangibles - Major services accompanying a

minor good

o Pure services - Here the offer is only a service

3. On the basis of skills of service providers

o Professional (high skill) services - Require a high level of qualification and

training e.g., doctors, lawyers, pilots etc.

o Nonprofessional (low skill) services - Does not require special skills e.g.
Babysitting

4.On the basis of the business orientation of service provider

o Government sector
o Business sector
o Internal/Professional services
o Non-profit organization

5.On the basis of market segment on end user-

 o C2C or end consumer services- These services are purchased by individual
customer for their own consumption e.g. medical, fitness, treatment

o B2B or business consumer services- These services are purchased by

organizations e.g. company hiring another for market research

6. On the basis of degree of regulation

o Highly regulated - banking, insurance, hospitals

o Limited regulated - catering, fast food

o Non-regulated - computer, lawn care, painting

7. On the basis of degree of labor inventiveness

1. Equipment based –
(a) Automated - e.g., ATM vending machines
(b) Operated by unskilled labor- e.g. taxi, dry cleaning
(c) Operated by skilled operators- e.g. excavating, airline computing, time
sharing

2. People based –
(a) Unskilled labor- e.g. lawn care, guards, cleaning service
(b) Skilled labor- e.g. appliance repair
(c) Professionals

FEATURES OF SERVICES

1.Intangibility: A physical product is visible and concrete. Services are intangible. The
service cannot be touched or viewed, so it is difficult for clients to tell in advance what they
will be getting. For example, banks promote the sale of credit cards by emphasizing the
conveniences and advantages derived from possessing a credit card.

2. Inseparability: Personal services cannot be separated from the individual. Services are
created and consumed simultaneously. The service is being produced at the same time that
the client is receiving it; for example, during an online search or a legal consultation. Dentist,
musicians, dancers, etc. create and offer services at the same time.

3. Heterogeneity (or variability):Services involve people, and people are all different. There
is a strong possibility that the same enquiry would be answered slightly differently by
different people (or even by the same person at different times). It is important to minimize
the differences in performance (through training, standard setting and quality assurance). The
quality of services offered by firms can never be standardized.
4. Perishability: Services have a high degree of perishability. Unused capacity cannot be
stored for future use. If services are not used today, it is lost forever. For example, spare seats
in an aeroplane cannot be transferred to the next flight. Similarly, empty rooms in five-star
hotels and credits not utilized are examples of services leading to economic losses. As
services are activities performed for simultaneous consumption, they perish unless consumed.

5. Changing demand:The demand for services has wide fluctuations and may be seasonal.
Demand for tourism is seasonal, other services such as demand for public transport, cricket
field and golf courses have fluctuations in demand.

6. Pricing of services:Quality of services cannot be standardized. The pricing of services are

usually determined on the basis of demand and competition. For example, room rents in
tourist spots fluctuate as per demand and season and many of the service providers give off-
season discounts.

7. Direct channel:Usually, services are directly provided to the customer. The customer goes
directly to the service provider to get services such as bank, hotel, doctor, and so on. A wider
market is reached through franchising such as McDonald’s and Monginis.

SERVICE BLUEPRINTING

Blueprinting is the process of diagramming the service operations. A services blueprint is a

flowchart that isolates potential fail points in a process.

components of service blueprint (digram )

1. Line of External Action (Line above which all customer interactions take place e.g.
Interactive Marketing)
(a) Customer Actions

2. Line of visibility ( Area up to which the customer knows of organizational processes.

Influenced by visible interactions.)
(a) Onstage Contact Employee action
o Onstage contact employee action between the lines of interaction and visibility

3. Line of internal action (Not Visible; helps in effective service delivery; Customer is
ignorant. )
(a) Backstage Contact Employee Action
 Backstage contact Employee actions taking place between lines of visibility
and internal interaction
 4. Support Process
 Support contact employees in service delivery
 Occur behind the line of internal interaction

There are four steps to developing a service blueprint

1. Identify processes : . In this step, processes are flowcharted so that the bounds of the
process are identified.

2. Isolate fail points : Isolate fail points. Notice the fail point in the preceding slide. What
can happen here? e.g. The wrong color of polish could be applied and the shoes will be
ruined. This would be an expensive mistake.

