In this approach, services pricing varies based on certain factors, such as product demand or time to expiration.įor example, an airline may slash prices for seats on its routes close to the flight date. To minimize the effect of perishability on their inventory, firms often apply a pricing approach known as dynamic pricing or demand pricing. This uncertainty in balancing of supply and demand affects quality of service and overall costs.ĭuring times of peak demand, the quality of service may suffer if the hotel management does not plan for adequate staff to meet demand.Īt the same time, having excess staff on hand during lean winter months will inflate costs of operation at the establishment. Others may shift reservation dates or choose to stay at a competitor. Instead the hotel must plan to optimize its existing room capacity to meet varying periods of demand.Ī hotel is at capacity during summer, when demand is at peak and tourists throng to the beach.Ĭrowds thin out in winter, however, and room occupancy is low.Įven with the certainty of seasonal travel, it is impossible for a hotel to make accurate demand forecasts due to a variety of reasons.įor example, some tourists may cancel their reservations at the last minute. If there is excess demand for its product i.e., room service and accommodation, the hotel cannot manufacture additional rooms as supply. Physical constraints limit the number of its rooms. Hence, it is not possible to make accurate forecasts.Ĭonsider the case of a hotel in a seaside town. Product manufacturing plants use detailed forecasts to plan for inventory of tangible products.īut perishability within the services industry is intangible, meaning it is not a physical product that can be measured and quantified. In other words, companies cannot plan for additional services to meet demand. The main difference between perishability of products and services is that the latter cannot be manufactured at will to meet demand.
How Does Perishability Influence Services? Plumbers schedule their appointments several weeks in advance and charge cancellation fees to recoup some of their losses. Operations at small businesses are also influenced by their perishability. Sites like TripAdvisor and Expedia offer cheap rates for last-minute booking of rooms and airline tickets to make sure that goods from their inventory are sold, instead of being marked up as losses.Ĭonversely, during times of high demand and low supply, prices will run high and service providers may form alliances between themselves to increase supply. Similarly, empty seats can spell doom for carriers in the airline industry.Īs was the case with products, perishability influences prices, inventory levels, and marketing strategies for products in services.įor example, hotels and airlines offer deep discounts when demand for their product is running low. If rooms remain unoccupied for long stretches of time, then the hotel may run out of money to maintain them. While hotel rooms and airline bookings do not rot with time, their utility can "perish" or become worthless, if it is not used in a certain timeframe. The same principles can be applied to perishability in services. Stores may run sales to clear out old inventory and even sell products at a loss to recoup part of their investment. The entire product supply chain is designed to take advantage of this period.įor example, wholesalers determine inventory levels and sale prices based on the time to perish for fruits and vegetables. The time frame after they become ripe and before they rot is considered the optimal window to market and sell a fruit. Perishability is most commonly in reference to a product, but can also be in reference to services.įruits and vegetables are considered perishable because they have a short shelf life and cannot be sold after a certain period. Perishability is important for businesses because it determines sale prices, inventory levels, and marketing strategies for a given product.īusinesses use custom tactics, such as dynamic pricing, to mitigate adverse impacts to their business from perishability of their services. Foods that have a short shelf life are said to be "perishable" since they will decay within a short amount of time.Īny products or services which cannot be stored are said to be "perishable." To understand perishability, think of foods which are perishable.
Perishability is a characteristic of products and services that do not allow for the product or service to be stored for sale at a future date.
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