How to Identify the Seven Macro Environment Forces Affecting Your Business
Your business is not alone in its environment. Like every direct or indirect competitor within your industry niche your business, is encircled by and operates within a vast framework of uncontrollable influences. This context is called the Macro Environment by marketing and strategic planning professionals. It consists of the key forces that shape your future opportunities, pose threats to the success of your company, and offer great opportunities for achievement if you can take advantage of them.
Although there are various approaches to complete an analysis of the macro environment forces affecting your business, I will focus on seven (7) distinct forces: competitive, cultural, demographic, economic, natural/physical, political, and technological.
Competitive Forces – rivalry among firms who serve your target market with similar products and services
One key measurement of the environment in which your business competes is the rivalry among firms competing with your business and selling similar products or services.All firms within your market niche are striving to increase market share, revenue, and profits. It’s crucial to know and understand your competition and their strengths and weaknesses.A measure of the competitive force is how hard is it to remain competitive and earn above average profits within your market niche.
One way to complete your analysis of the competitive forces is to group your competition into three categories: Direct Competitors, Indirect Competitors, and Substitute Product Competitors.
- Direct Competitors – Firms that offer essentially the same products or services targeted to your primary market and customers.These competitors often use similar marketing and supply chain models. A good example of direct competitors are the large original equipment manufacturers: FCA, Ford, General Motors, Toyota, Renault, and Volkswagen.
- Indirect Competitors – Firms seeking business from similar customers but offer different products or services that satisfy the same needs. For example, Pizza Hut competes indirectly with Chick-fil-A, but directly with Domino's.
- Substitute Product Competitors – They offer a product your customers could use as an alternative product to yours.A substitute product is one from another industry with similar features and benefits as your products.An example is internet service as a substitute for cable television.
Demographic Forces – population in terms of age, sex, race, occupation, location, and other statistics
Demographic forces relate to people and their makeup. Demographics are the average or typical characteristics of your target market — the people who buy your products or services. Knowing the demographics of current and potential customers is crucial.The following are examples of key demographic breakdowns: age, children, disabilities, education, employment status, gender, home ownership (length of residence, home size, mortgage), household income, location, marital status (head of household, spouse), occupation, ethnicity, and type of automobile.
People are the driving force in the development and growth of your business.Today, we have larger and more diverse demographic groups that offer more challenges to businesses than ever before.We are experiencing rapid world population growth and significant demographic change.This makes the analysis of what population groups are important to your company and your future marketing strategies.
You can use demographic segmentation and socioeconomic characteristics of your market niche to classify customers and determine an effective product development and marketing strategy.
An example of changing demographics: the number of Millennials, born between 1981 to 1996, is forecast to surpass baby boomers, born 1946-1964, as the largest U.S. adult generation sometime during 2019.
Economic Forces – factors that affect consumer buying power and patterns
Economic forces impact consumer purchasing power and spending patterns and influence the success or failure of businesses and products.It’s crucial to review how the economic factors impact your business.You should consider the following economic factors:rate of inflation (CPI – Consumer Price Index), level of interest rates, stock market trends, current U.S. unemployment, tax policies, and the fiscal policies of the federal government. Other factors include: Gross Domestic Product (GDP) and its growth rate, tariffs/trade policies, consumer sentiment, and the foreign exchange rate.
An example is the drastic change in the rate of inflation from the high of 12.3% in 1974 to the low of 1.9% in 2019.
Natural/physical forces – The Earth’s wide variety of natural resources such as forests, agricultural products, marine products, minerals, water resources, etc.
Natural forces in the macro environment are important because they are natural resources which are needed as production inputs for businesses. There are also the natural non-renewable resources: oil, coal, minerals, etc. that may impact the organization’s production. Businesses must consider the current changing environmental policies of the U.S. government. For example, air and water pollution are key issues to watch and keep track of the trends.
Renewable natural/physical resources: air, animals, biofuels, biomass, cultivated plants, geothermal energy, soil, solar energy, water, and wind energy.Non-renewable resources: aluminum, coal, gold, iron, oil, peat, phosphate rock, rare earth elements, sand, and uranium.
Some concerns within natural forces are shortages of raw materials, renewable resources, pollution, and increased intervention of federal and state government.
An example of natural/physical forces in the U.S. are petroleum, uranium, nickel, and coal reserves with 31.2% of the world’s overall proven coal reserves having the value of $30 trillion.
Technological forces – ones that create new product and market opportunities
Technological forces have become increasingly more important over the past decades, as they have created new product and market opportunities.The speed at which technology developments progress can be overwhelming for many middle market business owners. Often, as quickly as you install the latest technology, it’s outdated, and a new improved version is introduced that you must purchase. Additionally, your product line must be meeting the new technology demand of your customers. The more you can recognize and employ the latest advancements in technology the more successful you will be in continuing to keep existing customers, entering new markets, building your business.
When we think of technological forces, we think of wireless communication techniques, smartphones, tablets and so forth. These are examples of emerging product and market opportunities. However, they create business and market disruption issues when new technologies replace older ones.
Technological forces can cause incredibly rapid disruptions throughout our culture, business sectors, healthcare, science, and transportation.Technology forecasts offer many scenarios.How far will technology advance in 20, 30, even 50 years from now? How will it affect our lives? There are a vast number of technologies and scenarios predicted by science fiction writers, futurists, scientists, and technology experts.
Examples of new innovation in the technological forces: cell-smart phones, computers-laptops, internet and Wi-Fi/web surfing, iPod-iTunes, tablets, GPS, and cloud computing.