3. Establish a time frame : . In a service operation, time is a major determinant of

profitability. As a result, those steps that lose time result in lost income.

4. Analyze profits : . Because delays and errors affect profitability.

Designing & Improving the Services Transaction

Customer Service Management Cycle ( digram )

stage 1: understand the customer

w Characteristics : People/Things orientation , High/Low tech , Personal

Interaction :Physical, Mental, Emotional, Time involvement , Location , Complexity:
Actual, Visual , Flexibility , Numbers served per transaction, Training , Supervision

w Service seeker profile : Values and beliefs , Attitudes , Social habits and norms ,
Preferences, Expectations

w The service profile: Service characteristics, Service seekers wants and needs and
perceptions of requisite characteristics

Characteristics include
(a) The service purpose
(b) The degree of necessity
(c) The magnitude of importance
(d) View of results
(e) Relative cost and benefits
(f) Perceived risks

stage 2: set customer standards

w Establish a target
w Communicate expectations
w Create a valuable management tool
w Dimensions in strong customer service: Procedural and personal
w Standard areas of procedural dimension: Timing, Flow, Flexibility, Expectation,
Communication, Customer Feedback, Organisation and Supervision
 w Standard Areas of personal dimension : Appearance, body language and tone of
voice, attentiveness, tact, guidance, selling skills, gracious problem solving

service standards : Timeliness , Anticipation , Attitude, Customer Feedback ,Appearance ,

Guidelines for developing customer service standards

stage 3: buiding a winning team

w Design customer service jobs

w Writing job specifications
w Screening job applicants
w Training for customer service
w Practice leadership skills
w Supportive organizational environment

stage 4: check up regularly

w Service Audit system

w Service seeker feedback system
w Employee feedback system

stage 5: proactive problem solving

w Create supportive climate for solving problems

w Appoint teams to identify problem areas
w Select teams to improve through brainstorming
w Transferring team problems and complaints into opportunities

GAP MODEL OF SERVICE QUALITY (digram )

The gap model of service quality is a framework professionals use to analyze

customer satisfaction and identify areas for improvement. Most companies,
regardless of whether they are sales- or service-focused, involve some component
of customer service

GAP 1 : The difference between actual customer expectations and management’s idea or
perception of customer expectations

Reasons
1. Inadequate marketing research orientation –Managers may not interact directly with
customers. Unwilling to know customers’ expectations.
2. Lack of upward communication.
3. Lack of Co. strategies to retain customers and CRM
4. Lack of service recovery

Strategies to reduce Gap1

• Communicate with customers about what they expect.
• Conduct marketing research to learn customers’ expectations.
 • Encourage upward communication.
• Decrease the no. of layers of management.

GAP 2 : Mismatch between manager’s perception of customers’ expectations of service

quality and translation of these expectations into correct service specifications

Reasons
1. Managements’ belief about customers’ expectations-unrealistic and unreasonable
2. Resource Constraints
3. Market conditions-a) Competitive parity-firms translate cust. expectations into
matching competitive offerings
b)Monopoly market
c) Management differences-Short term succeeding strategies

Proposed Actions to reduce Gap 2

• Commitment of Top management to provide service quality—Rewards and
promotions based on improving and enhancing quality
• Involvement of customers in setting quality goals
• Task standardization- a)Hard technology -Replacing man by machines
b) Soft technology-training and standardization of processes

GAP 3 : Poor delivery of service quality

Reasons
1. Even when guidelines exist high quality service performance is not a certainty.-
Unawareness towards the specifications, not able or skilled, not trained to provide
specified services
2. Employees do not understand their roles clearly. As role ambiguity increases ,role
conflict increases &job satisfaction decreases.
3. See conflict between Top Management and Customers.
4. Wrong employees
5. Inappropriate compensation and recognition
6. Low employee moral, employees dislike towards specific customers
7. Challenges in delivering quality through service intermediaries
8. Customers not fulfilling their own role in service delivery
9. Failure to match demand and supply because of perishable nature of services.

