CHAPTER 2-

SERVICE
MARKETING
ENVIRONMENT
Learning Objectives:

At the end of this chapter, the students should be

able to:
•Recognize the factors in a service company’s
broad macro-environment that may have strategic
significance.
•Use analytic tools to diagnose the competitive
conditions in a service company’s industry.
•Map the market positions of key groups of service
industry rivals.
Without competitors, there would be no
need for strategy.
Kenichi Ohmae – Consultant and Author

It is nice to have valid competition; it

pushes you to do better.
Gianni Versace – Entrepreneur
In order to chart a company’s strategic course
wisely, managers must first develop a deep
understanding of the company’s present situation.
-its external environment—most notably,
the competitive conditions of the industry in which
the company operates
-its internal environment—particularly the
company’s resources and organizational
capabilities.
 Macro-environment

• The macro-environment encompasses the

broad environmental context in which a
company’s industry is situated.
The Components of a Company’s
Macro-Environment
 PESTEL Analysis

• PESTEL analysis can be used to assess

the strategic relevance of the six principal
components of the macro-environment: P
olitical, E conomic, S ocial, T echnological,
E nvironmental, and L egal/ Regulatory
forces.
THE FIVE FORCES
FRAMEWORK
• The character and strength of the
competitive forces operating in an industry
are never the same from one industry to
another.
• The most powerful and widely used tool
for diagnosing the principal competitive
pressures in a market is the five forces
framework.
Factors Affecting the Strength of
Rivalry
Factors Affecting the
Threat of Entry
Factors Affecting Competition
from Substitute Products
Factors Affecting the Bargaining
Power of Suppliers
 Factors Affecting the
Bargaining Power of Buyers
STRATEGIC GROUP
ANALYSIS
• Strategic group mapping is a technique for
displaying the different market or
competitive positions that rival firms
occupy in the industry.
• A strategic group consists of those
industry members with similar competitive
approaches and positions in the market.
• A strategic group is a cluster of industry
rivals that have similar competitive
approaches and market positions.
Procedure for constructing a
strategic group map

• Identify the competitive characteristics that delineate

strategic approaches used in the industry. Typical
variables used in creating strategic group maps are
price/quality range (high, medium, low), geographic
coverage (local, regional, national, global), product-
line breadth (wide, narrow), degree of service offered
(no frills, limited, full), use of distribution channels
(retail, wholesale, Internet, multiple), degree of
vertical integration (none, partial, full), and degree of
diversification into other industries (none, some,
considerable).
• Plot the firms on a two-variable map using
pairs of these variables.
• Assign firms occupying about the same
map location to the same strategic group.
• Draw circles around each strategic group,
making the circles proportional to the size
of the group’s share of total industry sales
revenues.
The Value of Strategic
Group Maps
• The most important has to do with
identifying which industry members are
close rivals and which are distant rivals.
• Firms in the same strategic group are the
closest rivals; the next closest rivals are in
the immediately adjacent groups.
 Competitive Profile
Matrix

The Competitive Profile Matrix (CPM) is a

tool that compares the firm and its rivals and
reveals their relative strengths and
weaknesses.

The matrix identifies a firm’s key competitors

and compares them using industry’s critical
success factors. 
• The analysis also reveals company’s
relative strengths and weaknesses against
its competitors, so a company would know,
which areas it should improve and, which
areas to protect.
 CPM Table
    University of Batangas Lyceum of Batangas Westmead International
Critical Factors Weight Rating Score Rating Score Rating Score
               
Market Share 0.05 4 0.2 3 0.15 2 0.1
Number of Program Offerings 0.03 4 0.12 4 0.12 2 0.06
Awards and Recognitions 0.05 4 0.2 4 0.2 2 0.1
Board Exam Ratings 0.04 4 0.16 3 0.12 2 0.08
Tuition Fee 0.3 4 1.2 2 0.6 3 0.9
Facilities 0.08 3 0.24 4 0.32 2 0.16
Faculty and Employees 0.2 3 0.6 3 0.6 2 0.4
Learning Modalities 0.2 4 0.8 3 0.6 2 0.4
Co-Curricular Activities 0.02 4 0.08 3 0.06 2 0.04
Accessibility 0.03 4 0.12 4 0.12 2 0.06
TOTAL 1.00   3.72   2.89   2.3
 Steps

Step 1. Identify the critical success factors

Step 2. Assign the weights and ratings
Step 3. Compare the scores and take action
 Weight
• Each critical success factor should be assigned a weight
ranging from 0.0 (low importance) to 1.0 (high
importance). The number indicates how important the
factor is in succeeding in the industry. If there were no
weights assigned, all factors would be equally important,
which is an impossible scenario in the real world. The sum
of all the weights must equal 1.0. Separate factors should
not be given too much emphasis (assigning a weight of
0.3 or more) because the success in an industry is rarely
determined by one or few factors. In our first example, the
most significant factors are ‘strong online presence’
(0.15), ‘market share’ (0.14), ‘brand reputation’ (0.13).
 Rating

• The ratings in CPM refer to how well companies are doing in

each area. They range from 4 to 1, where 4 means a major
strength, 3 – minor strength, 2 – minor weakness and 1 –
major weakness. Ratings, as well as weights, are assigned
subjectively to each company, but the process can be done
easier through benchmarking. Benchmarking reveals how
well companies are doing compared to each other or
industry’s average. Just remember that firms can be
assigned equal ratings for the same factor. For example, if
Company A, Company B and Company C, have the market
share of 25%, 27% & 28% accordingly, they would all
receive the rating of 4 rather than receiving ratings 2, 3 & 4.
Can we do the SWOT
Analysis now?