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SERVICE SECTOR MANAGEMENT

The Marketing Environment for Services

• What is the marketing environment?


• The marketing environment surrounds and impacts upon the organization. There are
three key perspectives on the marketing environment, namely the 'macro-environment,' the
'micro-environment' and the 'internal environment'.

• The Micro-environment
• This environment influences the organization directly. It includes suppliers that deal
directly or indirectly, consumers and customers, and other local stakeholders. Micro tends to
suggest small, but this can be misleading. In this context, micro describes the relationship
between firms and the driving forces that control this relationship. It is a more local
relationship and the firm may exercise a degree of influence.

• The Macro-environment
• This includes all factors that can influence an organization but that are out of their
direct control. A company does not generally influence any laws (although it is accepted that
they could lobby or be part of a trade organization). It is continuously changing, and the
company needs to be flexible to adapt. There may be aggressive competition and rivalry in a
market. Globalization means that there is always the threat of substitute products and new
entrants. The wider environment is also ever changing, and the marketer needs to compensate
for changes in culture, politics, economics and technology.

2. THE MARKETING ENVIRONMENT FOR SERVICES 1


TY BMS - SEM V - ACADEMIC YEAR 2010-2011 – BHAVAN’S COLLEGE
Compiled by Faculty: L. A. D’Costa +91 98193 77556 dcosta.l.a@gmail.com
Source of Compilation: Web
SERVICE SECTOR MANAGEMENT

2. THE MARKETING ENVIRONMENT FOR SERVICES 2


TY BMS - SEM V - ACADEMIC YEAR 2010-2011 – BHAVAN’S COLLEGE
Compiled by Faculty: L. A. D’Costa +91 98193 77556 dcosta.l.a@gmail.com
Source of Compilation: Web
SERVICE SECTOR MANAGEMENT

• The Internal environment


• All factors that are internal to the organization are known as the 'internal
environment'. They are generally audited by applying the 'Five Ms' which are Men, Money,
Machinery, Materials and Markets. The internal environment is as important for managing
change as the external. Marketers call the process of managing internal change 'internal
marketing.'

• Internal Marketing
• Internal marketing is an important 'implementation' tool. It aids communication and
helps one to overcome any resistance to change. It informs, and involves all staff in new
initiatives and strategies. It is simple to construct, especially if you are familiar with
traditional principles of marketing.
• If not, it would be valuable to spend some time considering marketing plans. Internal
marketing obeys the same rules and has a similar structure to, external marketing. The main
differences are that your customers are staff and colleagues from your own organization.

• Managing the implementation of internal marketing (Jobber 1995)


• The process of marketing follows a familiar pattern for which we use the acronym
AOSTC - Analysis, Objectives, Strategies, Tactics, and Control. In the diagram above,
Jobber (1995) uses a similar approach as a structure for the implementation of internal
marketing. The process is straightforward.
• Set objectives for internal marketing e.g. to persuade 100 staff to join a new
Performance Related Pay (PRP) scheme.

2. THE MARKETING ENVIRONMENT FOR SERVICES 3


TY BMS - SEM V - ACADEMIC YEAR 2010-2011 – BHAVAN’S COLLEGE
Compiled by Faculty: L. A. D’Costa +91 98193 77556 dcosta.l.a@gmail.com
Source of Compilation: Web
SERVICE SECTOR MANAGEMENT
• Your strategy is 'internal marketing.'
• Tactics would include an internal application of the marketing mix, and could include
staff forums, presentations, an intranet, away days, videos, personal visits by company
directors or newsletters.
• Evaluation would consider the take up of PRP against your objectives, attendees at
away days, visits to an intranet page, and so on.

• At this stage internal marketing meets traditional 'change management.' Firstly one
should identify the internal customers. As with external customers, they will have their own
buyer behavior, or way of 'buying into' the changes which you are charged to implement.
• The similarities in differing groups of internal customers allow you to segment them.
As Jobber (1995) explains, you can target three different segments namely 'supporters‘,
‘neutral' and finally 'opposers.' Each group requires a slightly different internal marketing
mix in order that your internal marketing objectives can be achieved.

