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Business success will always be influenced by external factors – issues that relate to the environment in which companies operate. While it’s often impossible to control these issues, there is one marketing strategy tool that’s designed to help businesses identify, prepare for, and overcome them. It’s called the Political, Economic, Social and Technological (PEST) Analysis tool.

What is the PEST Analysis tool?

The PEST Analysis tool is defined on businessballs.com as, “A useful tool for understanding market growth or decline, and as such the position, potential and direction for a business. A PEST analysis is a business measurement tool. PEST is an acronym for Political, Economic, Social and Technological factors, which are used to assess the market for a business or organisational unit.”

In other words, PEST analysis identifies the key external influences that are likely to affect the strategic development of your business. Your organisation can then use that information to plan contingencies within your marketing strategy.

What is the PEST Analysis tool used for?

PEST analysis is used for comprehensive, proactive strategy development. While PEST analysis is a simple concept, it’s vital in drawing an organisation’s attention to outside factors that will influence it. While a business can’t control these factors, it can prepare for them and, in many cases, turn them into more positive developments.

To use the PEST Analysis tool, your business needs to brainstorm the Political, Economic, Social and Technological influences that surround you. Used correctly, PEST analysis gives you the chance to create opportunities from these factors, and spot and manage threats. This awareness helps you to be proactive in your strategy rather than make reactive decisions which are less likely to succeed. Each of the four quadrants relates to possible factors that can influence a business of any size:

  1. Political – This looks at your political environment, such as new government policies or laws. For example, are you anticipating tax rate changes? Do you need to comply with new environmental or health and safety legislation? Or could you be affected by local government decisions such as road works that restrict traffic in your area? If so, what are your options? If you’re a retailer, for example, you might consider setting up a temporary car park or launching a delivery service.
  2. Economic – This relates to factors such as interest rate changes, growth rates or inflation. What’s the economic climate and how is it expected to change? How will this affect the delivery of your product or service? What will the financial implications be to your business? Is this a good time for your business to expand?
  3. Social– This quadrant often refers to lifestyle changes that affect your organisation’s target demographic. For example, have preferences changed as your audience has aged? How are consumers’ lives changing and how does this affect their buying behaviour? What’s fashionable and what’s no longer popular? Businesses need to adapt their products or services accordingly.
  4. Technological environment – This usually relates to technological change that impacts your organisation. For instance, have technological changes affected the way people use or find your business? Will new developments compete with your products? Can you take advantage of technological advancements to reduce costs, such as in communications, marketing, or distribution? Does technology influence the way your employees work or communicate?

PEST Analysis

 

When do I use the PEST Analysis tool and how often?

Your customers’ tastes, the marketplace, the economy, laws, government and technology are ever changing. We recommend the PEST Analysis tool should be used at least once a year to keep up with changes in your environment, or every time your business considers launching a new product or service, or entering a new market.  

The PEST Analysis tool in practice

KG Moore recently developed a marketing strategy for a company looking to enter the Russian market where there are a variety of sensitive political and economic factors to consider. This technique proved vital for the organisation.

Who developed the PEST Analysis tool?

According to Mind Tools, Harvard professor Francis Aguilar is thought to be the creator of PEST Analysis. The site says that he included a scanning tool called ETPS in his 1967 book “Scanning the Business Environment.”

Every Thursday, we’ll take a look at a different strategy tool. We use a variety of strategy tools to help our clients define their marketing strategy. Essentially, the tools help you with your thinking and decision making during the strategic marketing planning process. We hope to give you a better understanding of the tools available, and how and when they can be applied.

For help using the PEST Analysis tool and other strategy tools, or for help with your strategic marketing planning, contact us on 01206 848 458

About Kim Moore

Kim Moore is a Marketing Strategist at KG Moore Limited, a Colchester, UK-based agency that offers outsourced strategic marketing management services. Kim has developed her strategic thinking and marketing management capabilities over the past 20 years managing marketing functions in the IT and telecoms sector, including years at Vodafone. She is known for developing successful Partner Marketing Relationships with a number of organisations including Verizon Wireless and American Express. Connect with Kim for her infinite supply of marketing knowledge, ideas, insight and innovation.

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