Environment Analysis

Chapter 2

Services Marketing Management

Marketing management is concerned with harnessing opportunities and ameliorating threats; changes are constant in throwing open opportunities and threats So businesses are to be vigilant in evaluating prevailing and emerging environmental elements regularly because that is where changes make their presence felt. Environmental elements may be broadly classified into External Environment -- Elements capable of affecting services and service marketing firms from outside. Internal Environment -- Strengths and weaknesses of services and service providing firms.
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Principal Dimensions of Environment

A. External Environments

1. Political and Legal Environment -- concerned with politico - legal & regulatory factors.
2. Economic Environment -- related to wealth creation and demand supply pattern of services. 3. Socio-Cultural Environment -- pertains to people and their behaviour about services and their use. 4. Technological Environment -- about level and state of technology used in service industries B. Competition -- Competitive forces acting on the Service.
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1. Political & Legal Environment

All nations wish to enhance their national sovereignty ; so they frame their polity and laws to keep business under control. So a service firm should carefully * study the government structure * analyse salient issues of political environment including risks * avoid sitting in judgment on their acts and structure. a) Government uses rules, regulations and initial licenses required to initiate service trade.

b) How liberal the Govt. is in allowing foreign service providers in the same field.
c) Special legislations like Green Marketing , IPR protection, cyberlaws etc. if applicable, are to be adhered.
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2. Economic Environment
-- Economic factors of a nation influence service marketing, the most. Without purchasing power, service marketing comes to a nought. So study of economy is essential. -- Study of Economic environment comprise of : A. Trend of nations economy B. Economic systems followed C. Stages of market development D. Balance of Payment E. Income & purchasing power F. Population distribution and growth rate G. Infrastructure H. Other economic factors.
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B. Economic Systems Based on resource allocation and market trends, economy of nations are classified into:

* Capitalist system -- when entities of market i.e. people and companies decide what shall be produced and consumed by whom ; role of state remain restricted to promote competition and ensure customer protection e.g. U.S., Japan etc.
* Socialist system -- when people and companies are free to spend their money on what is available but what shall be produced and made available is decided by state planners as is the case in China, former U.S.S.R., Cuba etc. * Mixed system -- A combination of two systems as followed by most nations.
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National economic systems are classified as free, unfree or repressed based on following parameters : Trade Policy Taxation Policy Govt. consumption of economic output Monetary policy Capital flows and foreign investments Banking policy Wage and price controls Property rights Rules and regulations Prevailing black market etc.

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C. Stages of Market development Using GNP as base, global markets are classified into four categories :

1. Low Income Countries Nations with per capita GNP of less than $786 are called low income countries. These countries constitute 37% of world population but produce only 3% of world GNP. These countries represent limited market.
2. Lower Middle Income Countries [also called Less-developed countries (LDCs)] These are nations with per capita GNP between $786 to $3125. These nations constitute 39% of world population with only 11% of GNP. These are at early stages of industrialisation.
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3. Upper Middle Income Countries [also known as industrialising countries] Per capita GNP of these nations are between $3126 to $9655. These nations comprise of 7% world population and GNP. Level of urbanisation is high and population engaged in agriculture is very less. Generally these nations are accounting for rapid export-driven economic growth. 4. High Income countries [also known as advanced, industrialised, or First World countries] These nations have per capita GNP above $ 9655. These nations have 16% of world population but 80 % of world GNP. More than 50% of these nations GNP comes from services.
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D. Stages of Economic Development

-- Economic development of a nation indicates the increase in national production that leads to increase in average per capita Gross Domestic Product (GDP)** -- Walt Rostow in 1971 indicated that economic development of a nation is function of cost of labour, technical capability of buyers, scale of operation, interest rate and level of product sophistication. ------------------------------------------------------------------------------**Gross Domestic Product (GDP) is the measure of market value of all goods and services produced within boundaries of a nation, regardless of asset ownership. Whereas, Gross National Product (GNP) indicates sum of GDP with receipt from nations business operation abroad as well as share of reinvested earningsby Prof. H.Ganguly affiliates of domestic cos. in foreign 1/16/2013 Presentation 10

-- Walt Rostows stages of economic development are Stage 1 : The traditional society -- Countries in this stage lack capability of increasing productivity, lacks methods of modern science and technology.
Stage 2 : Preconditions for take-off -- Those nations in process of transition to take-off are, where technology, infrastructure etc. are getting infused. Stage 3 : Take-off -- Next, nations take growth as normal condition. Physical and business infrastructures start growing in steps.