• For example, if the change was that a company was to relocate closer to its market,
you could target 'supporters' with a tailor-made relocation video explaining about the lower
property prices in the new location; 'neutral' internal customers could be targeted with
incentives such as pay increases; and 'opposers' could be coerced, or forced to accept the
change regardless.

• How do we plan for a change program?

• Always make sure that you have thought through your approach before starting the
implementation.

• Make sure that you have created a cultural climate that is willing to accept change.
2. THE MARKETING ENVIRONMENT FOR SERVICES 4
TY BMS - SEM V - ACADEMIC YEAR 2010-2011 – BHAVAN’S COLLEGE
Compiled by Faculty: L. A. D’Costa +91 98193 77556 dcosta.l.a@gmail.com
Source of Compilation: Web
SERVICE SECTOR MANAGEMENT

• Appoint a change agent, or champion for change that will help to ease your changes
through.

• Audit the skills and capabilities of your team. Train and develop as necessary.

• Your team must be built around you with the objective as the focus for you all.

• The change must be correctly marketed to your target audience using an approach
such as Jobbers.'

• Decide what the change will be. Give it boundaries.

• Decide upon the plan.

• Work out a realistic budget and stick to it.

• Try to anticipate the arguments against change, and decide how to counteract them
positively.

• Essentially we use marketing approaches to aid communication and change


management.

• The external environment can be audited in more detail using other approaches such
as SWOT Analysis, Michael Porter's Five Forces Analysis or PEST Analysis.

• SWOT Analysis

• Strengths, Weaknesses, Opportunities and Threats (SWOT).


• SWOT analysis is a tool for auditing an organization and its environment. It is the
first stage of planning and helps marketers to focus on key issues. SWOT stands for
strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal
factors. Opportunities and threats are external factors.

2. THE MARKETING ENVIRONMENT FOR SERVICES 5


TY BMS - SEM V - ACADEMIC YEAR 2010-2011 – BHAVAN’S COLLEGE
Compiled by Faculty: L. A. D’Costa +91 98193 77556 dcosta.l.a@gmail.com
Source of Compilation: Web
SERVICE SECTOR MANAGEMENT

• In SWOT, strengths and weaknesses are internal factors.

• For example:
• A strength could be:
• Your specialist marketing expertise.
• A new, innovative product or service.
• Location of your business.
• Quality processes and procedures.
• Any other aspect of your business that adds value to your product or service.

• A weakness could be:


• Lack of marketing expertise.
• Undifferentiated products or services (i.e. in relation to your competitors).
• Location of your business.
• Poor quality goods or services.
• Damaged reputation.

• For example:
• An opportunity could be:
• A developing market such as the Internet.
• Mergers, joint ventures or strategic alliances.
• Moving into new market segments that offer improved profits.
• A new international market.
• A market vacated by an ineffective competitor.

• A threat could be:


• A new competitor in your home market.
• Price wars with competitors.
2. THE MARKETING ENVIRONMENT FOR SERVICES 6
TY BMS - SEM V - ACADEMIC YEAR 2010-2011 – BHAVAN’S COLLEGE
Compiled by Faculty: L. A. D’Costa +91 98193 77556 dcosta.l.a@gmail.com
Source of Compilation: Web
SERVICE SECTOR MANAGEMENT
• A competitor has a new, innovative product or service.
• Competitors have superior access to channels of distribution.
• Taxation is introduced on your product or service.

• SWOT Analysis Examples

Example 1 - Wal-Mart SWOT Analysis

Strengths - Wal-Mart is a powerful retail brand. It has a reputation for value for money,
convenience and a wide range of products all in one store.

Weaknesses - Wal-Mart is the World's largest grocery retailer and control of its empire,
despite its IT advantages, could leave it weak in some areas due to the huge span of control.

