© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Analyzing the Current Situation 2 2 C HAPTER

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Environmental Scanning and Analysis Analyzing the Internal Environment - Mission - Resources - Offerings - Previous Results - Business Relationships - Keys to Success and Warning Signs In this chapter:

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Analyzing the External Environment - Demographic Trends - Economic Trends - Ecological Trends - Technological Trends - Political Trends In this chapter:

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin - Social- Cultural Trends - Competitors Anaylsis - SWOT Analysis In this chapter:

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Two types of environmental forces: Macroenvironment that can affect organizational performance. Microenvironment that more directly influence performance. Environmental Scanning & Analysis

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The perceived value or utility, an individual or business believes a specific choice will provide. Four types of consumption values may be exist, i.e functional, social, emotional, epistemic, and conditional value. These values are not mutually exclusive. CONSUMPTION VALUES

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Is the perceived utility acquired when a particular choice provides utilitarian or functional benefits for the consumer. These benefits are based on the attributes a particular choice possesses and the benefits those attributes will provide the consumer. 1- FUNCTIONAL VALUE

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Is the perceived utility acquired from making a purchase decision that is associated with a particular reference group. This group could be friends or it could be based on demographics such as age, sex, origin, or religion. cultural factors may also impact purchase decisions. 2- SOCIAL VALUES

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Is obtained when the choice stimulates feelings and emotions within the consumers. For many services, especially entertainment-type services, perceived emotional utility is an important motivating factor in the purchase decision. 3- EMOTIONAL VALUES

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Is acquired when a purchase decision is perceived to satisfy a desire for knowledge, provide novelty, or curiosity. This value is often the motivation behind a senior citizen going back to college or a homemaker taking a painting or art course. 4- EPISTEMIC VALUE

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Is the perceived utility provided when an alternative is chosen because of temporary situational factors that will enhance one of the other consumption values. Finance, weather, time, gift-giving occasions, and special holidays may be a temporary situational factor that would alter a purchase decision. 5- CONDITIONAL VALUE

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The purchase process for services has three distinct phases as follows : 1- the prepurchase phase 2-the service encounter 3-the postpurchase phase. A PURCHASE MODEL FOR SERVICES

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin This first phase happens when purchase decision is actually made. During this phase, consumers weigh the different alternatives available to them and the benefits each alternative would provide. PREPURCHASE PHASE

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin COMPONENTS OF THE PREPURCHASE PHASE Internal factors External factors Firm- produced factors Risk Individual needs& wants Competitive options PromotionPerformance Financial Past experience Expectations Social contextPricingTime loss opportunity Psychological Involvement level Word-of-mouth communication DistributionSocial Physical

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Individual needs and wants Past experience Expectations Degree of involvement (the level of mental and physical effort exerted by a consumer in selecting a good or a service). INTERNAL FACTORS

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The level of involvement is affected by three factors: 1- the knowledge and experience the consumer has with a service category 2- the financial risk involved 3- the social visibility of the service. (how visible a service or good is to other individual) LEVEL OF INVOLVEMENT

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin As knowledge and experience with a service category increases, the level of involvement decreases. As the monetary outlay and the social visibility of a service or service outcome increases, the level of involvement will increase. Past experience will reduce the risk, thereby further reducing the level of involvement. LEVEL OF INVOLVEMENT

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Three external factors influence the purchase decision during the prepurchase phase : 1- the competitive options available 2- the social context of the purchase 3- word-of-mouth communications EXTERNAL FACTORS

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Three firm-produced factors are influencing the purchase decision : 1- Promotion 2- Pricing 3- Distribution FIRM-PRODUCED FACTORS

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Risk has two components: uncertainty and consequences. Uncertainty is the probability that a particular outcome or consequence will occur Consequences are the degree of importance and danger of the outcome itself. RISK

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Performance risk is the chance that the service provided will not perform or provide the benefit for which it was purchased. Financial risk is the amount of monetary loss incurred by the consumer if the service fails. Time loss risk is the amount of time lost by the consumer due to the failure of the service. TYPES OF RISK

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Opportunity risk is the risk involved when consumers must choose one service over another. Psychological risk is the chance that the purchase of a service will not fit the individual’s self-concept. Social risk is the probability that a service will not meet with approval from others who are significant to the consumer making the purchase. TYPES OF RISK

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Types of Reducing Reducing risk uncertainty consequences _____________________________________ Performance Certification Quality control standard & Branding procedures Communication Warranties Financial Trail purchase Guarantees Sampling Promotion incentives Strategies to reduce Purchase Risk

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Types of Reducing Reducing risk uncertainty consequences _____________________________________ Time loss Branding Compensation offers Opportunity Branding Quality control standards & procedures Psychological Branding Quality control standards & Communication procedures Strategies to reduce Purchase Risk

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Types of Reducing Reducing risk uncertainty consequences _____________________________________ Social Branding Quality control standards & Communication procedures Physical Instruction Safety standards Communication Strategies to reduce Purchase Risk

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Is the actual interaction point between the customer and the service provider. The service provider may be in the form of a machine, telephone, or a person. For most services, the interaction is between a customer and a human service provider. The quality of this service encounter is dependent on five factors. The Service Encounter

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Role theory Script theory Service environment Service personnel Support services The Factors Affecting the Quality of the Service encounter

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Buyers and sellers play certain roles in the transaction process. Each party in the service context has a specific roles. These roles differ across the different types of services. Both parties must perform their roles properly. If not, what is known as role ambiguity or confusion may result. Role Theory

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The ambiguity may result from a lack of experience with a particular service provider or a lack of communication between the parties. The role of the customers may vary to include providing information, provide the symptom, fill in documents, participate in the production of service Role Theory

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Service personnel and customers have prescribed scripts that they are expected to follow. Scripts are a learned sequence of behaviors obtained through experience or through communication with others. Understanding the script expected of customers allows firms to flowchart their operation. In addition, scripts provide information for standardization of operations and enhancement of productivity. Script Theory

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The environment in which the service is performed will affect the service encounter. Tangible elements of the facility, the firm’s atmosphere, and other customers who are present are part of this environment. These elements will impact what customers expect during the service encounter as well as their evaluation of the service received. The Service Environment

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Tangible elements include: -the equipment and tools -other equipment in the facility -the furniture -atmospheric elements (office décor, cleanliness, types and density of related noise, sound). The Service Environment

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The most critical element of the experience is the conduct of the service personnel. Customers expect the service personnel to perform specific roles and follow certain scripts. Management must hire individuals qualified for the service job, train them, and design incentives and compensation system. Service Personnel

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin All the activities and materials service personnel need to perform their work properly. For a restaurant, support services include the cook, dishwashers and the bus personnel who clean the tables. Support Services

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin During this phase, customers will make an evaluation of the service quality they received and overall level of satisfaction or dissatisfaction. For satisfied customers, postpurchase actions include repeat purchases, customer loyalty, and positive word-of- mouth communications. Postpurchase phase

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin For dissatisfied customers, these actions include switching vendors and negative word-of-mouth. Three factors are involved in the post- purchase phase. these are : 1- evaluation of service quality 2- customer satisfaction 3- attribution theory Postpurchase phase