Stage 4: Drive to maturity -- Sustained progress and economy of scale operation is achieved with modern technology.
Stage 5 : Age of high mass consumption -- Per capita real 1/16/2013 Presentation mass consumption of durable goods. 11 income rises with by Prof. H.Ganguly

E. Balance of Payments -- Balance of payment of a nation is an important cause and effect of activities of the nation. F. Income and Purchasing Power -- For most products including services, successful marketing needs sufficient level of income of customers. -- Per capita GNP (in US dollars) is generally used for comparing incomes i.e. purchasing power of customers in various nations.

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G. Population its Distribution and Growth People have inhabited the earth for over 2.5 million years. During Christs time, the population was much small about 300 million (approx. one fourth of Indias present population) Every individual of population is a potential customer ; so it is essential to learn their growth, distribution and other characteristics for efficient marketing. For low-priced products and services, population and its distribution is a more important than income. In 2000, top 10 populous nations had 59% of world population. And their total GNP was 52% of world GNP. Present population of world is about 7.2 trillion and is projected to rise to 8.5 trillion by 2020. Presentation by Prof. H.Ganguly 1/16/2013 13

H. Infrastructure -- Presence of suitable infrastructure facilitate efficient service marketing operations.

-- Infrastructure are facilities that serve and support activities of a number industries and businesses e.g., power supply, roads, banks, transport companies etc. -- Quality of a nations infrastructure pave its way for economic development through trade, commerce and industry.
-- Infrastructures may be classified into : * Physical Infrastructure - like roads, railways, seaports, telecom networks, hospitals, power generation systems, etc. * Business Infrastructure - like banks, insurance companies, stock exchanges, advertising agencies, market research firms, advisers, consultants etc.
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I. Other Economic Factors -- The manner in which economic policies are planned and implemented decide following factors * Inflation Rate * Exchange Rate * Nature and trend of foreign investments * Role of govt. in trade and commerce * Influence of trade unions etc. -- In an integrated manner these factors and their comparison with other comparable nations indicate the state of economic growth of the country.

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3. Socio-Cultural Environment
-- Politico-legal and economic factors may indicate ability of customers to buy. -- But actual act of buying (or not) depends upon Social and cultural environment factors. -- So to understand consumer behaviour , service marketer should study the culture of host countries. Culture Culture is integrated sum of learned behavioural traits shared by members of a society. In simple terms, Culture is the behaviour pattern of people of a country that they have learned from other members of society.
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Fundamentals of Culture 1. Culture is learned not inborn. 2. Culture depends upon environment and not heredity. 3. Culture is the approved and shared behaviour of a group of people called Society. Major Elements of Culture

A. Material Culture and Technology -- These are related to the way, a society organises its economic activities of generating wealth. -- The way members of society work and how effectively they work is determined by technology and material culture. -- Material culture of societies using different technologies are different; e.g. culture of societies using Bicycles and automobiles as mode of transport are obviously different.
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B. Language -- Language is the mirror of culture. It reflects nature and value system of the culture. -- Hindi as spoken by Amitabh Bachchan, Amir Khan (Thanda matlab Coca-Cola), Laloo Yadav, Mulayam Singh Yadav depict their culture (i.e. pattern of their behaviour). BIMARU states divorced English long back; today it is detected as a major cause of their backwardness in industry and business; Hindi has rich legacy of literature but profile of industry and business is different.

-- Knowledge and fluent conversation in English is considered to be a major competitive advantage in most of countries including India.
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-- In Congo (Zaire), they have four important tribal languages for communication among themselves, but they have retained French, the language of their erstwhile rulers as National Language and they are prospering fast. -- Americans not only retained the language of their rulers, but in two centuries adapted the language in a way that world today calls it American English. -- Indications are that by Twenty-second century world culture shall adopt Chinese and Hinglish languages as it has adopted English, French, German or American English.

C. Aesthetics -- Ideas, principles that depict beauty and good taste as in arts, music, drama, dances, architecture, colourselection, literature etc. is called aesthetics.
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-- Aesthetic aspect of culture have immense application in Service marketing in * Product or any creative designing * Selection of brand and corporate names * Selection of colours * Choosing right words for expressing ideas etc.

D. Education -- It is the process of transmitting skills, ideas, attitudes, culture and traditions of a society beside training in different disciplines (and not just cramming some books and notes to pass examinations). -- Nature of right education is to help in harnessing different skills for success in service, other trade and commerce.
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E. Religion -- Dimension that provides insight into human behaviour is Religion. -- So service marketing, PR policies and strategies should be in consonance with local religious sensitivities. F. Attitudes and Values -- Our thinking about what is right , appropriate or desirable are conditioned by our attitudes and concept of values. -- According to Douglas North, People act on the basis of their ideologies and religious views. So a study of these is essential.
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G. Social Organisations
-- Social organisation refers to the manner in which people relate to other people. It differs from society to society. -- There may be special interest groups of caste, creed, religion, hobby, profession etc. which may have influence in different kinds of decision making. -- Four social organisations cast strongest influence on people * Family -- Members of family and extended family extend safety and security . * School -- Education influences culture considerably.

