Micro environment refers to the environment formed through relationships and linkages between external stakeholders and the company. It is the environment surrounding a company’s relationships with suppliers, customers, competitors, financiers, and the public.
These close forces affect a company’s operations and ability to succeed by exposing opportunities and threats. For example, changes in tastes force companies to adapt to continue to satisfy them. Failure to do so causes customers to switch to competitors.
The difference between the macro environment and micro environment
The macro environment and micro environment shape the forces outside the company. Changes in the environment affect business success by creating opportunities and threats.
Unlike the macro environment, the micro environment represents external stakeholders directly interacting with the company. Usually, their influence will be unique and differ between industries.
Meanwhile, the macro environment is outside the micro environment. The changes affect companies and their stakeholders. Take when the government increases the corporate profit tax as an example.
Higher taxes don’t just apply to a company. Their competitors are also affected. Likewise, it may also affect companies in other industries.
The next difference lies in the control over changes. Changes in the macro environment outside the company’s control. Companies can only be influenced without being able to influence.
Meanwhile, the company may have some control over changes in the microenvironment. For example, a company threatens not to place an order when a supplier wants to increase input prices. If the threat is credible, the supplier may be discouraged.
How credible the threat is depends on the company’s bargaining power with a supplier. For example, the threat could be credible if the company contributes significantly to the suppliers’ total orders.
How the micro environment affects the company
The micro environment is in direct contact with the company. Therefore, the changes affect the operations and business activities directly.
Several external stakeholders in the microenvironment will positively affect the business (opportunity). For example, customers create demand for products, through which money flows to companies. Then, suppliers provide inputs to the business.
Others, such as the government, for example, can create a favorable environment for business. For example, the government cut the corporate profit tax. Or, the government provides incentives for environmentally friendly businesses.
However, microenvironments can also present challenges to businesses. For example, customers reduce their spending. Or their tastes change, and they prefer new products.
In other cases, suppliers may increase the selling prices for their inputs to make more profit. Or, they run into logistical problems, making them late for deliveries.
Meanwhile, government policies can also harm businesses. For example, the government raises taxes or issues new regulations regarding a higher minimum wage.
The examples above illustrate how the micro environment can significantly impact a business. Its changes can expose both opportunities and threats.
Thus, companies must identify every opportunity and threat to achieve long-term goals. A successful company can optimize its internal strengths to exploit every opportunity and reduce external threats to internal weaknesses.
Factors in the microenvironment
As I explained, when we talk about the macro environment, we are talking about the environment around a company shaped by the relationships between companies and their external stakeholders, such as suppliers, customers, and competitors.
Customers are primary stakeholders besides suppliers. If suppliers provide inputs, then customers give the company with money. They’re pouring money into the company by buying products.
So, companies can make more money when customers are loyal and continue to buy products. Loyalty does not only impact income. But, it also affects costs, for example, by lowering promotion costs because loyal customers are willing to promote products to their relatives.
Businesses generally carry out activities to deliver value to customers and satisfy them. Thus, they remain loyal, and the money continues to flow to the company by creating a strong relationship with them.
Suppliers influence the company in delivering value to customers. They provide essential inputs such as raw materials, spare parts, equipment, and machinery. What they provide affects operations and product quality and price.
In addition, their reliability in delivering inputs affects production schedules. Suppliers may also provide discounts to encourage the company to place regular orders. Or they provide credit relief.
Supplier quality and reliability are critical for smooth operations. Companies must have control over supplier availability and costs because shortages or delays in supply can hurt sales and customer satisfaction.
Marketing intermediaries contribute to delivering value. They may be individuals or organizations.
Marketing intermediaries contribute to forming networks for promotion, sales, and distribution, through which products are introduced and delivered to final buyers.
Marketing intermediaries include several parties. They comprise agents, retailers, and wholesalers. Agents help companies find customers.
Meanwhile, logistics companies provide warehousing and transportation services to assist companies in storing and moving goods from their origins to their destinations.
Then, there are marketing services companies such as advertising and market research companies. Advertising agencies help companies to increase exposure to consumers in target markets, capture their attention, gain interest, and induce purchase action.
Competitors are happy when the company fails. They can adopt aggressive strategies or tactics to beat the company. Thus, their success is a failure for the company.
Companies exist to serve customers to satisfy their needs and wants. Satisfying needs and wants is insufficient for success because satisfaction is a relative value. Satisfaction depends on how well the company provides value to consumers compared to competitors.
Thus, because it targets the same customers, a company is successful if it delivers higher customer value and satisfaction than its competitors. Customers prefer the company’s products to competitors.
For this reason, companies not only have to adjust to changes in customer needs and demands. However, they have to do it better than their competitors. And they at least meet consumer expectations or even exceed them.
The public has an interest in companies, both actual and potential. On the other hand, they can also influence companies to voice their interests. As a result, they have the potential to impact the company’s ability to achieve its objectives.
The public includes the following types:
- Financial public
- Media public
- Government public
- Citizen-action public
- Local public
- General public