PEST ANALYSIS

Author: Andrianna Zachari (Student Msc International Marketing, The Claude Littner Business School, University of West London).

P

est analysis (political, economic, social and technological) describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Basically, a PEST analysis helps you determine how these factors will affect the performance and activities of your business in the long-term.

      It is often used in collaboration with other analytical business tools like the SWOT

analysis and Porter’s Five Forces to give a clear understanding of a situation and

 related internal and external factors.

What exactly these tools means and how we use them:

è    POLITICAL – Here government regulations and legal factors are assessed in terms of their ability to affect the business environment and trade markets. The main issues addressed in this section include political stability, tax guidelines, trade regulations, safety regulations, and employment laws.

è  ECONOMIC –Through this factor, businesses examine the economic issues that are bound to have an impact on the company. This would include factors like inflation, interest rates, economic growth, the unemployment rate and policies, and the business cycle followed in the country.

è  SOCIAL – With the social factor, a business can analyze the socio-economic environment of its market via elements like customer demographics, cultural limitations, lifestyle attitude, and education. With these, a business can understand how consumer needs are shaped and what brings them to the market for a purchase.

è  TECHNOLOGICAL – How technology can either positively or negatively impact the introduction of a product or service into a marketplace is assessed here. These factors include technological advancements, lifecycle of technologies, the role of the Internet, and the spending on technology research by the government.

      In a variation of PEST analysis there is PESTEL analysis: PESTEL analysis is an extension of PEST that is used to assess two additional macroeconomic factors. These factors are the Legal andEnvironment conditions that can have an impact on the company.

THE USE OF PESTLE ANALYSIS:

    Τhe first step in doing so is deciding what product, organization, or idea you want to analyze. Then, assuming it’s a business that you want to analyze, you should fully explore all of its facets to identify any external factors which are playing a part in how it operates and performs. Finally, you should attempt to categorize each of the factors. (ex: Starbucks PEST analysis)

   Don’t worry if one category has more entries than another, or if some factors don’t entirely fit into any category. This can happen depending on the nature of the business that you are analyzing.

In other words: PEST analysis measures the market potential and situation, particularly indicating growth or decline, and thereby market attractiveness, business potential, and suitability of access - market potential and 'fit' in other words. PEST analysis can be useful before SWOT analysis because PEST helps to identify SWOT factors..