It makes me enormously sad to see an empty store or one with the staff in the doorway waiting for customers to enter. The excitement with which an entrepreneur opens a commercial premise is cut short due to a lack of knowledge of how to manage demand, not only of how to generate the same.
How many times have you entered a store, a bar, a restaurant, or a museum and haven’t been able to stay, shop, or receive good service due to the number of customers present? I suppose that this has happened on quite a number of occasions. And what should the owner or manager have done when faced with this situation, which is so unsatisfactory for the customers? Well, they should have managed the demand through the price. Thus, they would have evened out the congestion and would have been able to attend their customers properly while avoiding a loss of revenue due to insufficient capacity. It seems logical, doesn’t it?
To begin with, demand management requires good segmentation. With this, you’ll be able to determine the different audiences and their potential responses to the prices. There are many examples of this. Students go to the cinema on the discount day, which won’t be a Thursday night, but which will be a day when the cinemas will not normally be full, compensating for this with a lower price. The set menus in restaurants are available at midday, disappearing at night to make it clear that the dinners at midday are simply not the same or don’t share the same circumstances as those at night. Famous chefs have restaurants that bring together different audiences in the same room – at different prices, of course. Everyone eats in the chef’s “style”, but with different types of food at aligned prices, thus filling the room. At a football game, all of the fans watch the same game, but each of their seats has a different price, which is generally related to the comfort, access, distance from the pitch, solar orientation, and so on.
There can be no doubt that demand management is a necessity, in the first place, to make satisfying the buyer possible. Capacity is always finite. Here’s a case to illustrate this: an eCommerce site generates such a large number of visits when it launches an offer on its star products that the user experience quickly turns against the interests of both parties – due to the slow website speed caused by the number of visitors – leading to generalised shopping cart abandonment to end the purchase process.
We’ve talked about stores, but what about the capacity of a factory, which offers an even more glaring example due to the difficulty of expanding. Evening out demand is an urgent need for these factories and the price is a key element to achieving that. When you know the productive capacity for each product and how it interacts with the factory’s resources, you’ll be better able to manage the demand to achieve an optimisation of resources that, in this case, will maximise your profits without causing the customers to wait excessively.