PESTLE analysis is a framework of macro-environmental elements like Political, Economic, Socio-Cultural, Technological, Legal and Environmental that are utilized in the environmental scanning component for the strategic management. It is an external strategic analysis during market research and represents an overview of the above factors that need to be taken into consideration. PESTLE analysis is a strategic tool that is implemented to understand the growth and fall of the market, position of the business, direction, and potential for the operations.
In marketing, it is compulsory to conduct a strategic analysis before implementing any kind of tactical plans. PESTLE is part of that analysis to detect the changes in the macro-environmental factors for the organization. The analysis should be repeated at regular intervals of a minimum of 6 months. Organizations that successfully respond to and monitor the changes in the macro-environment can stay ahead of the competitors and create an additional advantage.
In other words, PESTLE analysis is a tool to evaluate, discover, track and organize the macroeconomic factors and also inform the other processes for strategic planning and add to the market research. It provides a detailed overview of the environment an enterprise is situated in. In PESTLE analysis, the importance of different factors is different in every industry, but it is always imperative to conduct and develop this analysis to understand the depth of each element.
Importance of PESTLE analysis
Let us have a quick look at the importance of PESTLE analysis and do should an organization conduct this research. The importance is as follows.
- PESTLE analysis assists to evaluate how a particular strategy can fit into the current environment
- Offers an overview of the important external factors on the organization
- Helps in the planning, initiatives for the changes in the organization, marketing, product and business development, research papers and project management
- Supports in taking more knowledgeable and decisive strategies
- Helps to spot personal and business opportunities and gives the organization an advanced warning about the vital threats to the companies
- Also warns about the projects, products or services beforehand that are likely to fail beyond reasons
- The analysis reveals the change in the direction within the environment of an enterprise
- Creates an objective view of the new environment for the new business in a new country, market or regions
The Factors of PESTLE Analysis
There are four basic elements of PESTLE analysis are:
Political factors are all about to what degree a government authority intervenes in the operation of an organization. Enterprises should be able to respond to the anticipated future and current legislations, thus adjusting their marketing strategies accordingly.
The political factors included in the PESTLE analysis are tax policies, labor, and environmental laws, restrictions on the trades, political stability, government policies, competition regulations, funding initiatives and grants, budgets and fiscal policies.
Economic factors determine how the organization is functioning and how much profit they are making. Economic factors can be further broken down into micro and macroeconomic aspects. Macroeconomic aspects deal with demand management within an economy. Microeconomic aspects deal with the ways consumers spend their money on. Micro factors are very vital for B2C enterprises in particular.
The economic factors that are considered for PESTLE analysis are economic growth, inflation, exchange and interests rates, consumer’s disposable income, employment rates, foreign exchange rates, costs of the raw material, economic trends, seasonal factors, available of the credits, monetary policies, gross domestic products, and customer preferences.
Social factors are also called socio-cultural factors that indicate the attitudes and beliefs of the population, emerging trends, and social environment. This attribute of the analysis helps an organization to understand the demands and needs of the customers. A perfect example of this factor is that there is a high trend of buying during the Christmas and New Year season in the western countries.
The social elements included in the PESTLE analysis are health consciousness, cultural aspects, distribution of age, growth rate of the population, safety, attitudes towards career, family demographics, cultural trends, level of education, customer services, religion, cultural taboos, analytics of the population, distribution of income, ratios of the gender, and statistics of the health.
Technological aspects consider the innovation rate of the technology and development that could have an impact on the industry or market. Technological elements help to focus on the methods of distribution, logistics, and manufacturing of an organization. It can affect the way the company will make the product or services and distribute it in the market.
The technological factors for PESTLE analysis are activities on research and development, technological incentives and the rate of technology change, automation, mobile or digital technologies, communication infrastructures, technological legislations, access to a particular technology, and regulation of intellectual properties.
Companies always want to be clear about what is and what is not legal in a country to do business successfully. The legal attribute helps the companies to know about the change in any laws or legislation and the impact it can have on the services or products they are producing.
The legal factors that are included in the PESTLE analysis are discrimination and consumer law, antitrust and employment law, health and safety law, equal opportunities, consumer law, advertisement standards, product safety and labeling, employment legislations, various social laws, regulatory and labor laws, copyright and patent laws, and women rights.
Environmental aspects have become one of the most vital points in the past decades. Consumers are demanding that the products or services they are purchasing should be derived from the sustainable source. This factor also determines the surrounding environment and the effects of the ecology around the organization. Also growing concern over global warming will affect how the enterprise is operating and the products they are manufacturing.
The environmental factors that are included in the PESTLE analysis are weather, climate change, procedures for recycling, waste disposal, carbon footprint, sustainable products or services, geographical location, environmental offsets, technology for pollution control and eco-friendly methods for production.
Thus we can conclude that PESTLE analysis assists an enterprise in the identification of the external forces that could directly have an impact on their business. It is important that while conducting a PESTLE analysis all the factors should not only be identified but also be accessed for the implementation of the perfect strategy.