The PEST Analysis

It is 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 of:

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:

  • How stable is the political environment?
  • Will government policy influence laws that regulate or tax your business?
  • What is the government’s position on marketing ethics?
  • What is the government’s policy on the economy?
  • Does the government have a view on culture and religion?
  • Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?
  • Political stability
  • Risk of military invasion
  • Legal framework for contract enforcement
  • Intellectual property protection
  • Trade regulations & tariffs
  • Favored trading partners
  • Anti-trust laws
  • Pricing regulations
  • Taxation – tax rates and incentives
  • Wage legislation – minimum wage and overtime
  • Work week
  • Mandatory employee benefits
  • Industrial safety regulations
  • Product labeling requirements

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:

  • Interest rates.
  • The level of inflation Employment level per capita.
  • Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on.
  • Type of economic system in countries of operation
  • Government intervention in the free market
  • Comparative advantages of host country
  • Exchange rates & stability of host country currency
  • Efficiency of financial markets
  • Infrastructure quality
  • Skill level of workforce
  • Labor costs
  • Business cycle stage (e.g. prosperity, recession, recovery)
  • Economic growth rate
  • Discretionary income
  • Unemployment rate
  • Inflation rate
  • Interest rates

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:

  • What is the dominant religion?
  • What are attitudes to foreign products and services?
  • Does language impact upon the diffusion of products onto markets?
  • How much time do consumers have for leisure?
  • What are the roles of men and women within society?
  • How long are the population living? Are the older generations wealthy?
  • Do the population have a strong/weak opinion on green issues?
  • Demographics
  • Class structure
  • Education
  • Culture (gender roles, etc.)
  • Entrepreneurial spirit
  • Attitudes (health, environmental consciousness, etc.)
  • Leisure interests

Technological Factors

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

  • Does technology allow for products and services to be made more cheaply and to a better standard of quality?
  • Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc?
  • How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc?
  • Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?
  • Recent technological developments
  • Technology’s impact on product offering
  • Impact on cost structure
  • Impact on value chain structure
  • Rate of technological diffusion

The number of macro-environmental factors is virtually unlimited. In practice, the firm must prioritize and monitor those factors that influence its industry. Even so, it may be difficult to forecast future trends with an acceptable level of accuracy. In this regard, the firm may turn to scenario planning techniques to deal with high levels of uncertainty in important macro-environmental variables.

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