PEST Analysis in Marketing: Template, Examples & More in 2021
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:
In this article, you will get to know everything about a PEST Analysis and how to use it for your business.
Table of Contents
- What is PEST Analysis?
- Why is PEST Analysis important to businesses?
- How to conduct a PEST Analysis?
- How to use PEST Analysis in Marketing?
- PEST Analysis examples
What is PEST Analysis?
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:
The 4 major factors 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.
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 be off the line?”
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?”
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?”
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.
Additionally, for PESTLE - another variation of PEST analysis, there are two more Legal and Environmental factors.
Legal: discrimination laws, health, and safety laws, consumer protection laws, copyright and patent laws, etc.
Environmental: sustainability, weather, and climate changes, laws, and regulations regarding pollution and recycling, cultural attitudes toward being eco-friendly, natural resources and energy, laws regarding environmental factors, etc.
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:
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.
How to conduct a PEST Analysis?
You can form and run a PEST analysis in different ways. However, the basic process to have an effective PEST analysis can be shortened in the following five steps: understand, brainstorm, rate, inform, and take action.
Let’s go into each of them in details:
#Step 1: Understand PEST factors
Before you get started, it’s essential to understand each of the PEST factors: political, economic, social, and technological. This step is critically necessary if you have no idea about PEST or have never heard about this analysis. You need to know what they are and how they will impact your business.
#Step 2: Brainstorm
After you understand all PEST factors, it’s time to brainstorm all of them at a deeper level. You can hold a brainstorming session and gather your team members or people from different departments of your company to brainstorm themselves and compare ideas with each other. Remember to put your PEST analysis in good hands. During this brainstorming session, you and our teammates need to define and list specific PEST factors that can influence your business. Then, analyze and dissect them to draw a more crystal clear frame of your PEST analysis. Everyone should have a note and write down possible factors and come compared with each other. The discussion should be open-minded, objective, and fair to all parties involved.
#Step 3: Rank/Rate the factors
When you’ve done the brainstorming session, it’s time to rank these ideas according to their estimated levels of impact on your business. You can determine the criteria that tailor to your business’s specifications to rank these factors. Listen and adjust the ranking your teammates provide to diversify the input adding to your analysis. It can be considered a step to narrow down the list of your PEST factors to draw on a complete PEST analysis.
#Step 4: Inform your organization about your PEST analysis
If your company consists of many different shareholders, it’s necessary to inform them about your complete PEST analysis. It should be a part of the process as they need to be aware of these external factors that can impact your business. They need this information to know if their investment is on the right track and are there anything that could harm it. Your organization or company needs an intuitive awareness of these factors on your PEST analysis, not only those who are directly involved in making it.
#Step 5: Take appropriate action
Once you have completed your PEST analysis with the competency of your teammates, make the best out of this analysis for your critical business decisions. Each of the decisions you make later for your business regarding every aspect of your business should be under consideration of four main factors that you’ve figured out in your PEST analysis.
If you keep a tab on these factors, your strategies and processes will be up to date. You will quickly catch on to the changes in the outside and better prepare for the threats and growth opportunities.
How to use PEST Analysis in Marketing?
Now that you have a better understanding of PEST analysis, we’ll go into a specific area of its application: The role of PEST analysis in marketing.
Regarding marketing, a very generic and hot term that many businesses, marketers strive to master and succeed in it. It’s not about understanding the definition of “Marketing.” Marketing; in fact, encompasses virtually everything that happens between a business and its customers. If you want to delve deeper into marketing. You can do it after finishing this article or refer to this article as we’re going to talk about using PEST analysis in marketing. It’s a useful tool that intensifies your marketing efforts.
PEST analysis covers the external factors that simultaneously provide businesses with an all-around view of the external marketing environments that significantly impact your marketing strategy. Let’s look at each of the factors to see how it affects your marketing and what you can do to minimize the bad while redoubling the good:
Suppose you will implement social media marketing to promote your products or conduct a specific project on social media. One of the first things you need to do is find appropriate social media platforms to deploy your campaigns. It is one of the most critical steps. Still, another indispensable job is to think about the related problems and factors that can limit or step up your social media marketing.
For example, you want to target your products to the China market and start penetrating this market by building audiences’ interest via a Facebook or Youtube campaign. It’s plain as day that this is not the right move because Facebook and Youtube have been blocked in China. This is just an example to prove that the political views of a country can influence your marketing.
Key takeaways: You should consider the following:
- Overall political views of the country you deploy the campaigns
- Potential, robust, banned, social media platforms
- How political issues of a country can affect your brand and your marketing
It’s vital to assess the whole picture of the economic environment that your company fits into. It affects how you navigate your target market and how you position your products in the potential market. For example, you will need to answer questions and do the necessary research to determine your products’ most reasonable price that your customers will be willing to pay. In this situation, price comparison with other brands or competitors is indispensable.
