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Understanding the Micro-environment
So, let’s begin with the basics. A firm’s micro-environment consists of actors and factors close to a company that have a direct impact on its ability to serve its customers. This typically includes:
- The company itself
- Its suppliers
- Marketing intermediaries
- Customer markets
- Competitors
- And publics
Key Components of a Micro-environment
The company, in itself, forms the internal environment. It refers to all departments like marketing, finance, human resources, etc. which influence a firm’s marketing decisions.
Suppliers are external but they’re also important players in the micro-environment because they provide resources needed to produce goods or services.
Marketing intermediaries help the company promote, sell, and distribute its products. These include wholesalers, retailers, and advertising agencies.
The customer markets can be consumer markets, business markets, government markets, or international markets. They’re at the heart of the micro-environment.
Then, there are competitors who directly affect a firm’s marketing decisions.
Finally, the publics include media, government, citizen-action groups, and more. They may affect a company’s ability to achieve its goals.
Why is the Micro-environment Important in Marketing?
Having looked at the components, you may wonder, why is the micro-environment important in marketing?
Creating Value
A firm’s micro-environment helps it create value for its customers. By knowing what resources are available or what the competitors are up to, a firm can innovate and deliver better products or services.
Understanding Customers
The micro-environment is like a mirror reflecting the customers’ needs and wants. By looking at it, a firm can accommodate these in its marketing strategy.
Staying Ahead
Keeping an eye on the micro-environment also helps firms foresee changes in customer demand, market trends, and competitor strategies.
Risk Reduction
Understanding the micro-environment can help a company identify potential threats and act accordingly to mitigate risks.
How the Micro-Environment Impacts Marketing Decisions
Just like pieces of a puzzle, different micro-environment factors interact to give the complete picture of a company’s business landscape. The marketing strategies need to fit into this picture perfectly to create value and satisfy the customers.
Your Supply Chain
Suppliers are the companies that provide the raw materials, components or services that the business needs to run its operations. They play a vital role in a firm’s micro-environment.
Collaborative relationships with suppliers can strengthen marketing efforts. For instance, if a clothing retailer has a good relationship with its textile supplier, the supplier may offer early access to new fabric technologies. This can benefit the retailer’s marketing strategy by allowing it to market new product lines ahead of competitors.
Leveraging Marketing Intermediaries
Marketing intermediaries are firms that help the company to promote, sell and distribute its goods to end-users. They include resellers, physical distribution firms, marketing service agencies, and financial intermediaries.
Intermediaries can contribute valuable customer intelligence and market insights that are crucial to shaping effective marketing strategies. By keeping communication lines open and promoting shared goals, companies can leverage intermediaries to reach more customers and generate higher sale volumes.
Responding to Customer Markets
Customer markets are the end users of a product or service. Businesses must pay close attention to these markets because they’re the source of the company’s revenue. Understanding customer needs, preferences, and behavior patterns can guide a firm’s marketing efforts.
It’s not enough to just know who the customers are; a business must also understand why they make the decisions they do. This way, marketing messages can be tailored to appeal to the motivations and needs of the target market.
Staying Informed about Competitors
A key aspect of marketing strategy is differentiating a company’s products or services from those of its competitors. In order to do that effectively, a business needs to be aware of what those competitors are doing.
Regular competitor analysis and benchmarking can help a company fine-tune its marketing strategies and maintain competitiveness.
Engaging with Publics
Publics refer to any group that has an actual or potential interest in or impact on a company’s ability to achieve its goals. Publics can include financial, media, government, citizen-action, and local publics. Understanding these publics can help shape the tone, timing, and type of communication a company uses in its marketing strategy.
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Competitive Analysis
Understanding competitors is crucial for several reasons.
Helps identify market gaps and opportunities
By scrutinizing your competitors, you can identify the areas they are missing out on, unfulfilled wants of the consumers, or new offerings you can introduce to upstand the market leaders.
Aids in benchmarking your own firm
Comparing products, services, and tactics with those of competitors can help you identify your firm’s strengths and weaknesses. This realization can greatly assist in setting your firm’s strategic direction.
Equip with knowledge to react quickly
A steady eye on competitors enables you to anticipate their moves and react effectively and timely. This responsiveness can be a true game-changer in a highly competitive market.
Enhances understanding of industry trends
Competitive analysis forces you to keep an eye on the industry, which can make you privy to emerging trends or shifts before others, allowing you to act proactively.
Helps attract and retain customers
Knowing what your competitors are up to can help you attract their customers and retain yours by ensuring your firm stays ahead in its offerings and customer satisfaction.
Informs about potential threats
Recognizing where competitors pose a threat can help you take appropriate action to mitigate those risks.
Competitor Assessment Tools
For an effective competitive analysis, some established methods and frameworks might help.
SWOT Analysis
This method allows firms to identify their own Strengths and Weaknesses and the Opportunities and Threats posed by their external environment, including competition.
Porter’s Five Forces
This framework helps reveal where power lies in a situation, providing a firm with an understanding of the current competitive position, and how it might change.
Competitor Array
This tool helps analyze competitors in terms of key success factors in the market.
Strategic Group Mapping
This analysis provides a graphical representation of where competitors stand in the marketplace.
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Some Examples of the Micro-Environment Impact on Marketing
Adjusting to Industry Climate Changes
Kodak, once a globally revered camera manufacturer, learned this the hard way. The onslaught of digital photography blindsided them.
In contrast, Fujifilm, seeing the shift, diversified its product range. They now thrive in industries ranging from cosmetics to LCD displays.
Building Bridges in Your Supply Chain
Many companies survive by reducing their supplier’s prices. Apple, however, involved their suppliers in the innovation process. As a result, they received state-of-the-art components that other mobile manufacturers could only dream of.
Optimizing Your Intermediaries
When Amazon entered with its aggressive e-commerce platform, things changed. They harnessed the power of internet as an intermediary to bridge the gap between customers and themselves. Amazon embraced change, leading to momentous success.
Respecting Your Customer Markets
Starbucks knows a thing or two about responding to its customer markets. Once upon a time, it was just a single, small coffee shop.
Understanding its micro-environment allowed it to morph and evolve into the coffee empire we know today. Its secret? Simple. Listening to their customer’s everchanging needs, delivering tailored experiences, and adopting different strategies for different regions.
Keeping Tabs on Your Competitors
Ever heard of the term ‘keeping your friends close and your enemies closer’? This can be applied to business.
Look at Samsung. They observed and learned from competitors, which helped them identify gaps in the market and gain significant advantages. Additionally, Samsung used these insights to create better customer value, and voila! They managed to stay a step ahead and become industry leaders.
Engaging Publics: Everybody’s Business
Never underestimate the power of the public’s perception. International fast-food chain McDonald’s learned this lesson when critics voiced concerns about its food’s nutritional value. As a result, they launched a transparency campaign, revealing nutritional facts about their food.
This proactive engagement turned the tide, bolstering their public image. In this age of social media, public opinion can make or break businesses.
Strategic Understanding of Competition
Understanding the competition serves kind of like a SWOT Analysis.
Netflix, a pioneer of the online streaming industry, executed this brilliantly. They recognized the potential threat of Amazon Prime and Hulu and swiftly responded with its original content, a strategic move that set them apart from the competition.
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