What Is Pest Analysis?

PEST Analysis.

What is PEST Analysis?

PEST analysis is very important that an organization considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning. The organization's marketing environment is made up from:

1. The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc.

2. The micro-environment e.g. our external customers, agents and distributors, suppliers, our competitors, etc.

3. The macro-environment e.g. Political (and legal) forces, Economic forces, Sociocultural forces, and Technological forces. These are known as PEST factors.

Political Factors.

The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as:

1.How stable is the political environment?

2.Will government policy influence laws that regulate or tax your business?

3.What is the government's position on marketing ethics?

4. What is the government's policy on the economy?

5. Does the government have a view on culture and religion?

6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?

Economic Factors.

Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at:

1. Interest rates.

2. The level of inflation Employment level per capita.

3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on.

Sociocultural Factors.

The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include:

1.What is the dominant religion?

2.What are attitudes to foreign products and services?

3.Does language impact upon the diffusion of products onto markets?

4.How much time do consumers have for leisure?

5.What are the roles of men and women within society?

6.How long are the population living? Are the older generations wealthy?

7.Do the population have a strong/weak opinion on green issues?

Technological Factors.

Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points:

1. Does technology allow for products and services to be made more cheaply and to a better standard of quality?

2.Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc?

3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc?

4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?

a PEST analysis measures the market potential and situation, particularly indicating growth or decline, and thereby market attractiveness, business potential, and suitability of access - market potential and 'fit' in other words. PEST analysis uses four perspectives, which give a logical structure, in this case organized by the PEST format, that helps understanding, presentation, discussion and decision-making. The four dimensions are an extension of a basic two heading list of pro's and con's (free pro's and con's template here).

PEST analysis can be used for marketing and business development assessment and decision-making, and the PEST template encourages proactive thinking, rather than relying on habitual or instinctive reactions.

Here the PEST analysis template is presented as a grid, comprising four sections, one for each of the PEST headings: Political, Economic, Social and Technological. The free PEST template below includes sample questions or prompts, whose answers are can be inserted into the relevant section of the PEST grid. The questions are examples of discussion points, and obviously can be altered depending on the subject of the PEST analysis, and how you want to use it. Make up your own PEST questions and prompts to suit the issue being analysed and the situation (ie., the people doing the work and the expectations of them). Like SWOT analysis, it is important to clearly identify the subject of a PEST analysis, because a PEST analysis is four-way perspective in relation to a particular business unit or proposition - if you blur the focus you will produce a blurred picture - so be clear about the market that you use PEST to analyse.

A market is defined by what is addressing it, be it a product, company, brand, business unit, proposition, idea, etc, so be clear about how you define the market being analysed, particularly if you use PEST analysis in workshops, team exercises or as a delegated task. The PEST subject should be a clear definition of the market being addressed, which might be from any of the following standpoints:

* a company looking at its market

* a product looking at its market

* a brand in relation to its market

* a local business unit

* a strategic option, such as entering a new market or launching a new product

* a potential acquisition

* a potential partnership

* an investment opportunity

Be sure to describe the subject for the PEST analysis clearly so that people contributing to the analysis, and those seeing the finished PEST analysis, properly understand the purpose of the PEST assessment and implications.