Marketing: Its Most Important
Function
Variations in Demand Relative
to Capacity
– Use marketing strategies
to smooth
out peaks, fill
VOLUME
DEMANDED
Demand exceeds capacity
in valleys
(business is lost)
CAPACITY UTILIZED
Maximum Available
Capacity
Demand exceeds
optimum capacity
(quality declines)
Optimum Capacity
(Demand and Supply
Well Balanced)
Excess capacity
Low Utilization
(May Send Bad Signals)
(wasted resources)
TIME CYCLE 1
TIME CYCLE 2
Causes of Seemingly
Random Changes in Demand Levels
• Weather
• Health problems
• Accidents, Fires,
Crime
• Natural disasters
Question: Which of these events can be predicted?
Analyzing Drivers of Demand
• Understand why customers from
specific market segments select this
service
• Keep good records of transactions
to analyze demand patterns
– Sophisticated software can help to
track customer consumption patterns
• Record weather conditions and
other special factors that might
influence demand
Overall Usage Levels Comprise
Demand from Different Segments
• Not all demand is desirable
• Keep peak demand levels within service capacity
of organization
• Marketing cannot smooth out random
fluctuations
in demand
– Fluctuations caused by factors beyond organization’s
control
(for example: weather)
– Detailed market analysis may reveal that one
segment’s demand cycle is concealed within a
broader, random pattern
Hotel Room Demand Curves by
Segment and Season
Price per
room night
Bl
Bh
Bh = business travelers in high season
Th
Bl = business travelers in low season
Tl
Th = tourist in high season
Tl = tourist in low season
Bl
Bh
Th
Tl
Quantity of rooms demanded at each price
by travelers in each segment in each season
Note: hypothetical example
Benefits of Reservations
• Controls and smoothes demand
• Pre-sells service
• Informs and educates customers in advance of
arrival
• Saves customers from having to wait in line for
service (if reservation times are honored)
• Data captured helps organizations
– Prepare financial projections
– Plan operations and staffing levels
•
•
•
•
•
Characteristics of Well-Designed
Reservations System
Fast and user-friendly for customers and staff
Answers customer questions
Offers options for self service (e.g., the Web)
Accommodates preferences (e.g., room with view)
Deflects demand from unavailable first choices to
alternative times and locations
• Includes strategies for no-shows and overbooking
– Requiring deposits to discourage no-shows
– Canceling unpaid bookings after designated time
– Compensating victims of over-booking
Setting Hotel Room Sales Targets by
Segment and Time Period (Fig.9.7)
Capacity
(% rooms)
100%
Week 7
Week 36
(Low Season)
(High Season)
Out of commission for renovation
Loyalty Program Members
Loyalty Program
Members
Transient guests
50%
Weekend
package
W/E
package
Transient guests
Groups and conventions
Groups (no conventions)
Airline contracts
Time
Nights: M
Tu
W
Airline contracts
Th
F
S
Su
M
Tu
W
Th
F
S
Su
Information Needed for
Demand and Capacity
Management Strategies
• Historical data on demand level and composition, noting responses to
marketing variables
• Demand forecasts by segment under specified conditions
• Segment-by-segment data
• Fixed and variable cost data, profitability of incremental sales
• Meaningful location-by-location demand variations
• Customer attitudes toward queuing
• Customer opinions of quality at different levels of capacity utilization