There are different internal and external factors that have a significant impact on business operations and performance which may include your brands and projects. In overall marketing environment, external factors are uncontrollable that’s why these factors are very crucial for businesses to understand.
Here is what you are looking for. Pest analysis is a strategic analysis tool for assessing external environment factors of a business. These external factors are outside the control of a business. These factors either opportunities or threats to your business.
PEST is the acronym of four letters Political, Economic, Social, Technological factors that affect the business operation. PEST Analysis technique is very useful for analyzing the external factors of a business and helps you.
- To find out opportunities and take advantage or threats as advance warnings
- To understand the changes in your business environment, so you can sort out your activities according to change in the marketing environment
- What project to start and what product to launch or Not, if things are not in your control
- It gives you a bird's eye view of a new business environment when entering new countries territories and markets.
In the following paragraphs, you will learn “How to Perform Pest Analysis in step by step process”
Step No. 1 – How to Understand Pest Factors
- Political factors include government tax policies and regulation, it may increase tax rate in a State and Country that may affect business.
- Government laws on competition in the marketplace is another political factor i.e. provide incentives to growing businesses and cut down incentives to regular business like yours.
- Is there any expected Elections on State and National Level and how it shifts government policies?
- Who are the upcoming contenders for power? What is their agenda on Business policy and regulation?
- What is the current and impending legislative changes
- What are the other political factors and when they might change
- What is the current disposable income of customer and how it can change it the upcoming years
- Currently, the economy is stable or not. It is growing economy, declining and stagnating economy
- Whether the exchange rate is stable or not. What is the tendency of fluctuation?
- What is the prevailing criteria of credit availability, how the credit criteria affect the business
- What the prevailing unemployment rate? Will it be easy to hire the desired staff required?
- You can consider many other factors according to the environment.
- Do you know about overall population, there is a growth or contraction in the population where you are operating?
- Know about social attitudes that might affect your business. Are there any noticeable socio-cultural changes in the environment?
- What is the level of education and health in the society you are operating? Are there any changes in this external environment factors and how it affects you?
- What are the religious beliefs and how it affects your business environment
- What is the trend in overall society habits about saving, investments and spending?
- Do you know any other social factors that might affect your business?
- Are there any innovative technologies your business could use?
- If you access new technology, how it benefits you by redefining your product or cut costs etc?
- How changing technology affect your customer base?
- What technologies your competitor is using that positively affect their products and services?
- What other technological factors you should consider?
Step No. 2 – How to Identify Opportunities
After all your environmental analysis what changes you have identified that are positive for your business environment. In the second step closely observe each change. How you can use these changes as opportunities that may redefine your product, increase customer base and cut costs. This will help you to enter new markets and expand your business.
Step No. 3 – How to Identify threats
You identified all those changes that affect your business positively. But on the other hand, some changes can also undermine your business. Once you understand the impact of changes (threats), you can avoid the issues or minimize the risk associated these threats. For example, you noticed that innovative technology can cut costs, you can adapt this change and can compete in a better manner.
Step No. 4 – Take Action
You have already identified opportunities and threats. Now its action time by taking advantage of identified opportunities and make them an integral part of your business plan. Apart from this, also consider identified threats and take necessary measures to minimize the intensity of associated risk.
If you want to better know the external marketing environment of your business, please perform pest analysis by following this step by step process on regular basis.