Module 3- Customer Defined Service

Standards
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Yield Management
✘ Yield management is a dynamic pricing strategy
designed to produce the maximum revenue, or
yield, from a set inventory.

✘ Yield management has been defined as ‘the process

of allocating the right type of capacity to the
right kind of customer at the right price so as to
maximize revenue or yield.’

✘ Yield is the income minus expense.

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Yield Management- Assumptions

✘ Fixed inventory.

✘ Inventory is perishable and time-limited, meaning if a

hotel room isn’t sold on a given night, that opportunity
is gone forever.

✘ Different people are willing to pay different prices for

the same room under varying conditions.
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Yield Management- Origin

✘ Before reaching the hospitality industry, the concept of
yield management originated in the U.S. airline industry.

✘ Following deregulation in the late 1970s, airlines took

greater control over airfares and developed systems and
technology to manage inventory and pricing in order to
maximize revenue for each flight.

✘ Robert Crandall, former chairman and CEO of American

Airlines, is credited with giving yield management its
name, calling it “the single most important technical
development in transportation management since we
entered deregulation.”
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Yield Management- Examples

✘ Dining out. Want to go out for dinner but on a tight budget? Take
advantage of “early-bird specials” offered by local restaurants. These
specials are designed to boost revenue by attracting different
customers outside of peak hours.

✘ Ordering a ride. If you use Uber, Ola, or another ridesharing service,

you may notice different prices for the same route at different times of
the day. To maximize revenue (and encourage more drivers to serve the
area), Uber implements “surge pricing” during times of high demand.

✘ Going to a show. To sell as many tickets as possible at the highest

average price for every performance, theaters charge premiums for
preferred seats and extend discounts for matinees, advanced
purchases, and same-day tickets.
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Why do we need YM?

 Many different businesses use Yield management
due to the nature of their inventory and demand
for products and services such as:
 Airlines, in scheduling and allocating seat
capacity on each route they operate
 Hotels and resorts, in scheduling and allocating
rooms during different times, holidays, and
seasons
 Cruises
 Some vehicle rental outlets
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✘ In most of these businesses demand is variable, products and

services can be sold well in advance before they will be consumed or
used, and there are substantial fixed costs.

✘ This helps create an environment where these businesses can offer

the same or similar products and services at different prices
depending on demand.

✘ For example; airlines and hotels have substantial fixed costs which
they have to cover whether demand is high or low. So they will adjust
prices to reflect demand characteristics and or adjust capacity if
possible. Both of these services are also single case events where a
certain flight or hotel room on a certain time and date can't be
carried forward and sold at a later date (except bookings in advance)
so pricing is the only tool available to make sure all available
capacity or inventory is sold to maximize revenue and cover fixed
costs.
“Yield is the income minus
expense.”
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“APPROPRIATE SITUATIONS FOR

EFFECTIVE YIELD MANAGEMENT
APPLICATION”
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Relatively fixed capacity

✘ Since the focus of yield management is efficient allocation of shared
fixed capacity, it is only appropriate for firms which cannot quickly
adapt available capacity to available demand.

✘ For example, if all rooms in a hotel are occupied, another room

cannot easily be added, although the customer may be
accommodated in a sister hotel in a different part of the city.

✘ For airlines, if all seats on a flight are occupied, the plane cannot be
enlarged, but it may be possible to put the passenger on a later
flight. Essentially, capacity is fixed, although there may be some
limited flexibility
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Perishable inventory
✘ One of the key factors distinguishing service firms from
manufacturing firms is that the inventory is perishable.

✘ In the case of capacity-constrained service firms, the problem is even

more severe in that additional capacity cannot be obtained.

✘ Seats unsold on an airplane, rooms unsold in a hotel, or cars

unrented at a rental car agency all represent spoiled or wasted
inventory.

✘ If a firm can minimize its inventory spoilage, it will operate much

more efficiently.
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Product sold in advance

✘ One of the capacity management tools that service businesses use is
a reservation system in which units of inventory are sold in advance
of actual use.

✘ Reservations systems provide the firm with some measure of

security, in that they know that their capacity will be used in the
future, but when the product is sold in advance, the manager is also
faced with uncertainty.

✘ The manager must decide whether to accept an early reservation of

a customer who wants low price, or wait and see if higher paying
customers will appear. With a good yield management system, this
type of situation can be addressed.
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Fluctuating demand
✘ Many service firms face highly erratic demand patterns, and
managers must devise some method of dealing with this uncertainty.

