9/24/2018
Service Marketing
Session-7
Prof. Ravi Shekhar Kumar
XLRI- Xavier School of Management, Jamshedpur
[email protected] What we understand by Service Products?
Service products consist of:
Core Product central component that supplies the
principal, problem-solving benefits customers seek
Supplementary Services augments the core product,
facilitating its use & enhancing its value and appeal
Delivery Processes used to deliver both the core product
and each of the supplementary services
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Core & Supplementary Product Design:
Delivery Concept
Supplementary Nature of for Core Product
services offered Scheduling
Process
and delivered
Service Customer
Level Role
Core & Supplementary Services at Hotel
Reservation
Cashier Valet
Parking
Business
Reception
Center
A Bed for the
Room Night in an Elegant
Service Private Room with
Baggage
a Bathroom
Service
Wake-up Cocktail
Call Bar
Internet Entertainment/
Sports/ Exercise Restaurant
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Supplementary Service
Two types of supplementary services
– Facilitating: either needed for service delivery, or help
in use of core product
– Enhancing: add extra value for customer
Market positioning strategy helps to determine which
supplementary services should be included
The Flower of Service
Information
Payment Consultation
Billing Core Order-Taking
Exceptions Hospitality
Safekeeping
Key:
Facilitating elements
Enhancing elements
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Managerial Implications
Core products do not have to have supplementary elements
– Low-cost, no-frills basis firms need fewer supplementary
elements
Nature of product helps determine supplementary services
offered to enhance value
– People-processing & high contact services have more
supplementary services
Different levels of service can add extra supplementary
services for each upgrade in service level
Service Concept
…is a detailed description of what is to be done for the
customer (what needs & wishes are to be satisfied)
and how this is to be achieved”
– …helps mediate between customer needs & an organization's
strategic intent.
– …impacts design of service delivery system and service recovery
Service concept as a mental picture, i.e. “service in the
mind”, is held by not only customers but employees and
designers as well.
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Service Concept: Four dimensions
Service operation: the way in which the service is delivered;
Service experience: customer’s direct experience of the service;
Service outcome: the benefits & results of service for the customer
Value of the service: the benefits the customer perceives as
inherent in the service weighed against the cost of the service.
Broadly the components of a service concept include:
Structural elements (bricks & mortar, physical elements)
Managerial elements (policies & procedural elements)
Service Design
Service components are a combination of processes,
people skills, and materials that must be appropriately
integrated to result in the ‘planned’ or ‘designed’ service.
Do customers define a service as a sum of components? Or
do customers define a service as a singular outcome they
are seeking when they obtain or purchase the service?
Similarly, how do service providers (i.e. service employees)
define the service they deliver—as an integration of service
components or as one package?
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Capacity & Demand
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Defining Productive Capacity?
Productive capacity can take several forms in services
– Physical facilities designed to contain customers
– Physical facilities designed for storing or processing goods
– Equipment used to process people, possessions, or information
– Labor
– Infrastructure
Financial success in capacity-constrained business is a
function of management’s ability to use productive capacity
as efficiently & profitably as possible as it determines…
– fixed costs
– if demand will be satisfied
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Design Capacity vs. Effective Capacity
Design capacity is maximum theoretical output of a system
– Normally expressed as a rate
Effective capacity is capacity a firm expects to achieve
given current operating constraints
– Often lower than design capacity
Utilization vs. Efficiency
Utilization is % of design capacity achieved
Utilization = Actual output/Design capacity
Efficiency is % of effective capacity achieved
Efficiency = Actual output/Effective capacity
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Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls/week
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts
Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls/week
Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls/week
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts
Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls/week
Utilization = 148,000/201,600 = 73.4%
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Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls/week
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts
Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls
Utilization = 148,000/201,600 = 73.4%
Efficiency = 148,000/175,000 = 84.6%
Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls/week
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts
Efficiency = 84.6%
Efficiency of new line = 75%
Expected Output = (Effective Capacity)(Efficiency)
= (175,000)(.75) = 131,250 rolls
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Constraints on Capacity
What are Constraints on Capacity
Time:
– Legal, Consulting, Accounting, Medical
Labor:
– Law firm, Accounting firm, Consulting firm, Health clinic
Equipment:
– Delivery services, Telecommunication, Utilities, Health club
Facilities:
– Hotels, Restaurants, Hospitals, Airlines, Schools, Theaters, Churches
Optimal vs maximal use of capacity
How to manage Constrain
Theory of Constraints or Bottleneck Management
Demand vs Capacity
VOLUME DEMANDED
Demand > Capacity
CAPACITY UTILIZED
Maximum Available Demand >
Capacity optimum capacity
Optimum Capacity
(Demand ≈ Supply)
Excess capacity
TIME CYCLE 1 TIME CYCLE 2
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Demand vs Capacity
VOLUME DEMANDED
Demand > Capacity
(business is lost)
CAPACITY UTILIZED
Maximum Available Demand >
Capacity optimum capacity
(quality declines)
Optimum Capacity
(Demand ≈ Supply)
Low Utilization Excess capacity
Lower Return (wasted resources)
(may send bad signals)
TIME CYCLE 1 TIME CYCLE 2
How to address Fluctuating Demand Problem?
