Defining the micro environment

The micro environment comprises all those individuals and organisations that affect the operations of a business on a day-to-day basis.

The following are important influences on the success of a business: - Customers; - Suppliers; - Intermediaries; - Competitors; - Employees; - Stakeholders.

One must remember the underlying relationships between an organisation and the other organisations in its environment.

A business must generate profits. In order to generate profits you need to create a customer. Needs are theoretical until a business finds a means of satisfying them. The customer determines what the business is, what it produces, and whether it will be a success. Society allows business enterprise because it produces resources.

In order to create a customer, businesses engage in marketing and innovation. A business controls wealth-producing resources to discharge its purpose of creating a customer. It has the function on utilising resources productively. Productivity means that balance between all factors of production that will give the greatest output for the smallest effort.

A feature of market economies is that firms compete with each other to create a customer which spurs innovation and marketing activities. These are the distinguishing characteristics of business organisations.

The micro environment comprises not just those firms that an organisation actually does business with. It also includes those firms and individuals that an organisation could potentially do business with. An important element in understanding the micro environment is competition between organisations. - To get customers; - To obtain supplies; - To get access to the best intermediaries.

When assessing competition, various factors are considered: - Who are the competitors, how strong are they? - What are the characteristics of the markets they compete in? - What are the environmental influences on the market? - How can the organisation maintain a competitive advantage?

Demand

A number of factors influence the total market demand for a good. An important factor is price but there are other factors too. You need to recognize that households buy not just one good with their money but a whole range of goods and services. The determinants of demand include: - The price of the good; - The price of other goods; - The size of households' income; - Tastes and fashion; - Expectations; - Distribution of income among households.

Substitutes and complements

A change in the price of one good will not necessarily change the demand for another good. There are goods where market demand is inter-connected. These goods are referred to as substitutes/complements.

Substitute goods are goods that are alternatives to each other, so that an increase in the demand for one will cause a decrease for another. Switching from one good to another is substitution.

Activities of competitors have an impact on the demand for an organisation's products even if the factors of other product remain unchanged.

Complements are goods that are bought and used together. This means that an increase in demand for one will cause an increase in demand for another.

Market demand for a good is influenced by the spread of national income among households.

Demand, fashion and expectations

A change in fashion alters the demand for a product.

If consumers perceive that prices will rise, or shortages will occur they will attempt to stock up on the product which will create excess demand in the short term which will cause an increase in prices. This is called panic buying.

Changes in demand for these reasons, offer an opportunity that marketers will exploit.

Supply

The quantity supplied of a good depends on prices and costs. It depends on the following: - The price obtainable for the good; - The prices of other goods; - The costs of making the good; - Changes in technology; - Other factors.

The micro and macro environments

You distinguish the micro environment from the macro in terms of directness.

The micro environment is about the actual and potential transactions better a firm and its environment daily.

The macro environment is about external forces which have a long-term impact on the organisation's activities.

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