Strategies to reduce Gap3

• Enhance Teamwork among the employees
• Ensure good employee-job fit.
• Perceived employee control-Allow employees some flexibility and control in service
processes.
• Reward the employees for providing service according to specifications.
• Reduce employee role conflict.

GAP 4 : Differences between service delivery and external communication with customer
 Reasons
1. Over promising by sales staff and other means of marketing communication.
2. Poor or lack of communication between service personnel and what is promised by
advertising.`
3. Increased customers expectations through media advertising

Strategies to reduce Gap 4

o Increase horizontal communication between marketing department and service
personnel.
o Avoid the propensity to over promising.
o Inform sales personnel of promises made by salespeople and marketing
communication

GAP 5 : Overall differences between Expected and Perceived Quality

ROQ
• Return on Quality : Financial payoff expected from an investment in a service quality
program
• UPS- United Parcel Service
• AT&T

SERVICE RECOVERY

Service recovery is a strategy adopted by service providers to appease customers who have
had a bad service experience with your company, and help them recover from these service
breakdowns. Service recovery efforts help dissatisfied customers overcome the hassle caused
due to service failure by not just fixing the service problem, but exceeding customer
expectations.

Service Recovery Steps

1. Context setting and service recovery planning : Context setting speeds up your
service recovery process. You can quickly and efficiently take action when every
support agent has a complete context of customer problems. This information will also
help you better plan your service recovery the next time you encounter similar
customer problems. You can even follow up with your customers who weren’t satisfied
with the solution provided to rectify the situation.

2. Proactive customer support and anticipating customer issues : Based on the

context gathered from customer issues, you can identify your customer needs and the
patterns in your customer complaints. Use this information to try and anticipate any
 issues that could happen in the future. Proactively reach out and inform the customer
of the problem and the solution, before they come to you.

3. Agent training and solution readiness : Service recovery plans are only as good as
your best frontline employees. Train your agents on the steps they need to take to
identify and address customer problems. It’s important to be empathetic to handle
complex customer issues. Empower your agents to decide what’s right and do what’s
necessary to make the customer happy.

It is also important to have your service recovery plans ready for execution. When you
are able to anticipate problems and understand the range of customer issues, you
should have the right fixes for those problems at your fingertips. If you train your
agents well, they will know exactly what to do and would be equipped with the right
solutions that contribute to effective service recovery efforts.

Service Recovery Paradox (digram)

Service recovery paradox is a phenomenon where you feel a higher level of

satisfaction towards a company after a successful service recovery, compared to the
level of satisfaction you would have felt if you never faced any problem in the first
place.

SERVQUAL MODEL

The SERVQUAL model which is short for the Service Quality model is the
research method to capture and analyze consumer expectations and
perceptions of the service. This elaborate model helps bridge the gap between
customer expectations and needs.

The current five dimensions of the SERVQUAL model are used to measure
service quality.

1. Reliability : This refers to an organization's ability and consistency in performing a

certain service in a way that satisfies its customers' needs. This process involves every
step of customer interaction, including the delivery or execution of the good or
service, swift and precise problem resolution and competitive pricing. Customers have
 a certain expectation of reliability in buying a specific product, and a company's
success usually depends on its ability to meet those expectations.

 Does the firm meet their promised time-frames for response

 Does the firm have an approach that is sympathetic and reassuring when the
customer has problems
 If they are dependable
 Do they offer their services at the times promised
 Do they keep accurate records

2. Tangibility : This is an organization's ability to portray service quality to its

customers. There are many factors that give a company highly tangible quality, such
as the appearance of its headquarters, its employees' attire and conduct, its marketing
materials and its customer service department.

