PEST Analysis in Marketing: Template, Examples & More

When you are trying to decide if an idea or strategy is feasible for your business, you need to consider all the factors that can impact your business, both positively and negatively. You will need to define the pros and cons of a project or idea - things that make your success and failure. It’s time to do a PEST or PESTLE Analysis.

The first introduction, PEST is an acronym for 4 main factors:

• Political
• Economic
• Social
• Technological

In this article, you will get to know everything about a PEST Analysis and how to use it for your business.

What is PEST Analysis?

Definition

A PEST Analysis, also known as PESTLE, PESTEL, PESTLIED, STEEPLE, SLEPT, and LONGPESTLE, is a strategic planning method that helps business or organizations assess their major external and internal factors influencing their operation.

PEST Analysis stands for Political, Economic, Social, and Technology - the four central areas to this method. PESTLE is a popular variation of the PEST analysis format, including two additional aspects: Legal and Environmental.

A PEST analysis is used to explore external factors that could impact a company’s viability and profitability or an organization. Generally, it’s about drawing on a big picture of opportunities and threats that a company can face by assessing and analyzing four major aspects: political, economic, social, and technology.

A PEST analysis is usually used in conjunction with SWOT analysis; however, these two tools focus on different aspects.

Note: Variations of PEST Analysis:

• PESTLE/PESTEL: Political, Economic, Social, Technological, Legal, Environmental.
• PESTLIED: Political, Economic, Social, Technological, Legal, Environmental, Demographic.
• STEEPLE: Social/Demographic, Technological, Economic, Environmental, Political, Legal, Ethical.
• SLEPT: Social, Legal, Environmental, Political, Technological.
• LONGPESTLE: Local, National, and Global versions of PESTLE (best for multinational organizations.)

Now, let’s study each individual factor of PEST analysis in detail:

4 Elements of a PEST Analysis

Before you jump ahead and start using this analysis, it’s better to understand what four significant factors in this analysis signify.

Political (P)

Here you assess the government regulations and legal factors in terms of influencing the business environment and trade markets, which significantly affects your business operation. Some main issues that need to be considered and clarified in this section may include property rights, political stability, tax guidelines/changes, safety regulations, trade regulations, and employment laws. You should come up with and answer questions like “Could any pending legislation or taxation changes affect your business, either positively or negatively?” or “Are there any business legislation and trade laws changes that make your operation off the line?”

A PEST analysis delves into various political factors that can significantly impact businesses. These factors include:

• Government policies: This includes policies from local, national, and international governments. Examples are tax laws, environmental regulations, labor laws, trade policies, and foreign policy, all of which can directly impact a business’s expenses, operations, and market access.
• Political stability: Unstable political climates, with frequent government changes, unrest, or conflict, create uncertainty and discourage business growth. In contrast, a stable political environment with predictable policies builds confidence and promotes investment.
• Government leadership: Government leaders’ views impact business practices. For example, an environmentally focused government might tighten regulations for polluting industries or incentivize sustainable practices.
• Trade restrictions and reforms: Shifts in trade agreements, tariffs, and import/export rules can impact international businesses. Higher trade barriers restrict access to foreign markets, while lower ones create new opportunities.

Economic (E)

Economic factors have a significant impact on how an organization does business and also how profitable they are. These include inflation, economic growths, exchange rates, interest rates, taxation policy, unemployment rate, policies, etc. Through these factors, businesses can assess and examine factors that could impact their company. You will need to answer questions like “How is the current economy? Is it growing, stagnating, or declining?”

A PEST analysis delves into various economic factors that can significantly impact businesses, including:

• Economic growth: The overall growth rate of the economy, whether it’s experiencing expansion, stagnation, or recession, influences consumer spending, investment levels, and business profitability.
• Inflation: The rate at which prices of goods and services rise, impacting business costs, consumer purchasing power, and investment decisions.
• Interest rates: The cost of borrowing money, affects businesses’ access to capital for investment and expansion.
• Exchange rates: The value of one currency relative to another, influencing import/export costs, international trade competitiveness, and overseas investment decisions.
• Consumer spending: The level of spending by individuals, impacting demand for products and services and influencing business revenue and profitability.
• Unemployment: The rate of people without jobs, impacting consumer spending power and potentially affecting the availability and cost of labor for businesses.
• Taxation: The level and structure of taxes levied by the government, impacting business costs and profitability.
• Access to credit: The availability and cost of credit for businesses and consumers, influencing investment, spending, and overall economic activity.