Take this year’s economy as a case; it’s affected radically by the Covid-19 pandemic. Every business of all sizes has suffered from the lockdown effect; everyone has their own financial problems. Suppose you plan to launch a new product this time, but the price is too high that your customers with disposable income can’t afford. This leads you to consider lowering your prices.
Key takeaways: You should consider the following:
- The demographics of your target market
- Your target audiences’ economic situations
- Your competitors’ product prices
- Feasible sales and promotional campaigns to boost sales during a difficult time
You have many creative and unique ideas for your marketing, but if those ideas are not acceptable socially or within your target market’s country culture, you can’t use them. Believe me; you need to be careful before taking a stand when it comes to social beliefs and relevant cultural issues.
A real case for you, in 2017, Pepsi apologized for a controversial advertisement on Youtube that starred Kendall Jenner (a white woman) who gave a can of Pepsi to a police officer (a white man). This advertisement was accused of trivializing the widespread protests against the killings of black people by the police. Elle Hearns, formerly an organizer for Black Lives Matter, said that “The ad plays down the sacrifices people have historically taken in utilizing protests.” The Black Lives Matter is a social and political issue that businesses should consider when taking any movements.
The social or socio factors are much more extensive, so learn about them thoroughly not to embroil in any social issues.
Key takeaways: You should consider the following:
- Beliefs, culture, customs, standards, etc.
- Customers’ socio-economic status
- Access to the Internet
This factor will relate much to digital marketing in which you use technology to strengthen your marketing efforts. It’s important to consider how your website or app appears on different devices’ screens because your customers will access it from different devices, including desktops, smartphones, tablets, or wearables.
Key takeaways: You should consider the following:
- The responsiveness of your website (if yes) on different devices
- Where your audience accesses your website and the Internet
- Technology that helps make your customer experience better
- How can you use technology to save your time and money while pushing your sales?
PEST Analysis examples
|- Political instability and controversies affect the brand||- Competitive advantage in Asian markets
- Aggressive competition with emerging businesses
- Impact of the Covid-19 may result in decreasing prices
|- Sensitive social issues in the local culture can be a challenge
- Train and offer more jobs for refugees
|- Investments in Augmented Reality and Virtual Reality, development, and research to keep customers satisfied|
IKEA has a physical presence in over 41 countries worldwide. That the company abides by the regulations and laws of each country is critical to its development and success. One thing for sure: a friendly political environment will make the economy stable and create a great benefit for businesses. IKEA maintains good and stable relationships with the nations that create a friendly and healthy environment for the company to market its products.
Since China has been more open to international brands, IKEA has jumped at the opportunity to penetrate the China market 22 years ago. Since then, the company has made great strides in this local market and impacted the local consumers’ preferences and shopping habits. In the fiscal year ending in August 2020, IKEA announced that the company invested about $1.45 billion in China. The vice president of IKEA China revealed that IKEA remains committed to the Chinese market even though the Covid-19 pandemic has raged in this country. IKEA China expects to have a greater transformation in this market in 2021.
Everyone has been suffering from the pandemic, and it makes shopping habits change a lot. Purchases are more likely to be based on need rather than luxury. Consumers with a tight budget can’t purchase IKEA’s furniture as the price is too high. IKEA has a smart response to the situation. The company provides affordable products and lowers its prices to meet customers’ needs.
A multinational business like IKEA needs to understand the local culture before entering a new market. The company needs to provide excellent products and avoid offending social values, especially in the marketing material they use.
No matter careful they are, the company once has been embroiled in a social controversy about homosexuality. In particular, IKEA had to remove a same-sex couple from their magazine as homosexuality is still considered shameful in Russia though it’s widely accepted in many countries worldwide.
IKEA utilized technology to transform its paper catalogues into digital catalogues. Now customers can view their products and offerings online easily. This way saves a lot of paper for IKEA, making the process more environmentally friendly and cost-effective. Moreover, the IKEA website is also enhanced to bring a better customer experience. Customers can check the products, search for their needed items on the website, and place orders online quickly.
|- Political stability
- Limited trade restrictions and lockdown due to the Covid 19
|- Target middle and high-income customers to increase the purchasing power
- Target developing countries
|- Attract younger consumers with social campaigns
- Changing lifestyle and gender role
|- Leverage modern technologies to improve efficiency in manufacturing, research, and development|
Nike has been spreading its operation across the globe. Their manufacturing process takes place mainly in developing countries. That’s why the company needs to care about each country’s import and export policies to make the product distribution easier. Political incidents in Nike’s target countries and areas will significantly impact the company’s distribution and sales. To counteract any unexpected incidents, Nike has to strictly follow each country’s regulations and policies where the market they enter.
