What is PESTLE Analysis
PESTLE Analysis also is known as PEST analysis is a marketing concept and business analysis tool used to analyze external environment (macro environment factors) of a business. The analysis is helpful in decision making and can assess the current and future influences on your projects, product and services.
What PESTLE Stands for
- P for Political
- E for Economic
- S for Social
- T for Technological
- L for Legal
- E stands for Environmental
By conducting successful external environmental analysis organization can maximize business opportunities and minimize threats. The analysis should be repeated every 6 months to analyze any changes in the external environment. Business organizations must respond to changes if they want cost leadership, differentiation and competitive advantages in the industry.
While conducting the PESTLE Analysis of a business, following question must be kept in mind by marketers
- What are the Political factors in a country and how they affect the industry
- What are the existing economic factors how they affect the industry
- How cultural determinants are in the society and how they affect the industry
- What are the changes in technology, any innovation can influence product demand
- What are the current regulatory measures and how changes affect the marketing environment
- What are the environmental considerations and how they affect business
Each factor may have different level of importance and may differ industry to industry. Apart from this, every business should do PESTLE analysis because it is crucial for the business success. This framework is not only to understand the market but to use this tool for strategic planning, marketing management and product development. I must say; this tool influences strategic management by monitoring the factors and seeking opportunities.
Le us discuss each pestle factor in detail
This is how a government policy intervene the economy and industry. For example, government may impose new taxes which not only affect consumer buying power but also affect profit after tax. Political factors include political stability, lobbying and pressure groups, corruption level, bureaucracy, trading policies, fiscal policy; bureaucracy may affect the business environment.
Business must understand political determinants and anticipated future change and respond to political changes. They must adjust their marketing strategies accordingly.
Economic factors affect business environment includes inflation, interest, disposable income, international trade and international exchange rate. For Example, due to inflation the product and services prices increase which affect consumer buying power because their income remains constant. Another example is the interest rate; this factor affects business and consumer as well. Financial institutions provide financing facility. If they charge higher interest rate companies will face difficulties with respect to payback and price strategies.
Socio-Cultural factors mean cultural aspects, attitude towards saving and investment, family size and structure, population growth rate, behaviors and beliefs of both society and individuals that affect the demand for products and services of a company. For example, in the western world, the buying trends are high during the Christmas and Holiday season.
Technological Factors. Today innovation in technology may greatly influence operations and marketing strategy of a company both negatively and positively. How companies spend on research and development, how access to new technology and what are the communication and internet infrastructure of an organization.
For example, many organizations opt for mobile technology for advertisement to reach out target audience. Today internet connectivity is making people crazy that’s why mostly business like traditional telephone companies and publishers should reconsider their offers to stay in the business. Cybercrime is another issue for those already using innovative technology.
Legal factors are all the current and impending governments’ law, legislation which affects the business environment. Business managers must consider both national laws and international laws where operates business while performing business environmental analysis. Other factors include consumer protection laws, regulatory obligations, anti-trust and labor laws, safety standards and data protection.
Environmental factors also known as ecological factors are those that affect the surrounded environment. Other factors include Environmental regulations for pollution, waste management, global climate change, recycling and weather. A good example is the permit requirements. Many times, companies involved in operation which may affect their surrounding environment must file for operating. This allows government agencies to regulate the business activity according.
PESTLE is one of the variants of PEST Analysis. It can be used by marketers with other business analysis tools like SWOT Analysis, MOST, CATWOE, MoSCow, Value Chain Analysis and Porter’s 5 Forces to have a better understanding of both marketing internal and external factors.
While conducting PESTLE analysis, it is important for companies to understand the scope of each factor in detail. The most affordable method is to use templates and gather relevant data using internet and government websites.