Social (S)

Also known as sociocultural factors, social factors are the factors that enable businesses to analyze and understand its socio-economic environment of their market, including customer demographics, lifestyle attitude, career attitude, population growth, religious belief, cultural limitations, ethnic background, location, and education. Through these factors, businesses can identify their customers’ needs and what brings them to their market or products for purchase. Then, they can easily gauge the potential size of the market. Ask yourself questions like, “Are there any socio-cultural factors that could drive change for your business?”

A PEST analysis explores various social factors that can significantly impact businesses, influencing consumer behavior, market trends, and even a company’s operations. Here are some key social factors:

• Demographics: This includes population characteristics such as age, gender, income, education level, and family size. Understanding these demographics helps businesses tailor their products, services, and marketing strategies to specific target audiences.
• Cultural values and attitudes: Societal norms, beliefs, and preferences can influence consumer buying habits, communication styles, and even workplace dynamics. Businesses need to be sensitive to these cultural factors to avoid cultural insensitivity and ensure successful market penetration.
• Lifestyle trends: Changing lifestyles, including work-life balance preferences, increased focus on health and wellness, and growing environmental awareness, can impact consumer demand for specific products and services. Businesses need to adapt their offerings and marketing strategies to align with these evolving trends.
• Consumer preferences: Shifting consumer preferences and buying habits, such as the rise of online shopping, ethical consumerism, and demand for personalized experiences, can necessitate adjustments in business models, marketing strategies, and product development.
• Social media and internet usage: The widespread use of social media and the internet plays a crucial role in influencing consumer behavior and brand perception. Businesses need to leverage these platforms effectively to reach their target audiences and build brand awareness.

Technological (T)

Technological factors include the technology changes, innovation, and advancements that may positively or negatively affect your businesses. With these factors, you can identify new technologies, adapt them to put your company on the fast track to achieving its goals and which technology gets obsolete to eliminate.

A PEST analysis explores various technological factors that can significantly impact businesses, influencing their operations, products, services, and overall competitiveness. Here are some key technological factors to consider:

• Emerging technologies: The rise of new technologies like artificial intelligence, automation, robotics, blockchain, and the Internet of Things (IoT) can revolutionize entire industries. Businesses need to be aware of these emerging technologies and assess their potential impact on their operations, products, and services to remain competitive.
• Rate of technological change: The pace of technological advancement is constantly accelerating, and businesses need to be adaptable to keep up. This includes investing in research and development, staying up-to-date on industry trends, and being open to implementing new technologies that can improve efficiency, enhance products, or open up new market opportunities.
• Access to technology and infrastructure: The availability and affordability of technology and infrastructure, such as high-speed internet, cloud computing, and advanced software, can significantly impact a business’s ability to innovate, compete, and reach new markets.
• Cybersecurity threats: As technology dependence increases, so do cybersecurity threats. Businesses need to invest in robust cybersecurity measures to protect their data, systems, and operations from cyberattacks.
• Impact on communication and information sharing: Technological advancements influence how businesses communicate with customers, partners, and stakeholders. New communication tools and platforms can improve collaboration, increase transparency, and enhance customer engagement.

Why is PEST Analysis important to businesses?

Simple! It’s to succeed. That’s the ultimate goal of any business.

However, more specifically, businesses should run a PEST analysis because of its cost-effectiveness, thorough understanding of your business environment, alertness to threats, and the extensive exploit of opportunities. We’ll take you to more details about each of these benefits:

Cost-effective

It only takes your time to create and conduct a PEST analysis. Now that there are a lot of additional programs helping you on the fast track to complete your analysis in a breeze, the problems with time become more likely a piece of cake. Anyone can do a PEST analysis with a simple paper and pen in hand. Conducted by a team, your PEST analysis will be more thorough and objective with multi-angle evaluation; however, an individual can also do the analysis successfully.

A deeper understanding of business environment

PEST analysis will help you identify the direct and indirect environments affecting your business that could be unnoticed. You may not realize how your products work well in their current situation while being unsuccessful on another side of the country. PEST analysis enables you to have a big picture of all the external factors that affect your business, either positively or negatively.

Raise awareness of potential threats

A PEST analysis is useful alertness to potential threats that you might have to counteract due to the impact of factors in the macro-environment. The information that a PEST analysis gives you will help identify your existing or emerging competitors in your range. You can also anticipate future difficulties and quickly prepare to take action against them to minimize and eliminate their bad effect on your business.

A useful method to exploit opportunities

PEST analysis also enables you to identify and exploit opportunities. By understanding the wider business environment, you will be able to realize and take advantage of opportunities to remain competitive.

When should you use PEST analysis?

PEST analysis helps businesses assess external factors (political, economic, social, and technological) to make strategic decisions and identify potential opportunities or threats. Here are some specific use cases:

A big change in external factors

Rapid business shifts can be overwhelming. PEST analysis helps break down external factors (economic, political, technological, legal, environmental) to understand their impact and adapt your strategy. For example, it could predict how shipping delays (like during China’s Covid lockdowns) might affect your business.

