Being involved in the business of providing services, the fluctuation of demand is a reality that needs much attention. This is because business profitability will adversely be affected if the demand is not effectively forecasted. For instance, the services sector would sometimes experience low demand, and the capacity of a certain company will be underutilised to some extent. However, there’s also a scenario when the level of demand is so high that the company could not deliver the utmost quality of services expected by the customers.
Given the two scenarios described above, a good reservation system should effectively manage and control demand to maximise the capacity of the company to assure the customer of receiving good service at all times. If possible, the waiting time should also be reduced to a minimum level so that customers can maximise the full use of their own time. This is the main reason why many service firms, such as hotels, hospitals, airlines and even tattoo shops, designate a reservation system to control the flow of demand. They also make use of the reservation system in planning the operations, finances and marketing when they are able to control the demand ingress to suit what they are able to provide (Lovelock & Wirtz, 2007: 281-282).
When talking about reservation systems, effective service capacity strategies would resolve issues that revolve in the area of service management, like growth, profitability, change, and even competition. Wisner (2005) defined service capacity is “as the number of customers per day the firm’s service delivery systems are designed to serve, although it could also be some other period of time such as customers per hour or customers per shift”.
Capacity measures can be stated somewhat differently, too, depending on the service. For instance, airline companies define capacity in terms of available seat miles per day. Most services desire to operate at some optimal capacity level (less than maximum capacity) to reduce the likelihood of having queues develop and to serve customers more effectively. For services dealing directly with customers, service capacity is largely dependent upon the number of employees providing the services and the equipment they use in providing the services.
Pullman and Thompson (2002) identified the service industry’s core problem by the fact that “demand for services must be met as it arises because it cannot be inventoried”. With this dilemma, the variability of demand could create “alternating periods of idle service workers or facilities and consumer waits”. In this case, “management must trade off the cost of idle resources versus the potential cost of customer dissatisfaction with long waits”. Pullman and Thompson (2002) also identified the importance of preventing customers from being dissatisfied because it can “hurt the long-term profits and success of service firms for the following reasons:
- failure of the customer to return for future business;
- reduction in the customer’s frequency of visits;
- negative word-of-mouth advertising”.
Given these reasons, it is essential that managers must tweak their reservation system and maximise their capacity strategies in an attempt to save customer’s impressions about the services offered in the company.
Even when accurate forecasting and good capacity management techniques are used, there are still many occasions when demand exceeds available capacity. As stated earlier, forcing customers to wait in line a long period of time prior to or while purchasing service may eventually result in lost current and future business and even damage to the company’s reputation. For example, I had a bad experience with a dental clinic that has an inadequate reservation system. The dentist has a secretary who receives all calls for bookings for all customers. I made an appointment two days before at a 2 PM time slot for my annual dental check-up.
However, when I arrived at the clinic at that time, it turned out that someone took over my slot. I questioned the secretary about this matter, but she only asked me to wait because the dentist is busy. It turned out that the client inside was the boyfriend of the secretary, so she had to prioritise him than me. This annoyed me greatly because my time was wasted, and I had to move my schedule because of this scenario. In events like these, the secretary should have offered me something in return for this inconvenience like inviting me for coffee or providing me with a discount because she gave up my slot to another person.
While waiting in line is inevitable at one time or another in most service situations, companies can use different strategies to prevent customers from getting turned off. Strategies like reducing demand during busy periods by using several short-term demand management techniques can ease the inconveniences of customers. These include raising prices during busy periods to curtail excess demand and shift it to less-busy periods, taking reservations or appointments to shift demand to less-busy periods, discouraging undesirable demand through the use of screening procedures and marketing ads, and segmenting demand to facilitate better service.
One company I know that uses an effective reservation system is the pizza delivery shop where my brother works. To increase their demand on weekdays, they offer freebies like brownies when you order a pizza. To avoid waiting time, they offer a 1-hour delivery guarantee to all their customers, or else the pizza will be cut down half the price. In case the pizza gets late, there will be no irate customers because they know that they will be getting a great bargain. An additional improvement for their strategy is to offer discount cards for frequent customers.
Ultimately, the strategies in building a reservation system should first focus on increasing revenue. In hotels, for example, yield management techniques can be applied to the rooms department to ensure that rooms are not offered for less than what guests are willing to pay. Once a guest commits to a specific hotel, various up-selling methods can be used to increase revenue per guest. Overbooking in an attempt to sell out the hotel may cost the hotel revenue if employees overbook too aggressively and forecasts are wrong.
Also, with the help of computer programs, managers can use price, reservation history, and overbooking practices to develop a sophisticated approach to demand management called revenue management. Kotler et al. (2006) define revenue management as “a methodological approach to allocating a perishable and fixed inventory to the most profitable customers”. Properly designed revenue management systems value the business or repeat customers.
Thus, a customer who stays at a hotel 11 times a year for two nights per stay is treated differently than a one-time convention guest. The frequent loyal guest’s business is valued, and some hotel companies have developed corporate rates for these guests that do not fluctuate with the demand for business. They protect these guests. As one can see, the practise of revenue management for a hotel can be very complex. It takes an understanding of forecasting models and the hotel’s customer base (Sunmee & Matilla, 2004: 305). Thus, making a reservation system effective all boils down to a complicated balancing act of managing capacity and managing demand strategies to work for you and your clients.
Bibliography
Choi, S. and Mattila, A.S. (2004) Hotel revenue and its impact on customer’s perceptions of fairness, Journal of Revenue and Pricing 2(4), pp. 303-314.
Kotler, P. Bowen, J.T. and Makens, J.M. (2006) Marketing for Hospitality and Tourism, 4th ed. New York: Thomson Learning.
Lovelock, C. and Wirtz, J. (2007) Services Marketing: People, Technology, Strategy, 6th ed. New Jersey: Pearson Prentice-Hall.
Pullman, M.E. and Thompson, G.M. (2002) Evaluating capacity- and demand-management decisions at a ski resort: this model reveals some effective and not-so-effective ways to manipulate customers’ behavior to minimize their waiting times in service queues. Cornell Hotel & Restaurant Administration Quarterly 43(6), pp. 25-37.
Wisner, J.D. Keong Leong, G., and Tan, K.C. (2005). Principles of Supply Chain Management: A Balanced Approach. New York: Thomson Learning.