Posted in Marketing and Strategy Terms, Total Reads: 1281
Definition: Smoothing Demand
When a firm’s production capacity is overstrained, it tries to dampen the demand for its product by actions such as withdrawing advertisements. Once the production capacity is brought back to normal or it is underutilized, the demand is stimulated again.
This method of manipulating the demand in accordance with the capacity to keep up with it is called demand smoothing. There are two ways of smoothing demand: capacity management and demand management. The aim is to drive up the demand during slow moving periods and to dampen the demand during the peak season. In the slow period, demand can be driven up using quantity discounts and other offers. Smoother demand reduces the need for costly adjustments in the capacity.
Often, demand management is a less costly option than capacity management. It can also be managed by actively scheduling the arrival of customers using advance reservations. There are three ways of demand management: match, control and influence.