Explain how businesses can shift demand to meet supply or capacity, and provide an example of this for a service-based business.

Businesses need to maintain records of the demand patterns for their goods and services. They can maintain these records on an hourly, daily, weekly, or monthly basis. The timeframe of the records will depend on the type of business that maintains them. For instance, a movie theater would record daily demand levels to determine the show times that sell best. After management analyzes the information, a trend may become clear. This trend forms the basis of the theater’s strategy to shift demand to meet capacity.

In the case of a movie theater, let’s assume that there is a high demand for matinee shows on weekends, but under-utilization of seating capacity for the matinee shows on weekdays. In order to ensure the efficient utilization of the theater’s capacity, the theater’s management can shift demand to meet the capacity. The following methods can help create this shift.

The theater should begin with informing their customers of the other available show times. Next, to shift the demand to meet capacity, the theater can use sales promotion tools to increase demand for the weekday matinees. Selling the tickets at a discounted price or creating attractive schemes such as a combo meal free along with the matinee show will entice customers and increase the demand for these shows. The theater should advertise and effectively communicate these offers to customers.

However, businesses should take steps to ensure that customers understand the rationale behind the differential pricing. This is particularly true in the case of restaurants. In order to utilize their full capacity, some eateries may offer combo meal discounts during the off-hours. However, the same meal is available at its normal price during rush hours. Sometimes, misinformed customers turn up during the rush hours and expect to obtain the off-hour price. In such cases, the customers may feel cheated and not return to the business.

Thus, by altering the timing and pricing of services, a business can be successful in shifting demand to meet capacity. This facilitates the efficient utilization of its resources and thereby matches consumer demand with the firm’s supply or capacity.

Explanation:

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