Updated: Mar 15
First and foremost let define what is a PESTEL analysis and then why has a business you need to conduct one.
A PESTEL analysis is a framework or tool used by marketers to analyse and monitor the macro-environmental (external marketing environment) factors that have an impact on an organisation. The result of which is used to identify threats and weaknesses which is used in a SWOT analysis.
Pestel stands for Political, Economic, Social, Technology, Environmental and Legal. We are going to look a bit more into each criterion and why it's important to conduct a PESTEL analysis prior to conduct a SWOT analysis for your business.
It is very useful to conduct A PESTEL analysis prior to starting up your own business or if you have an existing business, has it would give you a strong indication of the impact the criterion has on your business depending on the industry you decide that you want to start up a business or currently operating if you would require any legal or political standard that you will need to abide by and other important factors which can affect your startup or your business.
Let delve into each criterion:
Political Factors: These are all about how and to what degree a government intervenes in the economy. This can include – government policy, political stability or instability in overseas markets, foreign trade policy, tax policy, labour law, environmental law, trade restrictions and so on.
Political factors often have an impact on a business and how they do business. Businesses need to be able to respond to the current and anticipated future legislation and adjust their marketing policy accordingly. (example of this Brexit, COVID19)
Economic Factors: Economic factors have a significant impact on how an organisation does business and also how profitable they are. Factors include – economic growth, interest rates, exchange rates, inflation, disposable income of consumers and businesses and so on.
These factors can be further broken down into macroeconomic and microeconomic factors. Macro-economical factors deal with the management of demand in any given economy.
Governments use interest rate control, taxation policy and government expenditure as their main mechanisms they use for these Micro-economic factors are all about the way people spend their incomes. This has a large impact on B2C organisations in particular.
Social Factors: Also known as Socio-Cultural factors are the areas that involve the shared belief and attitudes of the population. These factors include – population growth, age distribution, health consciousness, career attitudes and so on. And you also include the Social Media movement and belief, plus social technology advancement and innovation.
These factors are of particular interest as they have a direct effect on how marketers understand customers and what drives them.
Technological Factors: We all know that we entered the digital age and how fast technology changes the face of business and how this impacts the way we market our products or services. With the boom of Social Media Platform, apps development, and mobile phone are used for business deals these days it a commodity and a way of conducting business nowadays.
Technological factors affect marketing and the management thereof in three distinct ways:
1. New ways of producing goods and services
2. New ways of distributing goods and services
3. New ways of communicating with target markets
Environmental Factors: These factors have only really come to the forefront in the last fifteen years or so. They have become important due to the increasing scarcity of raw materials, pollution targets, doing business as an ethical and sustainable company, carbon footprint targets set by governments (this is a good example were one factor could be classed as political and environmental at the same time).
These are just some of the issues marketers are facing within this factor. More and more consumers are demanding that the products they buy are sourced ethically, and if possible from a sustainable source.
Legal Factors: Legal factors include - health and safety, equal opportunities, advertising standards, consumer rights and laws, product labelling and product safety.
It is clear that companies need to know what is and what is not legal in order to trade successfully. If an organisation trades globally this becomes a very tricky area to get right as each country has its own set of rules and regulations. So it is best to conduct market research so to speak doing your homework to ensure that you are not breaking any laws prior to starting your own business or conducting your business.
The latter is the explanation of each criterion, hence you can clearly see that a PESTEL analysis is a very useful tool to determine the steps you have to take to conduct business in your chosen industry to remain legal and ensure that your company can be sustainable in the current economic climate, the technology involves for your business sustainability or product developments, consumers and government influences, plus environmental-climate can make or break your business.
It is important to look at all these factors which can either affect or benefit your business, once you conduct a thorough in-depth PESTEL analysis you can then proceed to conduct a SWOT analysis as it is important to incorporate a SWOT analysis within your PESTEL and if you are a conscientious business and care about the processes of your business the importance of PEST analysis in strategic management and in marketing strategy become relevant to your overall growth strategy.
Also using Maslow’s hierarchy in your Marketing is very good. Maslow is the creator of the Maslow hierarchy a specialist in human behavioural psychology. The hierarchy was first developed to help explain the connection between basic human needs and human desires.
Maslow's pyramid contains 5 criteria which are described below:
These are the underlying needs we as humans can’t live without. E.g. Food, water, sleep, oxygen etc.
We all need to feel safe. Whether that be physically, financially or job security and health.
We all look for social connections in friends and family.
We all desire to have respect and be respected by others, this includes self-esteem, confidence and a sense of self-achievement.
This is realising one’s full potential and this will differ from person to person. This is the highest level on the hierarchy and what we are all striving for.
If marketers know the wants and needs of their target market (which every good marketer should!) then this can be used as a selling point to influence sales.
A great deal of research is undertaken to segment, target and position (STP) customers by various criteria such as demographics, social class, geographic and so on. From this marketers will have a very specific idea about who their target consumers are and tailor their marketing strategy accordingly.
For example, a sweet manufacturer targeting young families is more likely to focus on young people and children in their advertising campaigns and also on the cost of making their sweet healthy for consumption and abiding by legal and governmental regulation.
It is important to note that your target market’s level or needs and desires may not stay the same, especially in times of political and economic change. Therefore remember to keep your marketing strategy up to date and relevant.
A PESTEL analysis is a very important tool and it helps you to determine the steps you should take in starting up or conducting your business and the bases for your SWOT analysis.
Also using Maslow's pyramid in your marketing enable you to treat your customers correctly and accessing the right target market for your product or services by segmenting your market accordingly and your promotional adverts targeted to the right group of consumers for your products or services.
It also helps you to provide what your customers need and wants; leaning towards being a business solution orientated for their customers.
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