PESTEL Analysis

Posted by SMstudy® on May 06, 2021 | Retail Marketing (RM)

Keywords: PESTEL Analysis, PESTEL, Marketing

PESTEL Analysis

As Philip Kotler said, “A company’s marketing environment consists of the actors and forces outside of marketing that affect marketing management ability to build and maintain successful relationships with target customers.” There are various factors influencing an organization’s marketing activities. Some of these factors are beyond the control of an organization and have impact on the overall industry, so a company needs to mould itself accordingly.

PESTEL (or PESTLE) analysis is one of the frameworks that can be used to monitor the macro-environmental factors and measure their impact on the business. There are six factors in PESTEL analysis, namely, Political, Economic, Social, Technological, Environmental and Legal. With the help of this framework, opportunities and threats can be analyzed and corrective steps can be taken at the correct time. Let’s discuss about all the six factors in detail.

1. Political Factors:

The political factors reflect the impact of the political and government system on the industry. The location of factories, transportation taxes, foreign trade policy, labour law, etc. have to be in line with policies of the ruling party. Organizations must consider the political factors in order to measure the industry attractiveness.


2. Economic Factors:

Factors contributing to the economic structure of a country have a major impact on an industry. These factors may include interest and inflation rates, exchange rate, economic growth, disposable income of the target segment, etc. Increase or decrease in the interest rates may be one of the strongest factors that help an organisation decide whether or not to move ahead with an investment decision.


3. Social Factors:

Such factors basically throw light on the value and culture of the society an organization chooses to address. The average age of the target segment, their disposable income, their tastes and preferences, their culture, their attitude, etc. impact an organization and its products & services. These factors help an organization decide whether its products would be acceptable in the society and if yes, then to what extent. For example, if a society has large number of senior citizens, most probably, it would be beneficial for an organization to come up with products that largely targets senior citizens.


4. Technological Factors:

The level of technological advancement and the R&D efforts are reflected through these factors. The level of technological awareness helps a marketer understand which technology will prevail and which shall soon become obsolete; thereby helping the organization gain profitability by product or process innovation.


5. Environmental Factors:

These are the ecological factors that impact an organization.  The levels of pollution, deforestation, frequency of weather changes, etc. are some of the ecological factors which need to be addressed. For example, the automobile manufacturers continuously work upon the vehicles to reduce emission so that their automobiles don’t contribute in increasing the pollution level.


6. Legal Factors:

Every company has to adhere with the legal and regulatory framework that exists in the market. Companies need to adhere to the laws and regulations that exist in their markets, irrespective of how restrictive they may be.  For example, a law of mandatorily wearing helmet gives rise to an increased demand of helmets, thereby boosting helmet manufacturers.

PESTEL analysis comprises of all important macro-environmental factors and helps an organization measure the opportunities and threats from each. This framework is highly beneficial for all organizations, especially, to the new entrants.


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PESTEL Analysis

Posted by SMstudy® on December 18, 2015 | Marketing Strategy (MS)

Keywords: PESTEL Analysis

PESTEL Analysis

Market analysis can serve as a flashlight to help you get a glimpse of what might be ahead for you and your business. As a part of this, PESTEL Analysis is used to examine macro-environmental factors that are sources of opportunities and threats, and therefore positively or negatively impact the organization, its customers and suppliers.

There are six factors to PESTEL analysis: Political, Economic, Social, Technological, Environmental and Legal. 

Political Factors—These factors describe how the government and the political system may influence the company’s Corporate Strategy.

Examples of Political Factors:

  1. Government incentives for industrial development in certain regions may impact decisions related to location of factories.
  2. The annual financial budget of the government may significantly impact a company financially. For example, a parts supplier in the rapid transit industry setting revenue projections for a particular geographic region must consider the current political position and the expected government financial support for transportation and infrastructure improvements. 

Economic Factors—These factors are related to the economic structure and policies of an economy and its interaction with other economies. They influence how businesses operate and grow.

Examples of Economic Factors:

  1. Interest rates for borrowing may impact funding and investment decisions of a company.
  2. Inflation rates impact input costs (that is, salaries, cost of raw materials, property costs) and should be considered when planning the Marketing Strategy.

Social Factors—These factors reflect the social and cultural state, attitudes and behaviors prevalent in a market. Changes in these factors may impact the demand for a particular product or product category.

Examples of Social Factors:

  1. An aging population creates a growing market for products targeting senior citizens.
  2. A growing trend toward nuclear families necessitates services such as day-care facilities for children.

Technological Factors—These factors describe the technologies and R&D efforts that are relevant to a company and the ecosystem within which such technologies function. They may help the company gain sustainable advantage in its market through product or process innovation.

Examples of Technological Factors:

  1. A faster mobile network enables real-time video conferencing with the company’s field sales force.
  2. An increase in Internet availability and the growth and efficiency of e-commerce and its distribution channels enable more people to shop online.

Environmental Factors—These factors are related to the ecological environment and include aspects such as climate change, deforestation and pollution, among others, which may affect how some companies function.

Examples of Environmental Factors:

  1. The appliance industry manufactures CFC-free refrigerators to prevent further damage to the ozone.
  2. Automobile manufacturers reduce vehicle emissions in order to decrease air pollution.

Legal Factors—These factors are related to the legal and regulatory framework of the market in which a company operates or is planning to enter. Companies need to adhere to the laws and regulations that exist in their markets, irrespective of how restrictive they may be. At the same time, the legal framework may also give rise to additional opportunities.

Examples of Legal Factors:

  1. Laws that mandate the use of bike helmets provide a boost to helmet manufacturers.
  2. In several countries, anti-monopoly laws make it difficult for large companies to acquire competitors.

On the pathway to success, you will find these factors may be a benefit or an obstacle, but without a detailed and comprehensive PESTEL analysis you end up stumbling in the dark.

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