* Religion -- It influences value system and also consumer behaviour. * Media -- With increase in literacy rate and radios & TV , influence of this institution is very much on rise more than 1/16/2013 their parents and family members. Presentation by Prof. H.Ganguly 22

H. Dimensions of Culture -- Hofstede and Bond have identified dimensions of cultural as 1. Individualism vs. Collectivism -- In many nations, prominence is observed in culture and goal achievement of individuals and immediate families; it is termed as individualistic culture e.g. in India, Bangladesh, Pakistan etc. -- Whereas, some cultures emphasise upon groups goal over that of individuals and people think that they belong to a group. It is called collective culture e.g. in Japan.

2. Power Distance -- Distribution of power in many societies is considered to be uneven, it is called Power Distance.
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-- Nations like India, Japan, Mexico, Brazil etc. are high power- distance societies where people accept that superior shall not consider subordinates as equal. -- Thus, subordinates tend to prefer autocratic or paternalistic behaviour from leaders. -- Whereas, in low power distance societies like US, Germany, Canada etc. superiors and subordinates have a sense of equality among them. -- So subordinate may approach superior for consultation easily in these nations. 3. Gender of Society -- Rigidity in role played by members of society decide its gender.
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-- Those nations where men are more assertive, competitive, ambitious and achievement-oriented whereas, women are modest, tender and concerned with life are termed as masculine culture. -- Whereas, in Feminine cultures both men and women are found to be modest, tender and concerned with quality of life.

-- In masculine cultures like Japan, Germany, UK, US, Mexico etc. employees live in order to work. But in feminine cultures like in Sweden, Norway, Denmark, Thailand etc. employees work in order to live.

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4. Uncertainty Avoidance -- The extent of tolerance of uncertainty and ambiguity by a society indicates its uncertainty avoidance culture.

-- Generally, rules and norms are not very clear-cut or rigid in low uncertainty avoidance societies like India, Hong Kong, Singapore, Great Britain etc.. These nations are more open and willing to explore anything new and foreign.
-- Whereas, high uncertainty avoidance cultures are more formal in rules and regulations and less tolerant to deviant ideas and behaviour e.g. Japan, Portugal, Greece etc. 5. Cultural Homogeneity -- It indicates the manner in which communications and commitments are viewed in the nation.
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-- In high context societies, implicit communications are viewed as important i.e. verbal commitments are given greater sanctity as in China, Korea or Japan.

-- Whereas, in low context societies, communications are more explicit i.e. they rely more on written ones like Germany, Switzerland, Scandinavia etc. 6. Cultural Homogeneity -- Nations where people share same beliefs, speak same language, practice same religion are said to have Homophilous Culture as in Japan, Korea and Scandinavian countries
-- Countries having appreciable difference in belief, religion and language are called Heterophilous Culture, as exists in India, China etc. Presentation by Prof. H.Ganguly 27

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IV. Technological Environment

-- Todays trade, commerce and industries are technology-driven. So marketers should study : * Type of technology used in services, manufacture and commerce * State of technological development in the country and abroad * Extent of adaptation of technology * Technology policy of nation * Labour content of technologies used * Prevalence of technology and economy of scale. -- Schumacher introduced the concept of combining traditional technology with elements of modern technology called Appropriate technology. Developing nations are fast adapting capital intensive modern technologies for labour Presentation by Prof. H.Ganguly 28 intensive purposes.

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Technology in Service Offering & Delivery

Technology has substantially aided Service industry of the country. Imagine the case of payment of bills, withdrawl of cash from banks or retrieving information from obscure journals. Today, newer services are designed where these aspects of life have become more livable. Further, these aspects of service are poised to be more customer friendly through innovations. Process of service delivery has also been made more customer-friendly, convenient and cost-efficient through BPO and IT-enabled services.
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B. Competition In addition to environmental factors, Service marketer has to identify and manage Competition-forces acting upon the Service and Service-providing company. Major Competition-forces are : Direct Competition Force of competition of one hotel upon another in the town. Alternative Competition Force exerted by different type of service-providers e.g., videoconferencing with airlines. Bargaining power of customers Bargaining power of suppliers

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Threats paused by new entrants

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Internal Environment Internal attributes like strength, weakness etc. of other service-providers keep on changing dynamically these are to be actively managed along following lines :
1. Industry * Extent of Service differentiation * Economies of scale * Strategy followed etc. 2. Operation & Operating Environment * Customer and Suppliers profile * Quality of available human resources 3. Value-chain Analysis * Primary activities * Secondary activities
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