BlogWhat is ‘PESTLE Analysis’ and Why It Is So Important to Every Business?
PESTLE Analysis, is a concept in marketing principle that has been used as a tool by companies to track the environment in which they operate in, or plan for their future to launch a new project.
PESTLE analysis also known as PEST analysis is a framework, or tool used to analyze and monitor the macro-environmental factors which will give a great impact on an organization’s performance. It is often associated with other analytical business tools such as SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) and Porter’s Five Forces to give a clear understanding of a situation relating to internal and external factors. PESTLE is an acronym that stands for Political, Economic, Social, Technological, Legal, and Environmental factors as explained in detail as follows:
Political factors determine the extent to which a government may influence the economy. Government may impose a new tax, or duty for the entire revenue. Fiscal policy, trade tariffs etc., that a government may levy around the fiscal year, may affect the business environment.
Economic factors are determinants of an economy’s performance that directly impacts a company. A rise in the inflation rate of any economy would affect the way companies’ price their products and services and change demand/supply models for that economy. Economic factors include inflation rate, interest rates, foreign exchange rates, economic growth patterns etc.
Social factors scrutinize the social environment of the market, and represent the demographic characteristics, norms, customs and values of the population within which the organization operates. This includes population trends such as the population growth rate, age distribution, income distribution, career attitudes, safety emphasis, health consciousness, lifestyle attitudes and cultural barriers.
Technological factors are connected with innovations in technology that may affect the operations of the industry and the market favorably/unfavorably. This refers to the degree of innovations, automation, research and development and the amount of technological awareness that a market possesses. These factors may influence major decisions to decide whether to market certain products or to outsource production activities abroad. By keeping a thorough understanding of current market technology you may prevent unnecessary expenditures and improvise your technological standards.
Legal factors are vital important for a company to trade successfully. There are certain laws like consumer protection laws, copyright and patent laws, safety standards, labor laws etc., that affect the business environment in a certain country. Besides, some companies maintain their own laws. Legal experts consider both aspects and make aware of the potential changes in legislation.
Environmental factors are given priority recently, because of increasing scarcity of raw materials, pollution targets, and carbon footprint targets. These factors include ecological and environmental aspects such as weather, climate, environmental offsets and climate change which may especially affect industries such as tourism, farming, agriculture and insurance. It also increases the use of green energy and focus on business sustainability.
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