 About the existence and use of up-to-date equipment

 If the physical facilities are visually appealing
 If the employees are well-dressed/neat
 Is the appearance of the physical facilities are consistent with the type of
service industry

3. Empathy : Empathy is how an organization delivers its services in a way that makes
the company seem empathetic to its customers' desires and demands. A customer who
believes a company truly cares about their well-being is likely to be more loyal to that
company.

o Do the firms give each customer individualized attention

o Do the employees give each customer individualized attention
o Do the employees fully understand the needs of the customer
o Do the employees have the best interests of the customer at the heart
o Do the firms operate at hours convenient to all customers


4. Responsiveness: This is a company's dedication and ability to provide customers with

prompt services. Responsiveness implies receiving, assessing and swiftly replying to
customer requests, feedback, questions and issues. A company with high service
quality always responds to customer communication as soon as possible which can
often indicate the value a company places on customer satisfaction.

 Should they tell customers exactly when the service will be performed
 Should they expect prompt service from employees
 Will the employees be willing to help customers
 How and when employees should respond to customer requests

5. . Assurance : Assurance is the confidence and trust that customers have in a certain
organization. This is especially important with services that a customer might
perceive as being above their ability to understand and properly evaluate, meaning
that there has to be a certain element of trust in the servicing organization's ability to
 deliver. Company employees need to be mindful of earning the trust of their
customers if they want to retain them.

o Are the employees trustworthy

o Do customers feel safe when transacting with employees
o Are the employees polite
o Do the employees have adequate support from the firm to do their job well

SERVICE MARKETING MIX

1. Product
 It must provide value to a customer but does not have to be tangible at the
same time
 it involves introducing new products or improvising the existing products
 Its study includes: service product, quality level, range, features/benefits,
guarantees, brand names
(a) Design
(b) Technology
(c) Usefulness
(d) Convenience
(e) Value
(f) Quality
(g) Packaging
(h) Branding
(i) Accessories
(j) Warranties

2. Price
 Pricing must be competitive and must entail profit
 Pricing strategy can comprise discounts, offers and the like
(a) Strategies:
(b) Skimming
(c) Penetration
(d) Psychological
(e) Cost-Plus
(f)Loss leader etc

3. Place
 It refers to the place where the customers can buy the service/product and how
the service/product reaches out to that place
 This is done through different channels, like Internet, wholesalers and retailers
 Issues involved: location, accessibility, channels of distribution, distribution
facilities, service inventory, managing channels
(a) Retail
(b) Wholesale
(c) Mail order
(d) Internet
(e) Direct Sales
 (f)Peer to Peer
(g) Multi-Channel

4. Promotion
 It includes the various ways of communicating to the customers of what the
company has to offer
 It is communicating about the benefits of using a particular product or service
rather than just talking about its features
 What should be the channels of promotion: advertising, personal selling, sales
promotion, word of mouth, tele-marketing, e-marketing etc.
(a) Special Offers
(b) Advertising
(c) Endorsements
(d) User trials
(e) Direct mailing
(f)Leaflets/posters
(g) Free gifts
(h) Competitions
(i) Joint ventures

5. People
 An essential ingredient to any service provision is the use of appropriate staff
and people.
 Recruiting the right staff and training them appropriately in the delivery of
their service is essential if the organization wants to obtain a form of
competitive advantage
 Consumers make judgments and deliver perceptions of the service based on
the employees they interact with
 Staff should have the appropriate interpersonal skills, aptititude, and service
knowledge to provide the service that consumers are paying for
 Service encounter
 Employees: recruitment, training, motivation, team work
 Customers: education, training
 Communication: about culture, values
(a) Employees
(b) Management People
(c) Culture
(d) Customer Service

6. Process
 Refers to the systems used to assist the organization in delivering the service
 process to obtain an efficient service delivery
(a) Especially relevant to service industries Process
(b) How are services consumed?

