Operations Management Persuasive

Question 1
i) Airline Company Revenue

The impact of overbooking and thus bumping passengers off of flights affects both airline and customer. Since the demand for services vary frequently, there are unique aggregate planning problems. Airlines overbook and by doing so, services with reservation systems lose money when passengers fail to make it on the flight. Between 10-30% of aircraft seats are vacant upon takeoff, which can lead to significant loss of revenue. When there are too few overbooked, there is a low capacity utilization and therefore a loss of profit. If there are too many seats overbooked, flights are at over capacity, which results in “bumped” customers. Furthermore, there is partitioning demand into fare classes. Ticket prices differ from class to class and so there needs to be a balance when allocating seats with specific fares. If there are too many high-priced seats, there is a lost in customers. However, if there are too few, there are lower profits. Airlines are becoming greedy and are too focused on the depth of their pockets rather than their customers. If they persist in this manner, they will lose their customers, their only source of revenue.

ii) Customer Satisfaction

When passengers get to the airport, they are looking forward to their trip and expect a smooth check-in process. By bumping passengers, airlines increase the chances of customers seeking another airline for their next travel. This has a direct impact on the airline’s customer retention ratio and also results in a loss of revenue in the long-run. What’s more, if families travel together and some members get bumped, total chaos ensues. Customers are very dissatisfied and highly annoyed if they have to take a later flight, which either shortens their vacation or results in missing work the next day. Though airlines offer vouchers to bumped passengers, the vouchers usually aren’t always of equal monetary value and cover in no way the emotional distress these passengers go through most of the time. Customers are therefore losing time and money, as these vouchers come with restrictions, such as black out dates, most of the time. The perception then becomes that the airline ruined their vacation, which, in the end, no amount of marketing can fix. Overall, bumping passengers off of planes decreases customer satisfaction significantly.

In order for an airline company to readjust the consumer’s perception of being “bumped”, they need to accommodate them properly. Vouchers and coupons can be offered, and they shouldn’t have an expiry date on them. Also, on their next trip, the airline can bump these passengers into first class for the same fare, or offer them in-flight paid services for free. Last but not least, when an airline company is faced with an overbooking situation, they can offer an incentive to all passengers that show up at the gate to check-in. By doing so, the passengers who willingly accept to be bumped in return for that incentive have the perception that it was their decision and will accept the delay, however long may be, a lot easier.

Question 2
i) The single-server checkout counter is the most common method to use by small and new businesses. This method does not cost much and is easy to implement. These businesses do not necessarily have a lot of customers and their budgets are limited. As the demand is low, they can satisfy it in a matter of time. Also, by having a single-server counter, it adds a personal touch to the business since it is mostly the same person who is at the counter. It creates a relationship with the client and allows to increase customer satisfaction and loyalty. Moreover, there is less confusion and misunderstanding because there is only one counter working. For certain customers, a short waiting line is a sign of a bad business and a long waiting line indicates that the business is good and it demonstrates the loyalty of the customer, like we see in restaurants for example. This method might not be suited for larger businesses because it is not productive and it might lead to customer dissatisfaction and decrease profitability. Also, there are no opportunities of growth if a large business decides to stay with single-server counter; the service or product will not be accessible in a timely matter.

On the other hand, the multiple-server counter is often used by large businesses. This technique mainly reduces waiting time and is effective because it serves several customers simultaneously. Customer satisfaction and company revenue therefore increase since more people have access to the service or product. Additionally, it reduces the rate of balking and reneging clients. The decrease in waiting time can be perceived as an improvement of the quality service and sign of business growth. But for some customers, a short line might represent a bad business and that the company does not have enough of customers. The manager may also have reduced control over this system, as there could be miscommunication between counters as their numbers grow. Last but not least, the customer service will undoubtedly vary from counter to counter, which increases the chances of making mistakes and offering different services to different clients, which can lead to client dissatisfaction if not handled adequately.

ii) In the retail industry, many businesses start by using single-server checkout counters and as the business grows, they turn multiple-server checkout counters. In the case of Best Buy, a specialist retailer in electronic equipment, it uses both methods. In their case, a multiple-server system is existent at the information desk where there are several employees, representing the multiple-channel, and multiple customers in the waiting line. Also, when a customer purchases a product, he needs to pass by the checkout counter to pay. He is then facing a multiple-server checkout counter since there are several waiting lines and several counters. Best Buy also uses single-server systems such as online purchase. During the process, the customer only deals with one server from beginning to end. He does not need to go on another website or computer during the process. But, in the case where the customer decides to pick up their delivery at the store, then they are dealing with a multiple-server checkout counter.

Best Buy uses the single-server and multiple-server systems to maximize their customer satisfaction and offer a better service. By using these methods side-by-side, they increase their profits and reduce waiting time. In the end, it creates a competitive advantage for the company.