Opportunities - To take over, merge with, or form strategic alliances with other global
retailers, focusing on specific markets such as Europe or the Greater China Region.

Threats - Being number one means that you are the target of competition, locally and
globally.

• Example 2 - Starbucks SWOT Analysis

• Strengths - Starbucks Corporation is a very profitable organization, earning in excess


of $600 million in 2004.
• Weaknesses - Starbucks has a reputation for new product development and creativity.
• Opportunities - New products and services that can be retailed in their cafes, such as
Fair Trade products.
• Threats - Starbucks are exposed to rises in the cost of coffee and dairy products.

• Example 3 - Nike SWOT Analysis

• Strengths - Nike is a very competitive organization. Phil Knight (Founder and CEO)
is often quoted as saying that 'Business is war without bullets.
• Weaknesses - The organization does have a diversified range of sports products.
• Opportunities - Product development offers Nike many opportunities.
• Threats - Nike is exposed to the international nature of trade.

• Example 4 - Indian Premier League (IPL) SWOT Analysis

• Where will you find the Mumbai Indians, the Royal Challengers, the Deccan
Chargers, the Chennai Super Kings, the Delhi Daredevils, the Kings XI Punjab, the Kolkata
Knight Riders and the Rajasthan Royals?

2. THE MARKETING ENVIRONMENT FOR SERVICES 7


TY BMS - SEM V - ACADEMIC YEAR 2010-2011 – BHAVAN’S COLLEGE
Compiled by Faculty: L. A. D’Costa +91 98193 77556 dcosta.l.a@gmail.com
Source of Compilation: Web
SERVICE SECTOR MANAGEMENT
• In the Indian Premier League (IPL) - the most exciting sports franchise that the
World has seen in recent years, with seemingly endless marketing opportunities (and
strengths, weaknesses and threats of course!).

• Example 5 - Bharti Airtel SWOT Analysis

• Weaknesses - An often cited original weakness is that when the business was started
by Sunil Bharti Mittal over 15 years ago, the business has little knowledge and experience of
how a cellular telephone system actually worked. So the start-up business had to outsource to
industry experts in the field.

• Five Forces Analysis

Analyzing the environment - Five Forces Analysis

Five Forces Analysis helps the marketer to contrast a competitive environment. It has
similarities with other tools for environmental audit, such as PEST analysis, but tends to
focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a
single product or range of products. For example, Dell would analyze the market for
Business Computers i.e. one of its SBUs.

• Five forces analysis looks at five key areas namely the threat of entry, the power of
buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.

• The threat of entry


• Economies of scale e.g. the benefits associated with bulk purchasing.

2. THE MARKETING ENVIRONMENT FOR SERVICES 8


TY BMS - SEM V - ACADEMIC YEAR 2010-2011 – BHAVAN’S COLLEGE
Compiled by Faculty: L. A. D’Costa +91 98193 77556 dcosta.l.a@gmail.com
Source of Compilation: Web
SERVICE SECTOR MANAGEMENT
• The high or low costs of entry e.g. how much will it cost for the latest technology?
• Ease of access to distribution channels e.g. Do our competitors have the distribution
channels sewn up?
• Cost advantages not related to the size of the company e.g. personal contacts or
knowledge that larger companies do not own or learning curve effects.
• Will competitors retaliate?
Government action e.g. will new laws be introduced that will weaken our competitive
position?
• How important is differentiation? e.g. The Champagne brand cannot be copied. This
desensitizes the influence of the environment.

• The power of suppliers


• The power of suppliers tends to be a reversal of the power of buyers.
• Where the switching costs are high e.g. Switching from one software supplier to
another.
• Power is high where the brand is powerful e.g. Cadillac, Pizza Hut, Microsoft.
• There is a possibility of the supplier integrating forward e.g. Brewers buying bars.
• Customers are fragmented (not in clusters) so that they have little bargaining power
e.g. Gas/Petrol stations in remote places.

