What is Micro Environment in Business? Factors and Tools

Micro-environment is a collection of variables and factors that affect the internal environment of an organization. These micro-environments are usually local and immediate, as opposed to the macro-environments which can be global or outside the company’s direct control.

What is a Microenvironment?

The term microenvironment refers to all of the elements of an organization’s immediate environment that influence the performance of the company. These factors have a direct bearing on the firm’s regular business operations.

In other words, micro-environment is like a small environment that contains many different things such as people, resources, and tasks. The micro-environment can be defined as a part of a larger system or unit that has its own boundaries within which it operates.

The micro-environment can be defined as a part of a larger system or unit that has its own boundaries within which it operates. The micro-environment comprises of all those factors that influence a company’s ability of performance directly or indirectly and are considered as its immediate surroundings.

Difference between Macroenvironment and Microenvironment

When an organization starts its business in the market, its success and sustenance are shaped by a number of factors. While some of these factors are beyond the control of the company, others can be brought within its grip.

The former is known as external factors which form the macro environment factors and the latter encompassing the internal factors, is referred to as the micro environment. Demography, economy, Socio-Cultural factors, legal forces, political structures and technology are collectively known as macro environment factors. On the other hand, consumers, competitors, suppliers, dealers and distributors and the general public together constitute the micro environment of a business.

Micro environment components are within the immediate surroundings of the organization. These are the initial spheres to work on, so as to shape a strong and credible image of the company in the larger or macro environmental factors.

A perfect collaboration of micro and macro environment contributes to a successful and consistent business operation. If one end is disturbed, the other end suffers by default. It is because the internal factors are components within the external ones. Hence any problem within the macro environment will gradually reflect in the micro front. At the same time, if micro environment is not under control, it will destabilise the macro environment components for the particular business.

For example, in the event of economic environment downfall or financial emergency in a nation, demand, and supply of any commodity is hard to hit. This in turn affects business profits and brings down its prospects. A similar scenario is also possible when suppliers or the supply chain technology of a product gets hampered. As a result, products become inaccessible to the consumers. This certainly threatens the technological and to some extent the demographic environment.

Therefore in micro and macro factors, to stand apart in any commercial venture or business environment, marketing management and marketing intermediaries need to understand the significance of each of these components and work towards maintaining a proper balance between the two environments.

Role of Micro Environment in Business

Micro environment is the first pillar to build a business empire. All marketing campaigns, strategies, and objectives are carried out through these components. It is, therefore, the executive arm of business where practical implementation of ideas, thoughts, and concepts are done and based on the responses of these components, a business either moves forward or may step back.

Further, it serves as a guide to future communication policies of an organization. With all such features, micro environment plays an integral role in realizing the current potential and determining the future of a business.

With a significant contribution to the overall functioning of a business, here’s how the components enjoy an interface with core business development.

Factors and Elements of Microenvironment

1. Customers

The term includes everyone from individuals to households to service recipient companies to industries and factors (which procures raw materials for producing final goods). As the God of every business, they have the potential to boost business activities by increasing their demand and at the same time ruin an organization by refusing to purchase its products.

Presently, every customer is open to choices. Thus, the real challenge of a marketer is to withhold the consumer within the company’s business and make efforts to form a consumer chain, that is, one consumer influences some others to purchase the company’s products.

2. Competitors

Whether direct or indirect, competitors pose a threat to the existence of every organization. With more competitors, customers are sure to browse some other rather better quality and cost-effective option. While doing so, there are high chances of losing a customer to one or many competitors.

In such a case, the company’s marketing environment has to devise communication in a way that will surpass the effect of competitors’ promotional efforts and retain the customer for the particular brand or product.

3. Suppliers

They are the ones who supply intermediary products to the manufacturers of finished goods. For example, a computer or laptop manufacturing company will take all the necessary parts and the technology from its suppliers.

The quality of these go-between commodities, price charged by the suppliers and the supplier-manufacturer relationship determines the price and brand image of the electronic goods- a key player in attracting the audience and sustaining in the market under any condition. Often, companies get into a tussle with their suppliers who ask for higher prices. Such issues often leave the organization at sea and become a testing time for its business.

4. Dealers and Distributors

With the help of dealers and distributors, a company channelizes its products from the manufacturing units to the market. As this group represents the company, their active role in delivering the products to the end-user and ensuring that commodities are well in stock and easily available in stores, retails or other access points is vital for business establishment.

As an example, a consumer can purchase a cosmetic product from their nearest retail or cosmetic shop. They can also hop into shopping malls or do online shopping. Therefore, the utmost responsibility of the management is to ensure that the cosmetics are available in all these places and customers don’t return without purchasing their desired product.

5. Investors

They are the prime assets of an organization. The more they invest, the more a company becomes capable of spending in its various departments. Investor relationship is very vital in this context. If they are happy with the product performance and get regular ROIs, they will, in all probability invest a higher amount for more returns.

Hence, besides satisfying the customers, companies also need to look after their investors and waste no means to retain them within the organization’s fold.

6. General Public

For long-term sustenance, companies have to look at a bigger element of micro environment, i.e. the mass. Although companies will never sell to each and every people in a given region, their existence will, however, depend on the overall perception of these people regarding the brand or company’s image or the product itself.

For example, companies often launch free sample products for all or organize seminars, media, and press releases, etc. Many times, they invest in community development like building sanitation units or indulge in public service. They also come up with environment reports.

By doing so, they earn a goodwill in the market and enjoy the trust and faith of not only their consumers but also of the common public including environmentalists, media, consumer protection activists and other social groups prevalent in their region of operation.

Microenvironment Analysis Tools

A Microenvironment Analysis Tool is a tool used to analyze the economic environment that surrounds your business. The microenvironment is the area surrounding your business, and it includes factors like demographics and culture.

There are several types of Microenvironment Analysis Tools:

• Demographic Analysis Tools: These tools help you understand the economic factors and what kind of people live in your business’s neighborhood. For example, if you have a bakery that serves coffee and pastries, you might want to know what kind of customers you have based on their age or race.
• Cultural Environment Analysis Tools: These tools help businesses understand how people in their area think about things like religion or politics. For example, if your bakery is located near an apartment building for college students, then it might be helpful for you to know what religious holidays are important to them so that they can plan appropriately for those days when fewer people will be coming into the store.

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