7. Physical Evidence
 Physical Evidence is the element of the service mix which allows the
consumer again to make judgments on the organization
  If you walk into a restaurant your expectations are of a clean, friendly
environment
 Consumers will make perceptions based on their sight of the service provision
which will have an impact on the organizations perceptual plan of the service
(a) Smart
(b) Run-down
(c) Interface
(d) Comfort
(e) Facilities

SERVICESCAPE OR SERVICE ENVIRONMENT (digarm)

Servicescape is defined as the physical environment where a service is rendered.

Servicescape deals in the settings where a service is consumed or delivered and the place
where both the service provider and customer interact with each other.
This concept coined by Booms and Bitner states that ambiance has a direct impact on the
customers buying behavior.

aspects of servicescape

1. SPATIAL LAYOUT AND FUNCTIONALITY : Spatial layout is about the way you
arrange the furnishings, equipment and machinery, their shape and size and of course, the
spatial relationship which exists amongst them. Functionality is about the ability of those
items to accomplish customer satisfaction.

2. SIGNS, SYMBOLS, AND ARTEFACTS : Signs are signals that directly communicate
with the customer and are displayed on the exterior and interior of the servicescape.
Symbols and artefacts provide implicit cue to the reader. Floor covers, photographs on
wall impact stimulus of customers.

3. AMBIENT CONDITIONS : The background conditions of an environment like color,

noise, music, sound, lighting, etc. are included in ambient conditions.

elements of servicescape

1. FACILITY EXTERIOR
 Landscape
 Exterior design
 Surrounding environment
 Parking
 Signage

2. FACILITY INTERIOR
 Music
 Layout
 Equipment
 Air quality temperature
 Interior design
3. OTHERS
 Virtual servicescape
 Brochures
 Employee dress
 Billing Statements
 Web pages
 Uniforms
 Reports
 Stationary
 Business cards

functions of servicescape

1. Image, differentiation, and positioning : the physical environment set for the
interaction of customer and company helps in creating a niche over competitor brands
and carving unique positioning and image in the minds of consumer

roles of servicescape

1.FACILITATOR : Servicescape acts as a facilitator to help people in their

surroundings. A well-designed place creates a pleasurable ambiance that relates to
peace and harmony, whereas an inefficient design can cause frustration and
pessimistic attitude in the minds of both employees and customers.

2.SOCIALISER : The servicescape design acts as a perfect socializer between both

customers and employees. It also helps to depict the expected behavior and roles like
an employee can understand his position in a team through his cubicle placement, the
quality of office furnishings and office assignments. The design also suggests to
customers where they are not allowed and where they are encouraged and welcomed
through servicescape.

3.PACKAGE : The servicescape helps to convey the internal image through its outward
appearance. Product packages are one of its primary examples where you can easily
know about the wrapped product by viewing and reading the matter. It acts as a visual
metaphor for building a specific image.

4.DIFFERENTIATOR : Servicescape acts as a differentiator by separating designs of a

company from its competitor. It helps to reposition a company and attract new
segments.

types of servicescape environment

1.LEAN SERVICESCAPE : "Designing this type of environment is straightforward and

includes fewer interactions, elements, and spaces between employees and
customers.Some important examples are fast-food outlets, vending machine, and
kiosks.

2.ELABORATE SERVICESCAPE : -The elaborate servicescape includes multiple

spaces, elements, and interactions between employees and customers. Designing this
type of servicescape requires teams that are skilled in their work and are fully aware
 of the corporate vision and desired outcome. Some important examples include
restaurants, gym, swimming pool, bars, ocean liners, and international hotels.

tools to guide servicescape design

 Keen observation of customer's behaviour and responses

 Feedback and ideas from the frontline staff and customers
 Field experiments with different elements of servicescape
 Blueprinting or service mapping

SEGMENTATION , TARGETING AND POSITIONING

STP marketing is an acronym for Segmentation, Targeting, and Positioning – a three-step

model that examines your products or services as well as the way you communicate their
benefits to specific customer segments. the STP marketing model means you segment your
market, target select customer segments with marketing campaigns tailored to their
preferences, and adjust your positioning according to their desires and expectations.

