PEST Analysis

One of the most widespread tools used within Strategic Marketing is the PEST analysis which examines the various environmental forces in the macronenvironment and assists marketers in understanding how these forces may affect the organization competitiveness. PEST analyses the political, economic, sociocultural and technological forces which can in turn provide a helpful insight for potential opportunities and threats in the market so that firms can rapidly act upon them.

The number of macro-environmental factors in each of the elements of the PEST analysis is unlimited. In the discussion below we look into the most important factors that have to be taken into account, ye it is not an exhaustive list.

Political Factors

The first element of the PEST analysis examines the political factors that could influence the business world and in turn the organization since often the political landscape can be detrimental to the success of the organization. Some of the most common factors to be considered are:

  • Political stability or instability
  • Government regulations and legal issues
  • Local and Federal power structure
  • Corruption
  • Foreign trade policy
  • Tax policy
  • Trade restrictions
  • Consumer protection laws

Economic Factors

The next element of the PEST analysis looks into the overall economic forced that could reinforce or hinder the company’s success. Some of the most prevalent factors are:

  • Current economic trends
  • Economic growth rates
  • Interest rates
  • Monetary policies
  • Government intervention in the free market
  • Discretionary income
  • Efficiency of financial markets
  • Exchange inflation and exchange rates
  • Unemployment rates
  • Gross Domestic Product
  • Credit availability
  • Fall or rise of the middle class

Sociocultural Factors

Moreover, another element that falls under examination is the sociocultural factors, which include social attitudes and cultural trends within your target market. This will allow you to understand how consumer needs are shaped. This factor is influenced by:

  • Shared beliefs
  • Population growth
  • Lifestyle trends
  • Cultural taboos
  • Class structure
  • Leisure interest
  • Demographics
  • Family size and structure
  • Immigration

Technological Factors

Lastly, the PEST analysis looks into the role of technology in the business environment and how it can in turn affect the consumer purchase intent. As new technologies are making their entrance, this factor has to be regularly reviewed and monitored for upcoming changes. Some elements that have to be considered are:

  • Recent technological developments and emerging technologies
  • Rate of technological diffusion
  • Legislation on technology and intellectual property regulation
  • Research and Innovation
  • Consumer access to technology
  • Digitalization

Considerations

However, considering that the environment can change very quickly, the PEST analysis may not be the ideal tool for predicting the impact that PEST factors may have on the firm and thus may lead to wrong strategic decisions. This brings up the issue of cost since PEST analysis must be done regularly to overcome the barrier of the changing environment. It must also be noted that PEST analysis does not provide sufficient information and should be accompanied by other frameworks such as the SWOT or benchmarking analysis.

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