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PESTEL is a comprehensive tool or framework which stands for Political, Economic, Social, Technological, Environmental and Legal. It used in analyzing or monitoring macro environmental factors and their impacts on a company, organization or industry. It is frequently used in combination with other analytical business tool such as Porter’s Five Forces and SWOT analysis. These combinations of tools help to stamp out any loopholes in the marketing strategy as variety of fields are covered in them. There are other variants of PESTEL such as STEEPLED, SLEPIT and DESTEP which includes ecological, ethical, demographics and intercultural.
Competition is endless for every small and big businesses in today’s globalized world. While the notion of the so called ‘global village’ has its own advantages, however, there is pressure on every organization to stay ahead of the curve and to prevail in the rat race. And the business world has never remained stagnant as it undergoes rapid changes. To adapt to such changes there is a need for strategies that include smart planning, brainstorming, leveraging available tools and resources, and extensive R&D. Hence, there are several economic tools that the companies/organizations can leveraged on to come up with marketing strategies including PESTEL analysis.
New companies and businesses or those entering new or foreign markets are always cautious about the outcome of their new venture and how it will be received. PESTEL analysis gives a valuable insight on the external factors that have a sphere of influence in the business world. Business is not just about determining profit and loss anymore; there are other very important external factors now like the policies of government, the varying taxes of countries, environmental laws and varying laws on businesses, etc. PESTEL helps in meting out any situational changes or threat to the company by helping to form strategic planning and management that helps it in having an edge over others in the competition. Such analysis should be done every six months for it to remain effective.
Another reason why number three has significance is because it has distinct ends in English language, viz. 1st, 2nd, and 3rd whereas the rest like 4th, 5th, 6th, and so on do not have any significance. Even the average human brains weigh about three pounds and it is also divided into three basic units.
POLITICAL FACTORS IN PESTEL ANALYSIS: With the onset of globalization, business and governments are more interlinked than the older times. There are so many national and international governing bodies that have considerable influence in the business world directly impacting it. These bodies have stakes in the economy and hence, they intervene in it to further their own goals like welfare, development, etc. So this factor analyzes how and to what degree these governments intervene in the economy. This factor can also include- political stability or instability in overseas market, tax policy, labor law, government policy, foreign trade policy, corruption, trade restrictions and reform, tariffs and so on. Additionally, governments have sole power on framing policies for education, health and infrastructure which are always areas to factor in when assessing a new market.
ECONOMIC FACTORS IN PESTEL ANALYSIS: This factor includes economic growth, inflation rates, minimum wages, working hours, interest and exchange rates, unemployment, cost of living, credit availability and so on. It is an important indicator to probe the performance of certain economy. The assessment of this factor would lead to understanding not just the market but the consumers as well. For example, current costs of living of targeted consumers determine the demand and supply and purchasing powers of them which greatly affect pricing of products and services by the companies.
SOCIAL FACTORS IN PESTEL ANALYSIS: This factor represents the critical importance of understanding the consumers’ characteristics, behavioral pattern, belief and culture to customized products and services. The components of this factor include religious beliefs, income distribution, career attitudes, health consciousness, safety emphasis, population growth rate, age distribution, income statistics, employment levels, lifestyle attitudes and so on. Furthermore, it helps to understand and manage both the local workforce and promotional issues.
TECHNOLOGICAL FACTORS IN PESTEL ANALYSIS: Innovation of technology is imperative to determine a company or organization’s success. Any businesses that fail to morph themselves according to technological advances would automatically dwindle down as it affects the production and distribution of goods and services. But by keeping abreast on the incoming technological trend, any business can attain a strong competitive advantage and market share. This factor includes a number of activities such as research and development (R&D) activity, innovation, automation, technology incentives, improved quality of parts and ends product and technological awareness of the target market.
ENVIRONMENTAL FACTORS IN PESTEL ANALYSIS: This is relatively new and indispensable factor in today’s world which has come to the forefront of impacting and determining economy. The ramification of under regulated economic activities have snowballed the environmental protection laws and policies to be stringent. Due to this, any organizations or companies need to be mindful of them and to review such laws and policies as every country has different approaches to them. They need to be especially cautious on pollution targets, waste disposal laws, energy consumption regulation and carbon footprints set by governments. Other components of this factor include ecological and environmental aspects such as weather, cyclical weather, geographical location and environment offsets. Many companies have started adopting Corporate Social Responsibility (CSR) and sustainability to promote ethical practices.
LEGAL FACTORS IN PESTEL ANALYSIS: This factor overlaps with the political factor as both factors need to take into account laws and regulations of a country where the target market is. There needs to be a prior knowledge on impending legislation and policy changes that can have possible impact on the business of companies or organizations. It is important to know what is legal and what is not as different countries have different laws. This information will help the companies to function effectively and ethically. The list of this factor includes consumer protection laws, employment laws, antitrust laws, copyright and patent laws, discrimination laws and health and safety laws.
The primary advantage of this analysis is that it is easy to use framework and hence, is more likely to be implemented effectively. It is also cost effective as this analysis fairly takes only time and energy without spending any financial resources. Due to the nature of this analysis, it helps the company to take advantage of any new market opportunities that have opened up. It can also alert a company to cushion itself from any threat that may arise from time to time. Lastly, it increases the strategic thinking, cross- functional skills and expertise of any organization.
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