Nike has enjoyed an economy with high national income. The stability of the economy in the US, UK, and other European countries has created a robust economic environment for Nike. Nike and Adidas have aggressive competition in the shoe market, but in fact, Nike has a competitive advantage over Adidas as the strong US currency makes importing shoes from Japan easy. It will enable Nike to sell its shoes at a lower price than Adidas. Nike also does not miss out on any customer groups by penetrating the market with consumers of different income levels.
Nike is developing in a smooth social environment. The changes in customers’ needs and shopping habits due to the pandemic’s impact stimulate the changes in products to fit Nike’s customers. The company provides high-quality, affordable sports gear but still sticks to the market’s modern demand and trends. Nike also focuses more on the current youth’s self-health consciousness, which is a great root for creating health-care products and targeting this younger generation.
It’s good for Nike to invest more in research and development by utilizing new technologies. The company also catches up with the innovations in technology to design products that focus on health protection and improvements of the users, such as athletic equipment and apparel to reduce injury and improve comfort while remaining fashionable and trendy.
|- Political stability of developed countries
- Governmental activities that affect eCommerce
|- Economic stability of the developed market
- Effects of economic trends and changes
- Higher disposable income, especially in developed countries
|- Online shopping habits changes
- Increasing wealth disparity
|- Utilize technology for new faster-shipping methods
- Continuous development of new technological advancements
- Increasing cyber crime rates
Amazon offers an online catalog of products for customers all over the world. The company must abide by each country’s political and legal regulations. In relation, Amazon relies heavily on political stability and government support to implement, distribute, and make a profit. Immensely, Amazon has benefited from its government support to expand its brick-and-mortar presence in the U.S. However, this also leads to the emerging competition in the online market.
The economic changes and trends are considered the external factors affecting Amazon’s success in the remote or macro-environment. This enables Amazon to maintain a stable product retailing and distribution across different nations while not hurting its profit margins as the economic issues are minimized. Particularly, the higher disposable income in developed countries can boost the company’s financial performance, thereby creating opportunities for the company to expand its online retail business.
Sociocultural changes and trends can significantly impact the operation of Amazon in the market it penetrates. Consumer behavior has been changing rapidly. Nowadays, people are more inclined to get things done quickly, which is exactly what Amazon is offering to them. All the things will be delivered at their doorsteps. They do not have to go outside to get food or anything. This is convenient for people who can’t move a lot like the elderly.
However, the public also criticizes Amazon for making people lazy that may lead to some social and health problems. Many are concerned about the negative effects of online shopping in which it increases the foundational loss of human communications.
Amazon is all about technology. That’s what makes the company have a competitive advantage over its competitors. The launch of Amazon Prime in 2007 has proved its move in making a very rapid delivery system. Amazon Prime has been a huge revenue stream for the company ever since. The company has been constantly adding and refining technology that enhances and improves the efficiency and speed of their service.
|- Political and legal regulations of the countries where the company source the raw materials
- Political stability of the consumers’ countries
|- Economic conditions of the consumers’ countries
|- Generation transformation
- The rise in consumerism in green or environmentally friendly products
- Customer preferences
|- New innovative technology enhances customer experience
- Free wi-fi in the outlets attract customers
- Utilize mobility for customers’ convenience
Starbucks is a highly globalized brand that has a supply chain system across nineteen different countries. This helps Starbucks get the best source to produce its products. The point here is that the company has to abide by the regulations of the countries where the company buys raw materials.
Besides, Starbucks still benefits the most from its mother market - the US market. Therefore, the company needs to monitor the political stability within the country, especially in the current complex political status.
Because Starbucks imports raw materials from various countries, they have to be aware of the changes in import laws in each country that directly affect the importing activities. The company also needs to care about other economic factors, such as inflation rate, exchange rates, interest rates, and the changes in the consumer’s financial situation and buying power.
Consumers are more and more concerned about the products that are environmentally friendly and contributing to sustainability. Especially in the food and beverage industry, brands like Starbucks should put this factor at the center and put a lot of thoughts into it when implementing, producing, and distributing products. The company is trying its best to minimize the environmental impact by using usable cups and inspiring the community to reduce the effects of climate change.
Starbucks sticks to making coffee the world’s first sustainable products to improve the lives of at least 1 million people in the coffee communities in the world. The company commits to offering ethically sourced tea and produced sustainable products of the highest quality.
Utilizing new and innovative technology, Starbucks has made a lot of improvements in services at the cafe. From the initial process, there are various agricultural and biotech developments applied to push the growth and quality of the coffee plants. Technological advancements can also lead to significant labor and cost savings. Besides, Starbucks deploys free wi-fi service at the cafe shop and open online coffee stores to make it convenient for customers who adore online shopping and instant delivery.
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.