Segmentation

The first step of the STP marketing model is the segmentation stage. The main goal here is
to create various customer segments based on specific criteria and traits that you choose.
The four main types of audience segmentation include:

1. Geographic segmentation: Diving your audience based on country, region, state,

province, etc.
2. Demographic segmentation: Dividing your audience based on age, gender,
education level, occupation, gender, etc.
3. Behavioral segmentation: Dividing your audience based on how they interact with
your business: What they buy, how often they buy, what they browse, etc.
4. Psychographic segmentation: Dividing your audience based on “who” your
potential customer is: Lifestyle, hobbies, activities, opinions, etc.

Positioning

The final step in this framework is positioning, which allows you to set your product or
services apart from the competition in the minds of your target audience. There are a lot of
businesses that do something similar to you, so you need to find what it is that makes you
stand out.

All the different factors that you considered in the first two steps should have made it easy for
you to identify your niche. There are three positioning factors that can help you gain a
competitive edge:
 1. Symbolic positioning: Enhance the self-image, belongingness, or even ego of your
customers. The luxury car industry is a great example of this – they serve the same
purpose as any other car but they also boost their customer’s self-esteem and image.
2. Functional positioning: Solve your customer’s problem and provide them with
genuine benefits.
3. Experiential positioning: Focus on the emotional connection that your customers
have with your product, service, or brand.

Targeting

Step two of the STP marketing model is targeting. Your main goal here is to look at the
segments you have created before and determine which of those segments are most likely
to generate desired conversions (depending on your marketing campaign, those can range
from product sales to micro conversions like email signups).

Your ideal segment is one that is actively growing, has high profitability, and has a low cost
of acquisition:

1. Size: Consider how large your segment is as well as its future growth potential.
2. Profitability: Consider which of your segments are willing to spend the most
money on your product or service. Determine the lifetime value of customers in
each segment and compare.
3. Reachability: Consider how easy or difficult it will be for you to reach each
segment with your marketing efforts. Consider customer acquisition costs (CACs)
for each segment. Higher CAC means lower profitability.

Benefits of STP marketing

 Your brand messaging becomes more personal and empathetic

because you have your customer personas and
know exactly whom you’re talking to;
 Your marketing mix becomes more crystalized and yields higher
return on investment because you’re no longer wasting budget on
channels that your audience simply ignores;
 Your market research and product innovation become more
effective because you know exactly whom to ask for advice and
feedback in the development phase

INADEQUACY OF 4P'S :

The 4 traditional P's of marketing mix are adequate for marketins a product or
commodity but they will fail to cover following aspects which differentiates products
from services.
  Services are intangible in nature.
 Promotion of services usually takes place at thetime of consumption itself
 In Indian scenario, the public sector produces most of the services.
 The dual role played by service customer as co-producers and end consumers
 The 4 traditional PIs fail to capture the importance sf distribution for services.
 Consumers are unable to perceive the quality standard of servicer before
consumption

Lack of inventory capability

THERE ARE BASICALLY FOUR SCENARIOS THAT RESULT FROM

DIFFERENCE IN COMBINATION OF CAPACITY AND DEMAND:

 Excess Demand: In this situation some customers will be turned away, resulting in the
lost business opportunity.

 Demand exceeds optimum capacity: No one is being turned away, but the quality of
service may still suffer because of overuse, crowding, or staff being pushed beyond their
abilities to deliver consistent quality.

 Demand and supply are balanced at the level of optimal capacity: Staff and facilities
are occupied at an idea level. No one is over worked, facilities can be maintained, and
customers are receiving quality service without undesirable delays.

 Excess capacity: Demand is below the optimal capacity. Productive resources in the
form of labor, equipment, and facilities are underutilized, resulting in low productivity
and lower profile.

CAPACITY CONSTRAINTS
For many firms, service capacity is fixed, critical fixed-capacity factors can be-depending on

the type of service-time, labor, equipment, facility, or a combination of these.

