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.

Perishability implications for demand and

supply
Present the implications of time, labour,
equipment, and facilities constraints
combined with variations in demand
patterns.
Strategies for matching supply and demand
through:
(a) shifting demand to match capacity or
(b) adjusting capacity to meet demand.

Volume
Demanded
Capacity Utilisation

Source: C. Lovelock, Getting the Most Out of Your Productive Capacity, in Product Plus (Boston: McGraw Hill, 1994), chap. 16, p. 241.

Capacity Constraints
Time, labor,
equipment, and
facilities
Optimal versus
maximum use of
capacity

Demand Patterns
Charting demand
patterns
Predictable cycles
Random demand
fluctuations
Demand patterns by
market segment

Demand Too High

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

Demand Too Low

Use sales and advertising to

increase business from current
market segments.
Modify the service offering to
appeal to new market
segments.
Offer discounts or price
reductions.
Modify hours of operation.
Bring the service to the
customer.

List down five different service brands

practicing strategies to shift demand for
both: High demand and Low demand
situations.

Demand Too High

Adjust Capacity

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.

Demand Too Low

Perform maintenance,
renovations.
Schedule vacations.
Schedule employee training.
Lay off employees.

List down five different service brands

practicing strategies to adjust capacity
for both: High demand and Low
demand situations.

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

Employ operational logic

modify operations
adjust queuing system

Establish a reservation process

Differentiate waiting customers
importance of the customer
urgency of the job
duration of the service transaction
payment of a premium price

Make waiting fun, or at least tolerable

Source: J. A. Fitzsimmons and M. J. Fitzsimmons, Service Management, 4th ed. (New York: Irwin/McGraw-Hill, 2004), chap. 11, p. 296.

unoccupied time feels longer than

occupied time
preprocess waits feel longer than inprocess 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

Discuss three major ways that service

prices are perceived differently from
goods prices by customers
Articulate the key ways that pricing of
services differs from pricing of goods
from a companys perspective

Demonstrate what value means to

customers and the role that price
plays in value
Describe strategies that companies
use to price services

Customer knowledge of service prices:

Service variability limits knowledge
Providers are unwilling to estimate prices
Individual customer needs vary
Collection of price information is overwhelming
Prices are not visible

Role of non-monetary costs:

Time costs
Search costs
Convenience costs
Psychological costs

Price as an indicator of service quality

P= DC+OC+Profit
Challenges:
Challenges:

Co
st

Co
m
ba peti
se tio
d n-

1. Small firms may charge too

little to be viable.
2. Heterogeneity of services
limits comparability.
3. Prices may not reflect
customer value.

-b

as
ed

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.

sed
a
b
d
n
Dema

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.

Value is low price.

Value is everything
I want in a service.

Value is the
quality I get for
the price I pay.

Value is all that

I get for all
that I give.

Value is low price.

Discounting

Odd pricing
Synchro-pricing
Penetration pricing

Value is everything
I want in a service.
Prestige pricing
Skimming pricing

Value is the quality I

get for the price I
pay.
Value pricing
Market
segmentation
pricing

Value is all that I get

for all that I give.

Price framing
Price bundling
Complementary pricing
Results-based pricing

Value is everything
I want in a service.

Value is low price.

Discounting
Odd pricing
Synchro-pricing
Penetration pricing

Prestige pricing
Skimming pricing

Value is the quality

I get for the price I pay.
Value pricing
Market segmentation
pricing

Value is all that I get

for all that I give.

Price framing
Price bundling
Complementary pricing
Results-based pricing