- Pricing - Developing non-peak demand - Complementary services - Reservation system

Test 2 Flashcards by madison hunter

Maximum capacity

The absolute limit of service availability.

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Optimum Capacity

Resources are fully employed but not overused and customers are receiving timely service in a quality manner.

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Low utilization ( may send bad signals)

Excess capacity (wasted resources)

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Optimum capacity ( well balanced supply and demand)

Ideal use

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Maximum capacity available

Demand exceeds optimum capacity (quality declines)

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Capacity utilized

Demand excess capacity (Business is lost)

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Ways to alter demand

Pricing
Developing non-peak demand
Complementary services
Reservation system

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Ways to alter capacity

Using part-time employees
Maximizing efficiency
Increase customer participation
Sharing capacity
Expansion ante

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When you Alter demand

chase/level capacity

High labor skill required
- High job discretion
- High training
High compensation
Low turnover
Low error rate

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When you Alter capacity

chase demand

Low labor skill required
- Low job discretion
- Low training
Low compensation
High turnover
High error rate

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Maister’s Propositions

Occupied time feels shorter than unoccupied time.
People want to get started.
Anxiety makes waits seem longer.
Uncertain waits are longer than known, finite waits.
Unexplained waits are longer than explained waits.
Unfair waits are longer than fair waits.
The more valuable the service, the longer the customer will wait.
Solo waits feel longer than group waits.

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Pricing: three common methods

Costs
competition
value

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Service capacity

the extent that you can house customers and demand

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The _________ process is easier because you can forcast demand, and if you fall short you either can open more ___ or increase ______

Manufacturing, plants, efficency

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What is the underlying issue with managing service capacity?

Inseparability you have to house the people in facility

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sometimes it will be dead, not really efficient for the company because its not always filled

Maximum ex) classroom

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Peak demand can regularly be met;

Large demand fluctuation

Electricity
Police & fire emergencies
Internet

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Peak demand can regularly be met;

Small demand fluctuation

Insurance / legal
Banking
Dry cleaning

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Peak demand regularly exceeds capacity

Large demand fluctuation

Tax service
Pass. transportation
Hotels
Restaurants
ER

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Two ways to meet service capacity

Trying to change demand or change capacity

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Alter demand:

Pricing

Offer lower prices at non- peak times

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Alter demand:

Developing non- peak times

Offer incentive

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Alter demand:

Complementary services

Offer something to by their time if they are coming during peak
ex) Gym classes
Amusement parks offer shows as a distraction so you aren’t just waiting in line

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Altering demand:

Reservation system

offer a reservation

ex) Disney fast pass

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Capacity: Using part time employees

Hire people for peak demand

Capacity: Maximize efficiency

coming up with some way to better utilize for demand coming through

Capacity: | increased customer participation

get the customer to participate | Ex) self checkout

Capacity: | sharing capacity

work with others to complement each others peak and valley times ex) dunkin and baskin robins

Expansion ante

If you're going to expand, expand greater than you need now. Build for the future customer base and forecast future demand.

Example of altering demand

Doctors office- you make and appointment

Example of altering capacity

Bring in part time employees, make people work overtime

restaurants:

alter capacity

Tax service during tax season

alter capacity hire part time

Er:

Alter demand; developing non- peak times | ex) billboard with how long of a wait

Which wait time matters most?

Perceptual

why is value pricing difficult

Because you have to figure out the perception of value

what methods inherently use value method:

ebay, investors, tips

Pricing for “access services”

Flat fee Usage Two part tariff

Flat fee example

Internet

Usage

data plans

Two part tariff

Combo of usage and flat fee | Fair- you pay an entrance fee and then you pay per ride

Which pricing method is the best depends on:

1) If light or heavy users are more valuable | 2) Whether there is “excess capacity”

Excess capacity

stuff sitting around

light users

Large number people who kind of use it | ex) me at the gym

Heavy users

people who use it a lot | ex) Josh at gym

More valuable=

pay more money | want them to pay more money= value

______ user is more valuable, unless ______ user is willing to pay more because then they would be more valuable

Light; Heavy

Pricing for "access services" | If light users are more valuable

- Excess capacity (unconstrained): Low flat fee - No excess capacity (constrained): two part tariff - NEVER give a signing bonus

Pricing for "access services" | if heavy users are more valuable

- Usage or high flat fee | - Potential signing bonus

Per Unit service

Not complete unrestricted access

Yield management

Holding onto it to get the best price possible | price discrimination

______ and ______ are really good at yield management

Hotels and airlines

Two most common approaches to the capacity/ demand problem

Dynamic pricing | overbooking

yield management definition

The practice of pricing to maximize the amount of revenue received per unit sold. It is commonly associated with the pricing practices of airlines, hotels, and other sellers of "perishable" products Also called “perishable asset revenue management” or just “revenue management”

Overbooking

Firms report 2-5% revenue increase

When firms practice YMS

- It is expensive or impossible to store excess resource - Commitments need to be made when future demand is uncertain - The firm can differentiate among customer segments and each has a different demand curve - The same unit of capacity can be used to deliver many different products or services. - Producers are profit-oriented and have broad freedom of action

YMS works when ______________ customers arrive earlier than price insensitive customers. Otherwise, there is no reason to offer a discounted price.

price-sensitive

When do price-insensitive customers arrive early?

Concerts

Booking limit:

Maximum # of rooms that can be sold at a discount price

Protection level (Q):

The number of rooms that will not be sold to PS customers so they can be sold to PI customers

The protection level (Q) depends on

The relative price for the two segments | The demand for the full price

Test 2 Flashcards

(61 cards)