What is PESTEL Analysis? A Complete Overview!
The PESTEL analysis is part of marketing principles and is sometimes referred to as PEST analysis. Firms also use the concept to determine the environment they’re working in and where they want to launch a new project/product/service, etc.
PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal in its expanded form. This perspective allows a bird’s eye view of many angles in one’s environment from which one can check and keep track of a given idea/plan.
Market experts have incorporated elements such as E for Ethics since the framework has evolved over time, increasing the idea of demographics when applying the framework to market research.
It is a handy tool when starting a new company or entering a new market. Business analysis techniques like SWOT analysis and Porter’s Five Forces analysis are often combined with this tool. The result is a holistic view of a situation and its associated internal and external elements.
However, as time goes on, this framework has evolved to cater to demographic, cultural, ethical, and environmental considerations, resulting in various versions like STEEPLED, DESTEP, and SLEPT.
When one is conducting this analysis, one should ask specific questions to get a sense of what they are looking for. Here they are:
- How does the country’s political status affect the industry?
- What are the predominant economic factors?
- Which factors influence culture on the market, and how important is it?
- What are the most likely technical developments to emerge and impact the market structure?
- Does the industry have current legislation regulating it, or is it possible to change it?
- How is the industry concerned about the environment?
Any industry in which a corporation operates must implement all parts of this strategy. This framework aims not just to understand the market but also to understand its refer goals and the tactics that support them. So it serves as a spine of strategic management.
PESTEL is a complete version of a SWOT analysis, and each element may have a different value to a given company. Still, any strategy a company wants to design should include the PESTEL analysis as it is a greater part of the overall strategy.
You can learn more about SWOT analyses here if you’re not familiar.
To effectively use PESTEL, each letter must be understood fully.
Political Factors of PESTEL Analysis
Political factors limit the government’s ability to influence the economy.
These factors can all be grouped together as they relate to how and to what extent government intervenes in the economy or specific sectors.
The government might increase a tax or charge, changing a company’s entire revenue-generating structure.
All governmental effects on your company can be grouped here.
Government policy, political instability, corruption, foreign trade policies, tax policies, labor legislation, environmental laws, and trade restrictions are considered political issues.
Furthermore, the government can have a big impact on a country’s education system, infrastructure, and health legislation.
Political factors include tax policies, which can significantly impact the business environment (economic environment).
All of these elements must be considered when determining the desirability of a potential market.
Economic Factors of PESTEL Analysis
Economic factors are factors that determine a business’s success and impact it in the long term.
An increase in an economy’s inflation rate, for example, will affect how businesses price their products.
Economics factors such as economic growth, currency rates, inflation rates, interest rates, and consumer disposable income are all considered economic factors.
A consumer’s purchasing power would also be affected and demand/supply models in that economy.
This analysis also considers FDI (foreign direct investment) in specific industries included in this analysis.
These economic factors can influence a business’s long-term success because they impact consumers’ purchasing power and alter the economy’s demand/supply dynamic. The result is that businesses price their products and services differently.
Social Factors of PESTEL Analysis
Social factors examine the market’s social environment and assess determinants such as cultural trends, demography, and population analytics.
This dimension of the broader environment encapsulates the organization’s population’s demographic traits, norms, customs, and values.
Social Factors include population trends such as population growth, age distribution, income distribution, career attitudes, the emphasis on safety, health consciousness, lifestyle attitudes, and cultural obstacles.
These criteria are particularly critical for marketers when they are targeting specific customers. Additionally, it speaks to the local workforce’s willingness to work under given conditions.
Consider purchasing habits in Western countries such as the United States, which experience significant demand throughout the holiday season.
Technological Factors of PESTEL Analysis
The term technological factors refer to technologies that can affect industry and market operations positively or negatively.
Technological advances can have a positive or negative impact on the market and the industry.
Technological incentives include standardization, inventions, automation, research and development (R&D), technological change, and the degree of technological sophistication of the market.
Some of these factors may influence a decision to enter or leave a specific industry, launch or discontinue a specific product, or outsource manufacturing to another country.
If your organization stays informed about technological advances, you’ll avoid investing money in a technology that will be obsolete soon due to disruptive innovation elsewhere.
A technologically aware market is defined as automated, conducted research and development, and has adapted research and development.
Environmental Factors of PESTEL Analysis
The term environmental factors refers to any factors that affect or are influenced by the surrounding environment.
Environmental Analysis has a critical feature for some businesses, such as tourism, agriculture, and farming.
Environmental factors have just recently gained prominence. They have grown in importance due to the increased scarcity of raw materials, government-set pollution targets, and carbon footprint targets.
A company’s environmental analysis considers a variety of factors, including but not limited to climate, weather, geographical location, global climate change, and environmental offsets.
Ecological and environmental factors such as weather, climate, environmental offsets, and climate change can have disproportionate effects on tourism, agriculture, and insurance.
The knowledge of climate change as a potential threat impacts how businesses operate and what products they offer.