Market Expansion

They use PEST analysis to understand cultural and economic factors in new places. It helps to see how cultures differ. Also, having someone who knows the new market can help make a plan for selling products while thinking about cultural differences.

For example, Pepsi’s ‘Come Alive with the Pepsi Generation’ worked in English-speaking markets but failed in China where it promised to bring back relatives from the dead. PEST analysis could have avoided this cultural mistake.

New product development

Developing a new product means doing a lot of research. This includes studying what people like to buy, how they spend their money, and figuring out who the perfect customer is.

By analyzing PEST factors, you can anticipate the external influences shaping your ideal customer’s buying decisions.

9 steps to perform a PEST analysis

PEST analysis is a strategic planning tool which helps businesses understand external factors affecting their performance. Let’s dive into how to do a PEST analysis in 9 steps.

Identify the analysis subject

• Begin by clearly determining the specific subject of your analysis you want to analyze.
• This could be a specific economic sector, a business idea, or a new product or service.
• Knowing the precise focus helps you determine where and what information to look for.

Determine the analysis purpose

• Clarify why you are conducting the PEST analysis.
• Are you going into a new market, changing an existing strategy, addressing a problem, or discovering potential market opportunities? This purpose will support your research.

Gather necessary data

Collect data systematically, dividing it into the four key areas of PEST:

• Political: Laws, regulations, government stability, and geopolitical factors.
• Economic: Inflation rates, interest rates, economic growth, and industry-specific data.
• Social: Demographics, cultural trends, consumer behavior, and social norms.
• Technological: Innovations, digital advancements, and technological disruptions.

Realize that these areas are often connected and influence one another.

Understand the political and historical background

• Investigate past events that have shaped the current state of the industry. Consider how ruling parties and their decisions have directly or indirectly affected it.
• Reflect on changes in legal regulations, taxation, and other political influences that might have impacted the industry.

Analyze economic statistics and trends

• Use widely available economic data to assess the impact of economic growth or recession on the industry.
• Compare the performance of similar businesses over the years to avoid repeating past mistakes. Look at critical indicators such as GDP growth rates, inflation, and employment levels.

Examine social relations and trends

• Study prevailing consumer behaviors, purchasing trends, and societal values. Gather insights from opinion poll reports and personal observations.
• Understand how demographic shifts and cultural changes can influence market demand.

Explore technological impacts

• Identify the technological solutions currently used in your industry.
• Consider recent innovations and advancements that could inspire your strategic development.
• Evaluate how appearing technologies might transform industry practices and customer expectations.

Identify relevant macro-environmental factors

• Distinguish the political, economic, social, and technological factors that have the greatest and least impact on your organization’s performance.
• Prioritize these factors based on their relevance and potential influence.

Assess future implications

• Determine how the identified factors will affect the company’s future development.
• Analyze potential opportunities and threats that may arise.
• Consider long-term trends and their implications for strategic planning.

Typical examples of a PEST Analysis

Example 1: Establish your own enterprise in the candle market

• Political factors: Regardless of the business type, compliance with regulatory requirements is essential. Selling candles requires adherence to strict standards regarding the substances used in production and accurate labeling of product characteristics. In addition, staying updated with any changes in regulations can prevent potential legal issues.

• Economic factors: The demand for scented candles highly increase during the pandemic, leading to a notable increase in sales. Although homemade candles may lack the brand recognition of larger companies, businesses can develop in local markets due to lower investment costs. Effective promotion and targeted marketing strategies can significantly enhance profitability. Moreover, the economic stability of the region can impact consumer spending patterns on non-essential items like candles.

• Social factors: Rising environmental consciousness has turned consumer preferences towards eco-friendly products such as soy candles, which are perceived as a sustainable alternative to paraffin candles. Despite this shift, paraffin candles remain popular due to their lower cost and wide availability. Businesses can leverage this trend by emphasizing the environmental benefits of soy candles in their marketing efforts.

Technological factors: The materials required for candle production, such as wax, essential oils, and wicks, are readily available and relatively inexpensive. Most of the necessary equipment, including microwaves, ovens, pots for heating wax, glass containers, jars, and kitchen thermometers, is likely already present in a typical household, minimizing initial expenditure. Furthermore, utilizing e-commerce platforms for online sales can streamline the purchasing process and expand the customer base. However, ensuring a user-friendly website and effective digital marketing are crucial for maximizing reach and sales.

In summary

When developing a comprehensive marketing plan, it is is crucial for promoting your business and raising environmental awareness. Regularly updating and improving your online store ensures seamless operation. In case of rapid growth and increased customer demand, consider hiring additional staff to meet legal requirements and maintain service quality.

