PEST Analysis is the analysis of external macro environments, which influence all the organizations in an industry. PEST is an acronym of the following four words, P for Political, E for Economic, S for Social and T for Technological. These External Macro Environment Factors are out of control of every organization & therefore considered as threats for the organization. Mostly this analysis is called PEST Analysis, but sometimes it may also re-arrange as STEP analysis.
How to do the PEST Analysis
There are many macro environmental factors that are country specific in nature & therefore PEST analysis is required to be conducted for all relevant countries.
In political analysis of PEST analysis, the government intervention in the economy is studies. The extent & potential of the government intervention in the economy is highlighted. For example it is seen that what kinds of government policies are present in the economy, either there exist political stability or instability in the foreign markets. Moreover certain laws are considered like labor laws, Tax policy, trade policy, environmental laws & trade restrictions etc.
Political factors exert severe effects on the working of the organization. The organization should consider the political factors at their strategic level so that the current & future legislation can be respond by the proper adjustments in the marketing policy.
Following are included in the political analysis.
- Risk of military attack
- Political stability
- Trade tariffs & regulations
- Anti-trust laws
- Tax rates & incentives in taxation
- Intellectual property protection
- Contract enforcement in legal framework
- Favored trading partners
- Minimum wage & overtime in wage legislation
- Work week
- Product labeling requirements
- Industrial safety regulations
- Mandatory employee benefits
The working of the organization is seriously influenced by the economic factors. In fact the profitability of the organization greatly depends on these economic factors. Economic factors may be interest rates, exchange rates, economic growth, disposable income of customers and inflation etc.
Economic analysis is further divided into two main categories which include micro-economical factors & macro-economical factors. The management of demand in any particular economy is considered by the macro-environmental factors. Government of the country employs taxation policy, government expenditure and interest rate control as the controlling forces to manage this aspect of economic portion of PEST analysis.
The spending ways of the income of the people are covered in the portion of micro-economical factors. The B2C organizations are largely affected by micro-environmental factors of the economy.
Economic analysis include the following examples
- Intervention of government in free market
- Kind of economic system in the operating country
- Efficiency of financial markets
- Stability of the currency of the host country & exchange rate
- Infrastructure quality
- Labor costs
- Economic growth rate
- Business cycle stage
- Skill level of workforce
- Discretionary income
- Inflation rate
- Unemployment rate
- Interest rate
The shared beliefs & attitudes of the people of the certain population are included in the socio-cultural factors that are generally called social factors. The social factors are important forces of the PEST analysis as they greatly influence the smooth running of business organizations. Social factors contain forces such are age distribution, health consciousness, population growth and career attitudes etc. social analysis facilitates the understanding of the marketers about their customers & the driving elements that stimulate the customers. Following are some of examples of the social factors
- Class structure
- Entrepreneurial spirit
- Leisure interests
Technological factors influence greatly on the way organizations market their products. The technology in the world is changing at a rapid rate. The technological forces influence the management & marketing of the organizations in the following three aspects.
- New methods of manufacturing goods & services
- New methods of distributing goods & services
- New Methods of communicating with the target markets
Following are some of the examples of the technological forces of the technological analysis.
- The impact of technology on offering products
- Recent technological developments
- Impact on structure of value chain
- Impact on structure on cost
- Rate of technological diffusion