✘ Yield management can be used to help temper some of the demand

fluctuations by increasing utilization during slow demand times (by
decreasing price), and by increasing revenue during times of high
demand (by increasing price).

✘ If a manager knows when demand peaks and valleys will occur,

he/she will be better able to plan for them.
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Queue
Managemen
t System
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When we think of queues, the

words that spring to mind are
“annoyance”, “lots of people” and
“waste of time”.
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What is Queue Management

System?
✘ Queue management is the process of improving your
business by managing customer's waiting experience.

✘ There are two types of waiting time.

• The actual time between the customer first
decides to get something until they have it.
• The perceived time between the customer first
decides to get something until they have it
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Benefits of Queue Management

System
✘ Improve access to services with appointment
scheduling
✘ Decrease actual waiting time by better time
management
✘ Reduce customer uncertainty with notifications
and messaging
✘ Keep customers entertained with media solutions
in the waiting area
✘ Allow customers to wait wherever they prefer
with a mobile ticket
✘ Identify bottlenecks and improve
TYPES OF WAITING LINES
 Single Channel, Single Phase- A single-channel, single-phase
business has only one server. As soon as a customer is attended
to, they receive full service. Example: an automated car wash.

 Single Channel, Multi Phase- A single-channel, multi-phase

business has one server and a multi-step servicing process.
Example: retail banking, with different counters for withdrawals,
deposits, new accounts, etc.

 Multi Channel, Single Phase- A multi-channel, single-phase

business has several servers and a one-step servicing process.
Example: airline ticket counter with separate queues for business
class and economy class passengers.

 Multi Channel, Multi Phase- A multi-channel, multi-phase

business has several servers and a multi-step servicing process.
Example: a laundromat with several washers and dryers.
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 A Queue Management System is primarily a system that makes sure that customers get served
in the right order, but according to our renewed definition of Queue Management (above) a
Queue Management System is then a system that manages the customer’s waiting experience
throughout their entire journey, from pre-service to post-service.

 The solution can contain either or both software and hardware that help businesses to facilitate
the customer's access to service, to plan and manage customer flow and staff, and to gather
data to improve the customer experience.

 In a way, a queue management system can be considered CRM, or at least one aspect of
it.
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Queuing theory singles out four key

components:

✘ population of customers,
✘ method of arrival,
✘ service mechanism, and
✘ queue characteristics.
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Population of customers
Population of customers refers to Unlimited population of customers is the
the number of visitors you are norm for most businesses.
servicing. Depending on this But how does this work?
number, we can describe the
population of customers as: The global population is still finite, right?

✘ Limited — when there is a Yes, there is a limited number of people

known limit to how many living on the planet. But think about this: how
customers can be serviced. often did you leave the queue only to realize
Example: passengers waiting that you forgot to buy something?
to board a plane. You are still the same person, but you
are not the same customer.
Your purpose of arrival changes, your
✘ Unlimited — when there is no
preferences change, and your mood and
limit to how many customers
behavior are definitely not the same.
can be serviced, due to
random walk-ins. Example:
shopping checkout counters.
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Method of arrival
Method of arrival describes the way in which your
customers visit your business.

✘ Do customers arrive individually or in groups?

✘ What is the time interval between two successive
arrivals?
✘ What is the hourly/daily/weekly distribution of
customer arrivals?
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Service mechanism
Service mechanism describes your services and
required resources.

✘ How many servers do you have?

✘ Is there a separate queue for each server?
✘ How long does it take for a customer to be
serviced?
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Queue characteristics
We have defined a queue as a line of customers awaiting products or
services. To manage this line, you need to understand the queue
discipline (the order of servicing) and the behavior of your customers.
✘ First in, first out (FIFO) — customers are serviced in the order of arrival,
and the customer with the longest wait time is serviced first. This is
the most common type of queue discipline.
✘ Last in, first out (LIFO) — the opposite of FIFO: the customer with the
shortest wait time is serviced first.
✘ Service in random order (SIRO) — customers are randomly selected
from the queue.
✘ Priority selection — customers are selected from the queue based on
the established priority process. A patient with a serious injury is
attended to earlier than a patient with no injuries.
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Customer
Behavior in
Queue
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Customer behavior describes how visitors act during the queue-joining phase.
Everyone wants to get patient customers, who join the line and wait however long they need
without complaining. But chances are, you can get customers who are:

• Balking — after seeing how long the line is, a customer leaves without joining it.