Example 2: Publicly provided healthcare services

• Political Factors: The quality and accessibility of healthcare services are heavily influenced by the policies legislated by the government. Investments in this sector significantly enhance patient care quality, facilitate the acquisition of essential medical equipment and medications, and support the education and training of qualified healthcare professionals.

• Economic Factors: Economic conditions, such as interest rates, unemployment rates, and inflation, play a crucial role in shaping the healthcare sector. Unemployed individuals without health insurance are unable to access necessary medical care. Moreover, adverse economic conditions can affact nevatigavely medical personnel, leading to low wages, staff shortages, frustration, and burnout.

• Social Factors: There has been a noticeable shift in societal attitudes towards health, with a growing emphasis on fitness and healthy lifestyles. This positive trend alleviates the burden on healthcare systems by fostering a healthier population. Conversely, the rising interest in unconventional medicine can undermine trust in traditional medical practitioners and institutions.

• Technological Factors: Advancements in medical research, drug development, and the production of medical equipment are pivotal for healthcare progress. However, many medical institutions still grapple with non-integrated information systems, impeding efficient data collection and analysis. Additionally, the lack of specialized equipment in hospitals can affect the ability to save lives.

In summary

Investing in innovative technologies can reduce costs and enhance quality and the accessibility of healthcare services, including telemedicine, artificial intelligence, and medical research. Despite the challenges posed by limited funding in state-run institutions, prioritizing technological enhancements is essential. Furthermore, improving information systems is crucial for streamlining bureaucratic processes, thereby enhancing the overall efficiency of healthcare delivery.

Example 3. Establish your own enterprise in the clothing industry

• Political Factors: In the textile industry, issues such as exploitative working conditions still exist in many industrial factories, where adolescents are often forced into labor. Cases of abnormal working hours and substandard working conditions continue to violate basic human rights and employee rights.
• Economic Factors: The fashion sector not only provides substantial employment opportunities but also drives economic growth and development. Demand for products within this industry fluctuates in response to national economic conditions, consumer preferences, and income levels.

Social Factors: Media scrutiny increasingly highlights the detrimental impacts of fast fashion, advocating for measures to restrain its adverse effects. This movement extends beyond legal considerations of child labor to encompass broader environmental concerns and encourages consumer attitudes favoring sustainable consumption.

• Technological Factors: Online sales, which surged during the pandemic, have now become commonplace. This shift has expanded market reach and accessibility, particularly among demographics traditionally underserved by conventional retail channels.

In summary

To drive the clothing industry development, investments in technological advancements are paramount. This includes developing user-friendly websites and robust IT support systems to accommodate the surge in remote consumer engagement.

Efforts must also prioritize environmental sustainability, requiring stringent measures to decrease the adverse effects of the clothing industry on the environment. Concurrently, strategic marketing initiatives should foster awareness and promote responsible consumer behavior.

Lastly, urgent reforms are needed to uphold humane working conditions and eliminate illegal employment practices, safeguarding the rights and well-being of young workers.

FAQs

1. What are the economic factors in PEST analysis?

Economic factors within a PEST analysis encompass financial or economic aspects that could affect your business activities. They include:

• Political factors: Government regulations, stability, trade policies.
• Economic factors: Economic growth, inflation rates, exchange rates.
• Social factors: Demographic trends, cultural attitudes, lifestyle changes.
• Technological factors: Innovation, automation, technological advancements.

2. What is a PEST analysis diagram?

A PEST analysis diagram serves as a structure for recognizing potential political, economic, social, and technological shifts that could affect your business in the future. By conducting this analysis, you can proactively adapt your business strategies to keep pace with the constantly evolving external landscape.

3. How often should a PEST analysis be conducted?

The frequency of conducting a PEST analysis can vary depending on factors such as the industry, market dynamics, and business objectives. However, it’s generally recommended to conduct it regularly, at least annually, or whenever there are significant changes in the operating environment.

4. What are the limitations of a PEST analysis?

While PEST analysis provides valuable insights, it may oversimplify complex issues and overlook other important factors such as legal, environmental, and ethical considerations. Additionally, the analysis may be subjective and prone to biases based on the perspectives of those conducting it. Therefore, it’s important to use PEST analysis in conjunction with other strategic tools and approaches for a comprehensive understanding of the business environment.

The bottom lines

Running a business is not an easy task. You do not just have to deal with the problems within your company; external factors that impact your business’s operation and success also need to be taken into consideration. PEST Analysis is a useful tool to make this process easier. I hope that this article helps you understand PEST analysis to the fullest, and you can make an intuitive PEST analysis for your business. Thank you for reading.