 Time, Labor, Equipment and Facility: For some business, the primary constraint on

service production in time. For example, a lawyer, a hairdresser, a plumber, and a

psychology counselor all primarily sell their time. In such contexts, if the service

worker is not available or if his or her time is not used productively, profits are lost.

 Optimal versus maximum use of capacity: To fully understand capacity issues, it is

important to know the difference between optimal and maximum use of capacity.

Using capacity at optimal level means that resources are fully employed but not

overuse and that customer are receiving quality service in timely manner. Maximum

capacity, on the other hand, represents the absolute limit of service availability.

DEMAND PATTERNS ( DIGRAM )

To manage fluctuating demand in a service business, it is imperative to have a clear

understanding of demand patterns, why they wary, and the market segments that comprise

demand at different points in time.

 Charting Demand Patterns: First, the organization needs to chart the level of demand
over relevant time periods. Organizations that have good computerized customer
information systems can do this very accurately. The others may need to chart demand
patterns more informally.

 Predictable Cycles: In looking at the graphic representation of demand levels, is there a

predictable cycle daily (variations occur by hours), weekly (variations occur by day),
monthly (variations occur by the month), and/or yearly (variations occur according to
months or seasons)? If there is a predictable cycle, what are the underlying causes? This
can help a service provider in dealing with the customers in a much better way.
 Random Demand Fluctuations: Sometimes the patterns of demand appear to be random
— there is no apparent predictable cycle. Yet even in this case, causes can often be
identified. For example. Day to-day changes in the weather may affect use of recreational,
shopping, or entertainment facilities. Although the weather cannot be predicted far in
advance, it may be possible to anticipate demand a day or two ahead. Health-related
events also cannot be predicted. Accidents, heart attacks, and births all increase demand
for hospital services, but the level of demand cannot generally be determined in advance.
Natural disasters such as floods, fires, and hurricanes can dramatically increase the need
for such services as insurance, telecommunications, and health care. Acts of war and
terrorism such as that experienced in the United States on September 11, 2001, general
instantaneous need for services that can’t be predicted.

 Demand Patterns by Market Segment: If an organization has detailed records on

customer transactions, it may be able to dis-aggregate demand by market segment,
revealing patterns within patterns. Or the analysis may reveal that demand from one
segment is predictable while demand from another segment is relatively random.

STRATEGIES FOR MATCHING CAPACITY AND DEMAND

When an organization has a clear grasp of its capacity constraints and an understanding of
demand patterns. It is in a good position to develop strategies for matching supply and
demand.

1 Shifting demand and capacity : By shifting demand and capacity an organization seeks to
shift customers away from periods in which demand exceeds capacity. Perhaps by convincing
them to use the service during periods of slow demand.

2 Communicate with customers : Another approach for shifting demand and capacity is to
communicate with the customers. It helps them know the times of peak demand so that they
can choose to use the service at alternative times and avoid crowding or delays..

3 Increase demand to match capacity : Other approaches service providers may consider in
matching capacity and demand focus increasing demand for service during times when the
service is operating at less than full capacity.
4 Adjusting capacity to meet demand : A second strategic approach to matching supply and
demand focuses on adjusting capacity. The fundamental idea here is to adjust, stretch, and
align capacity to match customer demand.

DIFFERENTIATE ON PRICE

A common response during slow demand is to discount the price of the service. This strategy
relies on the basic economics of supply and demand. To be effective, however, a price
differentiation strategy depends on a solid understanding of customer price sensitivity and
demand curves. For example, business travelers are far less price sensitive than families
travelling for pleasure.

Rent or share facilities or equipment : For some organizations, it is best to rent additional
equipment or facilities during periods of peak demand.

Modify the timing and location of service delivery:Some firms adjust their hours and days
of service delivery to more directly reflect customer demand. Historically, banks were open
only during “bankers’ hours” from 10 A.M. to 3 P.M. every weekday. Obviously, these hours
did not match the times when most people preferred to do their personal banking. Now banks
open early, stay open until 5 P.M. many days, and are open on Saturdays, better-reflecting
customer demand patterns.