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Week 10
Present
the implications of time, labor, equipment, and facilities constraints combined with variations in demand patterns. for matching supply and demand through (a) shifting demand to match capacity or (b) adjusting capacity to meet demand.
Strategies
Overview
Demonstrate the benefits and risks of yield management strategies in forging a balance among capacity utilization, pricing, market segmentation, and financial return. Provide strategies for managing waiting lines for times when capacity and demand cannot be aligned.
Source: C. Lovelock, Getting the Most Out of Your Productive Capacity, in Product Plus (Boston: McGraw Hill, 1994), chap. 16, p. 241.
Source: C. H. Lovelock, Classifying Services to Gain Strategic Marketing Insights, Journal of Marketing 47, (Summer 1983): 17.
Demand Patterns
Charting
demand
patterns Predictable cycles Random demand fluctuations Demand patterns by market segment
Constraints on Capacity
Nature of the Constraint
Time
Type of Service
Legal Consulting Accounting Medical Law firm Accounting firm Consulting firm Health clinic Delivery services Telecommunication Network services Utilities Health club Hotels Restaurants Hospitals Airlines Schools Theaters Churches
Labor
Equipment
Facilities
Use signage to communicate busy days and times. Offer incentives to customers for usage during nonpeak times. Take care of loyal or regular customers first. Advertise peak usage times and benefits of nonpeak use. Charge full price for the serviceno discounts.
Shift Demand
Stretch time, labor, facilities and equipment. Cross-train employees. Hire part-time employees. Request overtime work from employees. Rent or share facilities. Rent or share equipment. Subcontract or outsource activities.
Loss of competitive focus Customer alienation Employee morale problems Incompatible incentive and reward systems Lack of employee training Inappropriate organization of the yield management function
operational logic
Differentiate
importance of the customer urgency of the job duration of the service transaction payment of a premium price
Make
Source: J. A. Fitzsimmons and M. J. Fitzsimmons, Service Management, 4th ed. (New York: Irwin/McGraw-Hill, 2004), chap. 11, p. 296.
time preprocess waits feel longer than in-process waits anxiety makes waits seem longer uncertain waits seem longer than known, finite waits
unexplained waits seem longer than explained waits unfair waits feel longer than equitable waits the more valuable the service, the longer the customer will wait solo waits feel longer than group waits
Pricing of Services
Discuss
three major ways that service prices are perceived differently from goods prices by customers
the key ways that pricing of services differs from pricing of goods from a companys perspective
Articulate
Overview (cont.)
Demonstrate what value means to customers and the role that price plays in value Describe strategies that companies use to price services
3 key differences
Service variability limits knowledge Providers are unwilling to estimate prices Individual customer needs vary Collection of price information is overwhelming Prices are not visible Time costs Search costs Convenience costs Psychological costs
Three Basic Marketing Price Structures and Challenges Associated with Their Use for Services
P= DC+OC+Profit Challenges: Challenges:
1. Small firms may charge too little to be viable. 2. Heterogeneity of services limits comparability. 3. Prices may not reflect customer value. 1. Costs difficult to trace. 2. Labor is more difficult to price than materials. 3. Costs may not equal the value that customers perceive the services are worth.
Challenges:
1. Monetary price must be adjusted to reflect the value of non-monetary costs. 2. Information on service costs is less available to customers; hence, price may not be a central factor.
Pricing Strategies When the Customer Defines Value as Everything Wanted in a Service
Pricing Strategies When the Customer Defines Value as Quality for the Price Paid
Pricing Strategies When the Customer Defines Value as All That Is Received for All That Is Given