Advantages of PESTLE analysis involve being cost-effective, providing an understanding of business, alertness to threats, method to exploit opportunities.
What is PESTLE Analysis?
PESTLE analysis is a strategic planning method used by strategic managers in business analysis. It investigates the Political, Economic, Sociocultural, Technological, Legal, and Environmental factors that affect a company or an entire industry. Businesses that adopt PESTLE analysis in their strategies gain valuable advantages. These advantages of PESTLE analysis help with the idea phase, product development, product launching, content marketing strategies, and other parts of the business operations, to achieve success. PESTLE analysis is even better explained with examples like we did here.
6 Advantages of PESTLE Analysis
- It's cost-effective and straightforward
- It provides a deeper and easier understanding of business
- It raises alertness to threats
- It showcases opportunities to exploit
- It guarantees compliance
- It helps in future strategic planning
Cost-effectiveness
The only cost of PESTLE analysis is time. While additional programs can help organize input and feedback, PESTLE analysis can be completed through a simple document or pen and paper.
PESTLE analysis is also straightforward. The amount of research necessary, how much time, and how often you do a PESTLE analysis for a firm is optional. But the cost to do any level of the analysis isn’t prone to fluctuation. Best of all, anyone can do a PESTLE analysis. While a team can lead to better results, an individual can also do the analysis successfully.
Deeper understanding
Without PESTLE analysis, environments that directly and indirectly affect business can go unnoticed. For example, you may overlook safety and consumer laws when developing the prototype of a product. Or you may not realize which technological barriers customers in rural areas face, compared to customers in highly populated areas. Or while your product works well in its current environment, exporting to the other side of the country may be a financial disaster.
Two such examples have been Walmart trying to penetrate the German market for ten years and British supermarket chain Tesco's attempt to replicate its success in the USA.
PESTLE analysis helps to examine many different and influential factors that could affect the success of your product launches. It encourages strategic thinking for a deeper understanding of strategic planning.
Alertness development
While we can use PESTLE to analyze firms in a broad sense, it can also be narrowed down and used for specific products, marketing plans, and customer relationships. Particularly, when used in new developments within the firm, PESTLE analysis can raise awareness of potential threats. Whether that is an existing competitor, upcoming competitor, or within your own products.
For example, if you learn there will be a 15% increase in population growth within a certain city, this can be excellent for your business. But if the increase is predominately senior citizens while your target market is in the 20-30 age range, this could be a chance to reach a new audience with a new product.
With PESTLE analysis, you have the ability to thoroughly examine changes and develop a plan to minimize any/all profit increase or damage. Without it, the business could be hit by what appears to be an unexpected threat.
Exploit opportunities
Opportunities are often external. By using PESTLE analysis to study external environments, opportunities can be found and used to strengthen a firm’s business model. You can then use these opportunities in an accompanying SWOT analysis to your PESTLE findings.
If you’re using PESTLE analysis to research social and technological trends, for example, you could learn that your target market is moving towards a new social media channel. This is now an opportunity to build a marketing campaign before your competitor. A strong outreach approach gives the opportunity to convert these users into customers before anyone else.
Make the business compliant
Every business needs to comply with regulations and government policies. But governments and lawmakers keep introducing new guidelines and legislations in all industries, making compliance a burden sometimes. It's easy for a business to miss an important new law or regulation. A frequently-conducted PESTLE analysis will ensure the business is up-to-date with the latest political trends, making sure it doesn't run into any legal trouble.
Help in strategic planning
By keeping a schedule for conducting PESTLE analysis on a regular base, such as annually, business managers make sure businesses stay on track. Guesswork and surprises are never good for businesses. A PESTLE analysis helps in long-term strategic planning, by having the business better prepared for external factors that are out of its control.
When performing PESTLE analysis, pinpoint your reason first. Whether it’s to flesh out a business idea, or to understand your target audience more thoroughly. Without a reason, PESTLE analysis may provide underwhelming results and reveal its disadvantages! But with a reason, you’ll see the advantages of PESTLE analysis each time it’s used.
Finally, these advantages of PESTLE analysis apply to all variations of PESTLE analysis, such as: