When we start thinking about factors that can affect our businesses, then there are a lot of variables which will need to be evaluated before taking a decision. PEST analysis is a framework that categorizes macro-environmental influences in strategic planning. These influences may include political, economic, social and technological forces often used in the environmental scope of this process. The goal of PEST analysis is to examine the overall impact of each of these categories (and the potential or real correlation with each other) on the business. The results are often used either to take advantage of potential opportunities and/or to make contingency plans for opposing threats when preparing business and strategic plans.

PEST Analysis helps organizations take better business decisions and improve efficiency by studying various factors which might influence a business such as political, economic, social, and technology.

PEST analysis helps in making strategic business decisions, planning marketing activities, product development and research.

External Environment consist both micro environment and macro environment

 

1. Micro environment consist all those factors close to the marketing environment and influences its operation and activities. For example, employees, competitors, partners, customers, public etc.

 

2. Macro environment consist 6 factors i.e. political, economic, social, technical, legal and environment also known as PESTLE factors. These are external factors and affect every business in the industry on broader view. If not responded, can badly influence the business.

 

Political Factors

These are all about how and to what degree a government intervenes in the economy. This can include –

Government policies

Political Stability or Instability

Risk of military invasion

Legal framework for contract enforcement

Intellectual property protection
Trade regulation & tariffs

Favored trading partners

Anti-trust laws

Pricing regulations

Taxation – tax rates and incentives

Wage legislation – minimum wage and overtime

Work week

Mandatory employee benefits

Industrial safety regulations

Product labeling requirements

Overseas markets

Foreign trade policy

Overseas markets

and so on.

It is clear from the list above that political factors often have an impact on organizations and how they do business. Organizations need to be able to respond to the current and anticipated future legislation, and adjust their marketing policy accordingly.

Economic Factors

Economic Factors take into account the various aspects of the economy, and how the outlook on each area could impact your business. These economic indicators are usually measured and reported by Central Bank and other Government Agencies.

Type of economic system in countries of operation

Government intervention in the free market

Economic Growth Rates

Interest Rates

Exchange Rates

Inflation

Comparative advantages of host country

Efficiency of financial markets

Infrastructure quality

Skill level of work force

Labor cost

Business cycle stage: (e.g. prosperity, recession, recovery)

Economic growth rate

Discretionary income

Unemployment rate

Inflation rate

Interest rates

Often these are the focus of external environment analysis. The Economic outlook is of extreme importance for a business, but the importance of the other PEST factors should not be overlooked.

Social Factors

Social factors securitize the social environment of the market. These factors include demographic characteristics of the population, values, culture, lifestyle. Cultural aspects also include-

Demographic

Class Structure

Entrepreneurial spirit

Attitudes (health, environmental consciousness)

Leisure interest

Political

Social organizations

Aesthetics

Education

Laws

Reference groups and families

 

Mostly, these factors are linked but each has a different effect on the consumer buying behavior. Socio-cultural factors have a great influence to develop and implement a successful marketing strategy of a company.

For example, nowadays, woman has a decision-making role in shopping and an integral part of marketing campaigns. A small business owner can develop a successful campaign, adopting focused advertising strategy by targeting women, moms, leaders and interest groups who has great influence in community.

Technological Factors

We all know how fast the technological landscape changes and how this impacts the way we market our products. Technological factors affect marketing and the management thereof in many distinct ways:

Recent technological developments

Technology’s impact on product offering

Impact on cost structure

Impact on value chain structure

Rate of technological diffusion