Political Forces – laws, governmental agencies, and groups that influence or limit marketing actions
Every business is impacted by the political environment.The impact comes from government agencies, regulations, laws, and overall public policy.Many business decisions must consider the political environment.
Changes in government policy, whether it is economic, legal, or social, can impact your business. An increase or decrease in taxes is a good example.Some tax policy changes increase taxes for some companies and lower it for others.
We’ve seen numerous examples in recent years where certain public policy decisions are interrelated. For example, decisions affect the economic environment, influence the socio-cultural environment, influence the rate of technological change, and impact labor laws.
You may feel that forecasting the political environment is one of the biggest guessing games in business.For the most part, you are right.Public policy changes are the hardest to predict in our business environment.
The following is a lengthy list of the public policy and political factors that may affect you and the success of your business: anti-trust laws, consumer protection, data protection law, discrimination law, education law, employment law, environmental protection, government involvement in trade unions and agreements, health and safety law, import policy and tariffs, intellectual property law, regulation and deregulation, and tax policy.
One other political environmental factor to consider is foreign country risk.Before you enter into the market of a foreign country, you must understand the legal and political environment.Are there any laws or regulations that may limit your ability to be successful?
An example of political changes is the U.S. tax policy under President Obama and President Trump.
Cultural Forces – factors that affect a society’s basic values, perceptions, preferences, and behaviors
The cultural factors affecting you and your business include belief systems and practices, customs, traditions and behaviors of people, fashion trends, and market activities influencing actions and decisions. Socio-cultural perspective, such as customs, lifestyles and values that characterize a society, are an important consideration. Some of the cultural factors you should consider include communication technology, creativity of people, lifestyle, participation in cultural events, popular actors, prevalent music styles, current fashion design forms, and social media influence.
The cultural environment encompasses every facet of our society and is an aggregate of many sub-cultures that have distinct beliefs and faiths. You have seen firsthand over the last several years that our society is not static. Instead, it’s ever changing and evolving.New demands are created, and old ones quickly fade away.
Culture changes when something new (say, railroads or smartphones) opens up new ways of living and when new ideas enter a culture (say, as a result of travel or globalization).As a successful business owner, you should consistently monitor new developments taking place and be ready to make changes to help your business meet customer demand within your industry niche.
Examples of cultural forces: 1) The median level of education in the U.S. affects the interests and refinement of your customers; 2) The current spoken language of your target customer base is a decisive factor in product labeling and advertising.
Summary
Your business is surrounded by a complex environment of uncontrollable macro environment forces. The more extensive you understand how these seven external influences impact your business, the greater chance you will have to keep ahead of your competition and be prepared to reduce new business risks as they arise.
Identifying and understanding the macro environment will give you an advantage over your competition and put you in a stronger position to plan an effective strategy to meet your short-term and long-term business goals.
It is my hope that your business will become more successful and profitable as you focus on the macro environmental forces impacting it.
I bring to you a wealth of expertise in business strategy, marketing, and environmental analysis. My deep understanding of the macro environment forces stems from years of hands-on experience in advising businesses across various industries. As a seasoned professional, I have successfully navigated the complex landscape of uncontrollable influences that shape businesses, providing actionable insights to enhance opportunities and mitigate threats.
Let's delve into the concepts presented in the article, "How to Identify the Seven Macro Environment Forces Affecting Your Business."
Competitive Forces: The article emphasizes the importance of analyzing competitive forces, highlighting the rivalry among firms serving the same target market. It introduces the concept of categorizing competitors into Direct Competitors, Indirect Competitors, and Substitute Product Competitors. Recognizable examples, such as automotive manufacturers, are used to illustrate these categories.
Demographic Forces: The discussion on demographic forces underscores the significance of understanding the makeup of the population in terms of age, sex, race, occupation, and other statistics. The changing demographic landscape, illustrated by the shift from baby boomers to Millennials as the largest U.S. adult generation, is presented as a crucial factor in shaping marketing strategies.
Economic Forces: Economic forces, influencing consumer buying power and spending patterns, are highlighted. The article suggests considering factors such as inflation rates, interest rates, stock market trends, unemployment, tax policies, and GDP growth. An example of the drastic change in inflation rates from 1974 to 2019 is provided to emphasize the dynamic nature of economic forces.
Natural/Physical Forces: The natural/physical forces section emphasizes the importance of natural resources as production inputs and the impact of non-renewable resources on organizations. It touches upon concerns such as shortages of raw materials, pollution, and government intervention. Examples, including the U.S.'s significant coal reserves, are used to illustrate these forces.
Technological Forces: Technological forces are presented as drivers of new product and market opportunities. The article discusses the rapid pace of technological advancements and their potential to disrupt industries. Recognizable examples, such as smartphones, tablets, and GPS, are used to highlight emerging opportunities and challenges associated with technological forces.
Political Forces: Political forces are described as laws, governmental agencies, and groups influencing or limiting marketing actions. The article emphasizes the impact of government policies, regulations, and public policy on businesses. A comprehensive list of political factors, such as anti-trust laws, environmental protection, and tax policies, is provided to underscore the complexity of the political environment.
Cultural Forces: Cultural forces are defined as factors influencing a society's values, perceptions, preferences, and behaviors. The article emphasizes the dynamic nature of cultural factors, including belief systems, customs, fashion trends, and social media influence. Examples, such as the median level of education affecting customer interests, are used to illustrate the impact of cultural forces on businesses.
In summary, the article provides a comprehensive overview of the seven macro environment forces affecting businesses, showcasing a deep understanding of each concept. By recognizing and understanding these forces, businesses can gain a competitive advantage and formulate effective strategies to achieve short-term and long-term goals.
