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market economy
based on 
capitalism
contrasts with the centrally planned economy in which the 
state controls production. A feature of market economies is that many firms compete with each other to 
create a customer. This is a spur to innovation and marketing activities which are the distinguishing 
characteristics of business organisation. 
EXAM FOCUS POINT 
There is an article on the ACCA website entitled “Introduction to microeconomics” that is relevant to 
material in this chapter. 
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CHAPTER 4
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MICROECONOMIC FACTORS 
 
87 
Elements of the micro environment 
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. 
Therefore it includes not just current customers, but potential customers who may currently be served by 
another organisation. Thus, an important element in understanding the micro environment is 
competition
between organisations in order to: 

Win 
customers 

Obtain 
supplies 

Get access to the best intermediaries 
The micro environment is of general importance to the marketing process for several reasons. In general, 
the micro environment is the 
immediate or operational environment
; it drives the tactical responses of 
management on a daily basis. The marketer can utilise the marketing mix to influence and affect the 
stakeholders of a business.
Remember that the micro environment contains both 
actual
and 
potential
customers – management can 
use the marketing mix to 
convert
potential customers into actual customers; however, to do this requires 
an understanding of the needs and wants of those potential customers.