• The threat of substitutes


• Where there is product-for-product substitution e.g. email for fax. Where there is
substitution of need e.g. better toothpaste reduces the need for dentists.
• Where there is generic substitution (competing for the currency in your pocket) e.g.
Video suppliers compete with travel companies.
• We could always do without e.g. cigarettes.

• Competitive Rivalry
• This is most likely to be high where entry is likely; there is the threat of substitute
products, and suppliers and buyers in the market attempt to control. This is why it is always
seen in the center of the diagram.

• PEST Analysis
• What is PEST Analysis?
• It is very important that an organization considers its environment before beginning
the marketing process. In fact, environmental analysis should be continuous and feed all
aspects of planning.

• The organization's marketing environment is made up of:

• 1. The internal environment e.g. staff (or internal customers), office technology,
wages and finance, etc.
2. THE MARKETING ENVIRONMENT FOR SERVICES 9
TY BMS - SEM V - ACADEMIC YEAR 2010-2011 – BHAVAN’S COLLEGE
Compiled by Faculty: L. A. D’Costa +91 98193 77556 dcosta.l.a@gmail.com
Source of Compilation: Web
SERVICE SECTOR MANAGEMENT
• 2. The micro-environment e.g. our external customers, agents and distributors,
suppliers, our competitors, etc.
• 3. The macro-environment e.g. Political (and legal) forces, Economic forces, Socio-
cultural forces, and Technological forces. These are known as PEST factors.

• Political Factors
• The political arena has a huge influence upon the regulation of businesses, and the
spending power of consumers and other businesses. You must consider issues such as:
• 1. How stable is the political environment?
• 2. Will government policy influence laws that regulate or tax your business?
• 3. What is the government's position on marketing ethics?
• 4. What is the government's policy on the economy?
• 5. Does the government have a view on culture and religion?
• 6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN,
or others?

• Economic Factors
• Marketers need to consider the state of a trading economy in the short and long-terms.
This is especially true when planning for international marketing. You need to look at:
• 1. Interest rates.
• 2. The level of inflation Employment level per capita.
• 3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita,
and so on.

• Socio-cultural Factors
• The social and cultural influences on business vary from country to country. It is very
important that such factors are considered. Factors include:
• 1. What is the dominant religion?
• 2. What are attitudes to foreign products and services?
• 3. Does language impact upon the diffusion of products onto markets?
• 4. How much time do consumers have for leisure?

2. THE MARKETING ENVIRONMENT FOR SERVICES 10


TY BMS - SEM V - ACADEMIC YEAR 2010-2011 – BHAVAN’S COLLEGE
Compiled by Faculty: L. A. D’Costa +91 98193 77556 dcosta.l.a@gmail.com
Source of Compilation: Web
SERVICE SECTOR MANAGEMENT
• 5. What are the roles of men and women within society?
• 6. How long are the population living? Are the older generations wealthy?
• 7. Does the population have a strong/weak opinion on green issues?

• Technological Factors

• Technology is vital for competitive advantage, and is a major driver of globalization.


Consider the following points:
• 1. Does technology allow for products and services to be made more cheaply and to a
better standard of quality?
• 2. Do the technologies offer consumers and businesses more innovative products and
services such as Internet banking, new generation mobile telephones, etc?
• 3. How is distribution changed by new technologies e.g. books via the Internet, flight
tickets, auctions, etc?
• 4. Does technology offer companies a new way to communicate with consumers e.g.
banners, Customer Relationship Management (CRM), etc?

2. THE MARKETING ENVIRONMENT FOR SERVICES 11


TY BMS - SEM V - ACADEMIC YEAR 2010-2011 – BHAVAN’S COLLEGE
Compiled by Faculty: L. A. D’Costa +91 98193 77556 dcosta.l.a@gmail.com
Source of Compilation: Web