Test 2 Flashcards
Maximum capacity
The absolute limit of service availability.
Optimum Capacity
Resources are fully employed but not overused and customers are receiving timely service in a quality manner.
Low utilization ( may send bad signals)
Excess capacity (wasted resources)
Optimum capacity ( well balanced supply and demand)
Ideal use
Maximum capacity available
Demand exceeds optimum capacity (quality declines)
Capacity utilized
Demand excess capacity (Business is lost)
Ways to alter demand
- Pricing
- Developing non-peak demand
- Complementary services
- Reservation system
Ways to alter capacity
- Using part-time employees
- Maximizing efficiency
- Increase customer participation
- Sharing capacity
- Expansion ante
When you Alter demand
chase/level capacity
- High labor skill required
- High job discretion
- High training - High compensation
- Low turnover
- Low error rate
When you Alter capacity
chase demand
- Low labor skill required
- Low job discretion
- Low training - Low compensation
- High turnover
- High error rate
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.
Pricing: three common methods
Costs
competition
value
Service capacity
the extent that you can house customers and demand
The _________ process is easier because you can forcast demand, and if you fall short you either can open more ___ or increase ______
Manufacturing, plants, efficency
What is the underlying issue with managing service capacity?
Inseparability you have to house the people in facility
sometimes it will be dead, not really efficient for the company because its not always filled
Maximum ex) classroom
Peak demand can regularly be met;
Large demand fluctuation
Electricity
Police & fire emergencies
Internet
Peak demand can regularly be met;
Small demand fluctuation
Insurance / legal
Banking
Dry cleaning
Peak demand regularly exceeds capacity
Large demand fluctuation
Tax service Pass. transportation Hotels Restaurants ER
Two ways to meet service capacity
Trying to change demand or change capacity
Alter demand:
Pricing
Offer lower prices at non- peak times
Alter demand:
Developing non- peak times
Offer incentive
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
Altering demand:
Reservation system
offer a reservation
ex) Disney fast pass
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
