What is PESTLE Analysis? PESTEL or PESTLE analysis, sometimes referred to as PEST analysis, is a concept in marketing principles. Moreover, this concept is used as a tool by companies to track the environment they’re operating in or are planning to launch a new project/product/service, etc. So, let’s find out what these letters stand for first.
PESTLE is a mnemonic which, in its expanded form, denotes P for Political, E for Economic, S for Social, T for Technological, L for Legal, and E for Environmental. It gives a bird’s eye view of the whole environment from many different angles that one wants to check and keep track of while contemplating a certain idea/plan.
The PESTEL framework has undergone specific alterations, as gurus of Marketing have added things like an E for Ethics in STEEPLE Analysis to instill the element of demographics while utilizing the framework while researching the market.
Asking the Right Questions
While conducting this analysis, one needs to ask certain questions, which gives them an idea of what things to keep in mind. They are:
- What is the country’s political situation, and how can it affect the industry?
- What are the prevalent economic factors?
- How important is culture in the market, and what are its determinants?
- What technological innovations are likely to pop up and affect the market structure?
- Are there any current legislations regulating the industry, or can there be any change in the industry?
- What are the environmental concerns for the industry?
The aspects of this technique are crucial for any industry a business might be in. More than just understanding the market, this framework represents one of the vertebras of the backbone of strategic management that not only defines what a company should do but also accounts for an organization’s goals and the strategies stringed to them.
It may be so that the importance of each of the factors may be different to different kinds of industries, but it is imperative to any strategy a company wants to develop that they conduct the PESTEL or PESTLE analysis as it forms a much more comprehensive version of the SWOT analysis. We have you covered if you don’t know what a SWOT analysis is.
It is very critical for one to understand the complete depth of each of the letters of the PESTLE.
Political Factors in PESTEL/PESTLE Analysis
These factors determine the extent to which a government may influence the economy or a certain industry. For example, a government may impose a new tax or duty, which might cause the entire revenue-generating structures of organizations to change. Political factors include tax policies, Fiscal policy, trade tariffs, etc. that a government may levy around the fiscal year and it may affect the business environment (economic environment) to a great extent.
Economic Factors in PESTEL/PESTLE Analysis
These factors are determinants of an economy’s performance that directly impact a company and have resonating long-term effects. For example, a rise in any economy’s inflation rate would affect how companies price their products and services. Adding to that, it would affect the purchasing power of a consumer and change demand/supply models for that economy. Economic factors include inflation rates, interest rates, foreign exchange rates, economic growth patterns, etc. It also accounts for the FDI (foreign direct investment) depending on certain specific industries undergoing this analysis.
Social Factors in PESTEL/PESTLE Analysis
These factors scrutinize the social environment of the market and gauge determinants like cultural trends, demographics, population analytics, etc. An example of this can be buying trends for Western countries like the USA, where there is high demand during the Holiday season.
Technological Factors in PESTEL/PESTLE Analysis
These factors pertain to innovations in technology that may affect the operations of the industry and the market favorably or unfavorably. This refers to automation, research and development, and the amount of technological awareness that a market possesses.
Legal Factors in PESTEL/PESTLE Analysis
These factors have both external and internal sides. There are specific laws that affect the business environment in a particular country, and there are certain policies that companies maintain for themselves. The Legal analysis takes into account both of these angles and then charts out the strategies in light of these legislations. For example, consumer laws, safety standards, labor laws, etc.
Environmental Factors in PESTEL/PESTLE Analysis
These factors include all those that influence or are determined by the surrounding environment. This aspect of the PESTLE is crucial for specific industries, particularly tourism, farming, agriculture, etc. Factors of a business environmental analysis include but are not limited to climate, weather, geographical location, global changes in climate, environmental offsets, etc.
Many PEST analysis templates are available for companies to conduct PESTEL/PESTLE analysis. Many organizations have provided information regarding their PESTLE analysis as case studies on the Internet.
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