ABSTRACT
A major problem facing managers of capacity-constrained service organisations is how to balance demand against available capacity. Unlike their counterparts in manufacturing firms, service marketers cannot rely on inventories of finished products to act as a buffer between a tightly constrained level of supply and a widely fluctuating level of demand. This article argues that managers of capacity-constrained services who seek to smooth demand to match available capacity must address themselves to two key issues: (1) What type of customers they wish to have using the service at particular points in time; and (2) how to achieve high – and profitable – levels of utilisation over time. Developing appropriate strategies should begin with an understanding of the patterns and determinants of demand: are fluctuations in demand random or do they follow a predictable cycle over time? What causes these fluctuations and how do they vary between different market segments?
This article discusses five approaches to managing demand and relates each to three alternative capacity situations: insufficient capacity (relative to demand), sufficient capacity, and excess capacity. A review of marketing tools shows that each of the elements of the marketing mix – product elements, distribution, pricing, and communication – has a role to play in managing demand, sometimes alone but often in concert with the others. Finally, there is discussion of the need for marketing information systems that will provide managers with specific data to formulate and evaluate appropriate demand management strategies.
