In a service environment, a long-term decrease in demand can lead to increased costs of service due to several factors:
Fixed Costs: Many service environments have high fixed costs (e.g., facilities, equipment) that do not decrease with lower demand, leading to higher per-unit costs.
Economies of Scale: Lower demand can result in the loss of economies of scale, as the cost per unit increases when services are spread over a smaller number of customers.
Resource Utilization: Decreased demand can lead to underutilization of resources (e.g., staff, infrastructure), further driving up the cost per service unit.
References
Fitzsimmons, J. A., Fitzsimmons, M. J., & Bordoloi, S. (2014). Service Management: Operations, Strategy, Information Technology. McGraw-Hill Education.
Heskett, J. L., Sasser, W. E., & Schlesinger, L. A. (2015). The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyalty, Satisfaction, and Value. Free Press.
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