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Why Do PEST Analysis for Your Business

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Every business, regardless of industry, will be affected by external forces. That’s a fact.

But how much will you be impacted? And what factors should you be aware of?

This is why we do PEST analysis: it highlights key categories within politics, economics, social and technology that can ruin a business if not monitored.

But it doesn’t stop there.

What’s the point of PEST analysis?

It’s simple: To succeed.

For a business to be successful, they need a few things:

  • A solid product.
  • Identifiable brand.
  • Happy customers.
  • Thorough budget.
  • An investor or two.
  • Marketing plan.
  • Unique selling position.

And a whole lot of research.

Throughout the endless target market research, customer acquisition costs, and project risk assessments, you forget about outside influencers.

If you’re aware of the influencers, they can aid your business. But if you don’t know them, they can cripple your business before it begins.

The external factors are Political, Economic, Social, and Technological — PEST.

What exactly is PEST analysis?

PEST analysis helps you prepare and understand how political, economic, social and technological factors can negatively (or positively) affect a business.

Factors in each category can’t be directly influenced by yourself. PEST analysis’ strength lies in helping you become aware of the factors and how they will influence your business.

A quick breakdown of PEST analysis

Every business is different. Some factors may not affect your firm or industry as it would with others. But it’s beneficial to have a well-rounded view of the many factors that could affect you. Along with the ones that will affect you.

This is why we do PEST analysis for your business — to be aware of risks, opportunities, influences, and limitations.

Here is a concise list of external factor. They highlight these factors impact the success of your business.

Political factors: Government laws, legislations, and politics

These factors are often legislative bills, regulations, and laws. You will experience them on a federal and national level. If you expand your business to several states, you must be aware of the laws in each location, respectively.

Consider these:

  • Tax incentives.
  • FDA regulations.
  • Employment laws.
  • Import restrictions.
  • Health and safety laws.
  • Regulation and deregulation.

There’s plenty more where that came from. But consider a few things on the list.

FDA regulations must be followed by food establishments and drug companies. If you’re selling mattresses, this won’t entirely apply to you — the FDA risks are limited.

So while the list of political factors (and economic, social and technology) are long, they’re not necessarily relevant to your business.

But profits? Revenue? Interest? That will affect your business.

Economic factors: Money related forces

These factors will affect monetary funds, sales, revenue, and profits. It’s rather straightforward.

Consider these:

  • Taxes.
  • Recession.
  • Inflation rates.

The factors can go further. But no matter where you are, taxes will follow you. They can’t be ignored (unless you want big trouble knocking on headquarters’ door). But the percentage of tax and the type of tax depends on your business.

The recession affects every business. But some (such as the real estate industry) over others (IT related careers).

The recession, among other things, affects your customers too.

Social factors: The people

These factors are more unpredictable than economic and political factors. Because social factors influence your target market.

And people are unpredictable.

But every business needs customers. What and how they buy depend on many different factors.

Consider these:

  • Location.
  • Lifestyles.
  • Family size.
  • Ethnic background.
  • Health consciousness.
  • Culture and sub-cultures.

This is a small portion of the many factors that affect social buying behavior. Many of these things are what marketers use to create buyer personas. These personas are necessary to market to your customers successfully.

If you’re selling whey powder, you go after gym rats and bodybuilders — not a father who spends his whole day in a cubicle and eats most of his meals from a fast food restaurant.

But social factors affect consumer attitude. It’s what makes a customer buy now rather than buy later (or never).

And we use technology to understand customers and create products they need.

Technological factors: From distribution chains to social media

If you run a tech-related business, this part of PEST analysis is particularly important. But even if you don’t, technology is in every business. Impact differs but it’s non-negotiable.

Consider these:

  • Wireless.
  • POS systems.
  • Cybersecurity.
  • Online databases.
  • Debit/credit machines.
  • Distribution and supply chains.

If you offer wifi in your store, it’s an added luxury. It’s annoying if it goes down but won’t ruin sales.

However, if you handle all receipts on your online database and that goes offline — then you have a major problem. Especially after big holidays like Black Friday.

Again, this is about impact. How hurt will sales be if X technology doesn’t work? How will it affect business in the long and short term?

That’s what we’re trying to figure out with PEST analysis.

Again, why do PEST analysis?

Because we learn…

  • What external factors influence your business.
  • Why they influence your business.
  • And how much of an impact it’ll have.

All you need to do a proper PEST analysis is time. And the payoff is worth every second.

Image: tsyhun/Shutterstock.com

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