• Reneging — a customer joins the line, then leaves without being serviced.

• Jockeying — a customer joins the line, then moves to another queue.

• Colluding — several customers cooperate, with only one of them waiting in the line.
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1. Synthesizing the vision

✘ Synthesis happens as a result of

combining, the leader combines the past
and the future.
✘ The future is called FORESIGHT
✘ The past is called HINDSIGHT
✘ The Foresight will insure that the vision is
quite appropriate with the future
environment
✘ The Hindsight will ensure that
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2. Clearly articulating the vision

✘ The vision should be brief and clear

✘ Example- To create the most compelling car company of

the 21st century by driving the world’s transition to
electric vehicles. (Tesla)
✘ To create a better everyday life for the many people.
(IKEA)
✘ To craft the brands and choice of drinks that people love.
(Coca-Cola)
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3. Promoting Commitment
✘ One of the examples for a service leader
to create commitment is to travel to all
the outlets and supervise personally to
find out “how service is going on and
what is a satisfaction level of the
customers”
✘ This follows the principle that “if you are
a leader, you better lead”. Therefore, a
leader should lead by example
Implementation of
Vision
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A leader implements the service vision.

During the process of implementing the vision, the leader should not
only be involved fully, he should also engage in other actions such as-

 restructuring the organization,

 selecting and training the employees,
 motivating,
 team building and
 promoting the change in addition to risk taking.
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Structuring the Organization

✘ This organizational structure should be process oriented, so
that it satisfies the customer needs instead of each function
in the organization feeling satisfied about their own
departmental function. To do this, the Following steps have
to be followed:
o Organize the structure based on the process and not on a
task of the department. Assign the owner for each process.
o Flatten and eliminate all those work which does not add
value.
o Use teams to manage everything, give the teams a common
purpose
o Let the customer drive the performance and derive
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Selecting, Acculturating and

Training

✘ The major part of implementing service involve hiring, and

training the right people, selecting and acculturating.

✘ Selecting involves choosing the right service worker for each

job.

✘ Acculturating involves teaching and makes the employee

learn the organizational culture and vision.

✘ Training helps to perform his responsibilities and duties.

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Motivating

✘ The leaders should motivate the employees, the

method of motivating the subordinates includes:
 Use of authority
 Role model
 Build self confidence
 Delegate
 Introduce reward and punishment
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Manage Information

✘ Effective leaders are those who are good listeners, these

leaders listen to their subordinates and to the customers.
✘ Leaders have two types of communications which they
use effectively to solve any given problem.
1. Formal Communication: Eg: Complaint or
Exceptionally good service delivery
2. Informal Communication: Eg: Discussion with the
contact people with regard to day to day problems.
Leaders who stay close to their contact people not only
keep their employees happy, but also learn about their
customer.
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Building Teams

✘ Service leaders need to build teams, which

work effectively to achieve the goals.

✘ Among the strategies used to ensure that the

employees works together are, creating
cooperative goals that can be reached only by
working together use teams and task forces for
implementing the service and reward the same.
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Promoting change and Risk

Taking

✘ It has been found that unsuccessful service

organizations have leaders who have short
term and narrow thinking, i. e, they are willing
to think creatively about customer needs and
give excuses for maintain status quo. Therefore
one of the leader to have an open mind and
encourage innovation in the organization
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Service
Quality as a
profit
strategy
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Service quality can be studied under two

headings

✘ Profits earned by offensive effects

✘ Profits earned through defensive

effects
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Offensive Marketing Effects of Service

✘ In this method, profit is obtained through
sales, but the methodology adopted is sales
increase through repetition and higher market
share.
✘ In this method, the services are charges higher
than that of competitive, Sales promotion and
advertising are huge in this method.
✘ This method is possible only for those
companies which have a good reputation.
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Defensive Marketing Effects of Service

✘ In this method the emphasis is on customer
retention.

✘ This is because ; we know that lost customer

must be replaced by a new customer when the
replacement comes at the high cost because
of high advertising and promotion expenses.

✘ New customers may not be profitable in the

short term.
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Strategy for improving

profitability