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Service Marketing- managing supply and demand - Essay Example

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The services sector is the fastest growing sector in the world economy but the biggest challenge in the sector is customer satisfaction (Bick, Abratt & Moller, 2010). The consumer satisfaction index has been consistently declining ever since its inception in 1994…
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Download file to see previous pages Differences between supply and demand occur because services cannot be inventoried, thereby giving it the unique characteristic of ‘perishability’. This is particularly found in sectors such as banking, healthcare, retail and hospitality sectors where the service manager is at a loss trying to balance the supply and demand issues. This is despite the fact that profitability is enhanced if the managers can balance the supply and demand issues (Klassen & Rohleder, 2001). However, with certain changes in the strategy, the supply and demand issues can be managed to some extent. While the different services sector attempt to enhance customer satisfaction levels, they are unable to schedule the services due to the uncertainty of demand. Klassen and Rohleder (2001) find that uncertainty of demand patterns and the inability to make precise demand forecasts have been responsible for the challenge and the struggle that services have been facing in managing capacity and demand. Uncertainty and fluctuation of demand can be traced to culture and habit. In the banking sector demand changes every five minutes and the off-peak periods could last up to an hour. In the retail sector also demand is marked by uncertainty as the shoppers are not logical in their shopping habits. Services are intangible, perishable, heterogeneous, and inseparable (Gronroos, 1998; Ladhari, 2009).The term “service” denotes a sense of interpersonal attentiveness which contributes to customer satisfaction (Johns, 1998). However ‘fluctuating service demand’ is the greatest challenge facing the service managers. The challenge is intensified as the demand and the capacity occur simultaneously. Customers have to be served when they want the service and service cannot be inventoried. This is what creates the challenge. The challenge occurs more in capacity-constrained service organizations that face fluctuations in demand. Organizations cannot keep the productive capacity high when the demand is low. One solution to overcome the challenges of wasting productive capacity is to tailor the capacity as per past experience to meet demand variations (Lovelock). For instance, in the hotel sector, some labor can be on contract basis that can be hired during the peak seasons and laid off during the low seasons. They can even rent out service equipments during low season to make up for low demand. In the service sector it is not possible to schedule customers. When the demand for the hotel rooms does not increase in proportion to the enhanced supply, the revenue per room derived by the hotel is low. The profitability of a company depends upon their ability to extract maximum possible revenue from a fixed quantity of goods and services. This is also known as Yield Management (YM). This allows the hotels and even the airlines to set prices based on the demand. Airlines such as Ryanair, South West Airlines and EasyJet have been proactive and adopted YM (Gothesson & Riman, 2004). This enabled them to maximize capacity utilization. While the new entrants in the airline sector adopted this approach, the established players in the sector initially were reluctant to change their policy. Over time, the older airlines too had to take this approach seriously and bring about changes. Thus flexibility in the pricing can help reduce capacity wastage and encourage maximize capacity utilization. Revenue Management (RM) and YM are interchangeably used. The airlines started using this technique to increase yield by allocating ...Download file to see next pagesRead More
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