Two basic approaches:
Adjust level of capacity to meet demand
Manage level of demand
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How to Manage Capacity to match Demand?
Managing Capacity
Demand Too High Demand Too Low
Stretch time, labor, facilities Perform maintenance
& equipment renovations
Cross-train employees Schedule vacations
Hire part-time employees Schedule employee training
Request overtime work from Lay off employees
employees
Rent or share facilities/
equipment
Subcontract or outsource
activities
Invite customers to perform
self-service
Capacity: Planning over a Time Horizon
Different Options for Adjusting Capacity
Long-range Add facilities
planning Add long lead time equipment
*
Intermediate- Subcontract Add personnel
range Add equipment Build or use inventory
planning Add shifts
Schedule jobs
Short-range
planning * Schedule personnel
Allocate machinery
Modify capacity Use capacity
* Difficult to adjust capacity as limited options exist
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How to Shift Demand to match Capacity?
Shift Demand
Demand Too High Demand Too Low
Use signage to communicate Use sales & advertising to
busy days & times increase business from
Offer incentives to current market segments
customers for usage during Modify service offering to
non-peak times appeal to new market
Take care of loyal or regular segments
customers first Offer discounts or price
Advertise peak usage times reductions
& benefits of non-peak use Modify hours of operation
Charge full price for Bring service to customer
service--no discounts
Managing Demand
What can be done to flatten Shape of Demand Patterns ?
– Marketing Mix Elements Related Activity
Specific Actions are
– Use price & other nonmonetary costs to manage demand
– Change product elements
– Modify place & time of delivery
– Promotion & Education
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Inventorying Demand
Through Waiting Lines & Queuing Systems
Through Reservations System
Alternative Queuing Configurations
Single line, single server, single stage
–Ex : Small railway reservation stations
Single line, single servers, sequential stages
Govt offices
Parallel lines to multiple servers
–Large railway reservation centers
Designated lines to designated servers
– Ladies Q, Credit card booking, Group
booking Q
Single line to multiple servers (“snake”)-
Airport Check in –One entrance & diff check in for
diff flights 29
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“Take a number” (single or multiple
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30 25
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servers)- Banks 31
32
27
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Tailoring queuing to market segments
Urgency of job
– Emergencies vs. non-emergencies
Duration of service transaction
– Number of items to transact
– Complexity of task
Payment of premium price
Importance of customer
– Frequent users/high volume purchasers vs. others
Reservations: Benefits
Saves customers from having to wait in line
Helps to control & manage demand (e.g., leave time for
emergency jobs)
Pre-sells service and can be used to prepare & educate
customer for service encounter
Deflects demand from unavailable first choices to
alternative times & locations
Reservation system by focusing on Yield Management can
give higher return.
Data captured helps organizations to understand their
demand patterns & to plan their operations & staffing levels
Loss of Revue in case registered customer does not appear
No instant Service available
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Alternative Use of Unused Capacity
To Create Alternative Use for Otherwise Wasted Capacity
– Use capacity for service differentiation
– Reward your best customers & build loyalty
– Customer & channel development
– Reward employees
– Barter free capacity
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