Definition of 'Substitute'

A product or service that satisfies the need of a consumer that another product or service fulfills. A substitute can be perfect or imperfect depending on whether the substitute completely or partially satisfies the consumer. A consumer might consider Pepsi to be a perfect substitute for Coke, or Land O'Lakes butter to be a perfect substitute for Kerrygold Irish Butter. However, if a consumer sees a difference in these brands, he may see Pepsi and Land O'Lakes as imperfect substitutes, even if economists might consider them perfect substitutes.

Investopedia explains 'Substitute'

For a product to be a substitute of another good, it must share a particular relationship with that good. When a good's price increases, the demand for its substitute will increase because consumers will go looking for a cheaper alternative. Conversely, when a good's price decreases, the demand for its substitute will decrease. For example, margarine is a substitute for butter because a consumer can meet similar needs by using margarine. So, when the price of butter rises, the demand for margarine will likely increase.

Competitors

- someone who is trying to win or do better than all others especially in business or sports

- Organizations that produce goods and services that are similar to a particular organizations’ goods and services.

Example:

Petron Vs. Shell

Pepsi Vs. Coke

Potential Competitors – organizations that presently are not in the “environment” but could enter if they so choose.

- Rivalry between competitors is potentially the most threatening force that owners or managers deal with

- Strong competitive rivalry results in price competition and falling prices reduce access to resources and lower profits

Definition of 'Creditor'

An entity (person or institution) that extends credit by giving another entity permission to borrow money if it is paid back at a later date. Creditors can be classified as either "personal" or "real." Those people who loan money to friends or family are personal creditors. Real creditors (i.e. a bank or finance company) have legal contracts with the borrower granting the lender the right to claim any of the debtor's real assets (e.g. real estate or car) if he or she fails to pay back the loan.

Investopedia explains 'Creditor'

When creditors are notified of bankruptcy proceedings, they have a couple of options with respect to their claim against the debtor:

1. They can share in any distribution from the bankruptcy estate according to the priority of their claim. Most unsecured, non-wage claims come low on the priority list.

2. They can take the debtor to court and challenge a debtor's discharge (the right not to pay back) due to bankruptcy protection.

Six Microenvironmental Factors That Affect Businesses

You face six microenvironmental factors in your business activities, each made up of a self-contained microenvironment that stands alone but interacts with the others. Your workers, stakeholders and subcontractors or parts providers are three factors with a direct effect on your business. The other three -- the perception of your business, your competitors and the customers who keep your doors open -- have an impact that's not as direct but just as great.

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Employees

Employees exert an influence on your small business’s quality, operations and profitability through their activities. Major quality and production models, including Lean, Six Sigma and total quality management, or TQM, encourage employee leadership over mere management. An example of employee commitment is the self-directed employee task group. These groups encourage their members to learn more and perform to a higher standard. The members of these groups can be motivated by external forces, such as company incentive programs, or internal forces, such as the pride and satisfaction in work done well.

Suppliers

Your suppliers provide products or services you need to add value to your own products or services. Those parts or services must be delivered on time and must meet your specifications for quality. If these requirements aren't met, either your production falls off or your quality suffers. In extreme cases, such as Toyota's recall of cars built from 2009 to 2011 for a faulty accelerator, suppliers can cause you problems with the public perception of your products or services. In that instance, the stringent Toyota Production System, Toyota's version of Henry Ford's TQM program, was called into question, because Toyota relied on a single supplier for accelerators used in its vehicles.
Related Reading: Internal & External Factors That Affect Inventory Management

Media

Media can mean printed, televised or online media. When Toyota had problems with its accelerators, two things happened. First, it highlighted a quality problem that was inherent in the Toyota Production System: TPS relied on a single supplier for the part. The supplier's errors affected the overall quality of the vehicle. Second, a media firestorm ensued when the quality errors caused consumer deaths. In the end, the buck stopped with Toyota. The lesson every small business should take from this is that poor quality, even if it originates with those who supply your small business with parts, can become your problem.

Partners or Investors

One way you can improve your financial position is through selling a partial interest of your company to outsiders. These sales may be shares, if you are a corporation, or equity partnership, where the investors become your business partners. Both shareholders and equity partners are stakeholders in your business. Your profitability can influence their activities, and they can influence your management practices through their vote. Although shareholders represent a short-term financial gain for a company, their demand for profits and increasing control can affect your company’s employees, practices and products or services.

Competitors

Your competitors affect your business's profits by trying to take business away from you, just as you try to take away their business. Your competitors are a goad (annoy) to you, just as you are to them. Their activities affect your profits, but if you provide better products for a lower cost -- and possibly faster -- than your competition, you can compete with them in ways they may not be able to match. Therein lies your advantage: You're driven to provide a product that delivers more added value for your customers than that of your competitor.

Customers

The least controllable of the microenvironments affecting your small business is the one where customers live. Long-term customers may ask questions if you end up in the media for a problem as serious as Toyota's faulty accelerator, but their previous experience with your products or services means they're more likely to turn to you after the problem is resolved. New customers may be affected by any aspect of your business. It's up to you to attract new customers through your quality and ability to fulfill their needs.