PESTEL analyses can be performed with the help of a variety of templates. In addition, PESTEL analyses have been made available on the Internet by numerous firms as case studies.
A growing number of businesses are engaging in corporate social responsibility (CSR) and sustainability initiatives.
Legal Factors of PESTEL Analysis
There are both external and internal legal factors. For example, a country’s regulations can affect the business climate while businesses maintain their policies.
Some of the elements overlap with political concerns. Still, others do not, such as anti-discrimination laws, labor laws, consumer protection laws, copyright and patent laws, and health and safety regulations.
The legal analysis considers both perspectives and then develops methods based on these considerations.
Companies must understand what’s lawful and what’s not to run a profitable, responsible business. Moreover, global businesses face even greater challenges because each country has its own rules and regulations.
You should also keep an eye out for any future legislative changes and how they might affect your business. You should therefore consult a legal counsel or attorney when considering such matters.
Why Do PESTEL Analysis?
A PESTEL study helps a team better understand a firm’s market and position, map its strategy, and analyze potential applications in both new and existing areas. Here is how the skeleton looks:
- Develops strategic thinking skills and assists you in determining how your strategy fits into the broader picture.
- Outlines the critical external impacts of the organization.
- Leaders can make better, more informed decisions.
What is a Competitive Strategy? Types of Competitive Strategy.
How does a PESTEL analysis work?
All industries can benefit from a PESTEL analysis when assessing current and prospective markets on a strategic, departmental, and project level.
It can be used to develop business and product plans, project management reports, and the assessment of organizational change.
PESTEL analyses typically form part of a strategic planning process that helps organizations decide their course of action for the future.
PESTEL analyses involve senior managers, C-level executives, leaders, significant stakeholders, key partners, consultants, and even major clients.
How To Perform PESTEL Analysis?
The PESTLE elements can be compared with your existing situation, but it is also important to consider the impact of anticipated changes in the future.
Some industries may emphasize one or more of the topics over others. Businesses engaged in tourism, for instance, may have a completely different emphasis than those in health, information technology, mining, banking, and defense.
An effective framework depends on feedback provided by a wide variety of individuals. Bringing everyone together simultaneously in a large or geographically dispersed team may be difficult.
The problems can be addressed using video conferencing, online documentation, and collective brainstorming tools like GroupMap.
Complete List of PESTEL Factors
Political Factors
- Stability and instability of government
- Level of corruption
- Policy on taxes
- Press freedom
- Regulations and restrictions on imports and exports
- Control over trade
- Activities of lobbyists
- Budgets of governments
- Regulation and deregulation by governments
- Tariffs special
- Committees for political action
- Unions and agreements involving the government
- Competitor regulation
- Rates of voter turnout
- Protests against government
- Spending on defense
- Subsidies from the government
- Relationships bilateral
Economic Factors
- Economic growth rate
- Rates of interest.
- Rate of inflation
- Rate of exchange
- Graph of the gross domestic product
- Trends in unemployment
- Investing trends in stocks
- Volatility of prices
- Income available for spending
- Spending habits of people
- Deficits in the federal budget
Social Factors
- Growth rate and population size
- Statistics on births
- Mortality rates
- Marriage rate
- Divorce rate
- Emigration and immigration rates
- Perspectives on saving
- Perspectives on investing
- Perspectives on retirement
- Leisure time attitudes
- Qualitative attitudes towards products
- Customer service attitudes
- The attitude towards foreigners
- Emigration and immigration rates
- Rates of life expectancy
- Relative ages
- Distribution of wealth
- Classes of society
- Income per capita
- Size and structure of families
- Various lifestyles
- Values and norms of a culture
- Roles and distribution of the sexes
- Beliefs and religion
- Equality of race
- Using contraception
- Level of education
- Inclusion of minorities
- The level of crime
- Consumable income on average
- Attitudes toward government
- Work-related attitude
- Consumption patterns
- Concerns about ethics
Technological Factors
- Incentive programs for technology
- Innovation
- Research and Development activity
- Transforming technology
- Technology awareness
- IT infrastructure
- Communications network
- The life cycle of technology
- Access to new technology
- Level of innovation
Environmental Factors
- The pressure of non-governmental organizations
- Disasters caused by nature
- Pollution of the air and water
- Norms for recycling
- Green products attitudes
- Sustainable energy support
- A weather report
- A changing climate
- Policies related to the environment
- Changes in climate
Legal Factors
- Laws prohibiting discrimination
- Interruption of competition
- Laws governing employment
- Laws protecting consumers
- Patent law and copyright
- Safety laws and health regulations
- Laws relating to education
- Laws protecting consumers
- Laws governing data protection
Final Words On PESTEL Analysis
A few examples of general external issues businesses should consider they are discussed in this article. It is almost certain that other factors may affect a particular company.
The relative importance of these elements also varies significantly by industry and country. The software industry, for example, maybe less concerned with environmental and ecological issues than the oil or car industries.
