What is PESTLE Analysis?

PESTLE analysis sometimes referred to as PEST analysis, is a concept in marketing principles. This concept is used as a tool by organizations to keep a track of the external factors impacting the organization. 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. On the basis of the organization, it can be reduced to PEST or additional areas can be added (such as Ethical).

PESTLE analysis forms a much more comprehensive version of the SWOT analysis. This form of analysis is then compared with the company’s internal strengths and weaknesses via a SWOT analysis. This aids in determining the future scope of action and in developing measures for strategic management.

Why is PESTLE analysis used?

Businessmen and entrepreneurs often turn towards business analysis tools for aiding them in making suitable decisions for their firm. Before any business venture, the business owners often remain doubtful regarding its outcome and how it would be received. Pestle analysis is adopted for determining an answer to these questions. This analysis involves asking questions that give the analyst an idea about the things to keep in mind. These questions are:

What is the political situation of a country and what is its effect on the markets?
What are the prevalent economic factors?
How is culture affecting the markets and what are its determinants?
What are the technological inventions that are trending and what are other future possibilities in this field?
What are the current legislations that regulate the industry and if they need to be changed?
What are the environmental concerns for the industry?

Analysts find answers to these questions and try to cover all the aspects through this analysis. The PESTLE analysis is more than just understanding the market. This framework represents one of the backbones of strategic management by not only defining what a company should do but also accounting for an organization’s goals and the strategies strung to them.

Factors of PESTLE Analysis

Each of the factors mentioned above, from Political, Economic, Social, Technological, Legal to Environmental, have an impact on an organization. Yet the significance of each of these factors may differ based on the different kinds of industries.

1. Political factors in PESTLE Analysis

Political factors include tax policy, environmental regulations, trade restrictions and reform, tariffs, and also political stability. These factors determine the extent to which a government may influence an industry or a company. For example, the government may bring new tax reforms that might change the whole revenue-generating system of a company.

Some tariff trade barriers that can prove to be a hindrance in the way we run our business operations include customs policy and export subsidies. Non-tariff trade barriers meanwhile include determining minimum import prices as well as bans and restrictions on exports.

2. Economic factors in PESTLE Analysis

Economic factors include economic growth/decline, interest, exchange, inflation and wage rates, minimum wage, working hours, unemployment (local and national), credit availability, and cost of living. These factors are determinants to an economy’s performance that directly impacts a company and also have resonating long term effects.

For example, a rise in the inflation rate of any economy would affect the way companies price their products and services. Besides, it would also affect the purchasing power of a consumer and may result in a change in demand/supply models for that economy.

You can also take a look at our blog on 4 Ps of Marketing.

3. Social factors in PESTLE Analysis

Social factors include cultural norms and expectations, health consciousness, population growth rates, age distribution, career attitudes, health, and safety. These factors are helpful for companies to better plan their marketing analytics and strategy. For example, the Indian market generally witnesses a surge in demands for vehicles during the last months of the year, due to marriage and the festive season.

These factors are particularly significant for marketers as they target certain customers. Additionally, they also highlight the local workforce and its zeal to operate under certain circumstances.

The factors of PESTLE Analysis

4. Technological factors in PESTLE Analysis

Technological factors mean the innovations and developments in technologies. These factors impact an organization’s operations. Several new developments like Artificial Intelligence, IoT, Machine Learning, Deep Learning, are being made in the technology field and if a company fails to match up the trend it may lose its position in the market.

A few of the technological factors which are included in the PESTLE analysis include the rate of technological change, the evolution of infrastructure, and any government or institutional research.

5. Legal factors in PESTLE Analysis

Legal factors include changes to legislation impacting employment, access to materials, quotas, resources, imports/exports, and taxation. These factors have both external and internal sides. Certain laws have an impact on the business environment in a country.

Apart from these laws/rules, companies maintain their own set of rules and regulations by which an employee is expected to abide by. So, the legal analysis takes accounts of both these angles and forms strategies keeping them in mind.

Recommended blog – AI in the law industry.

6. Environmental factors in PESTLE Analysis

These factors are mainly concerned with the effect of the surrounding environment and the influence of ecological aspects. These include waste disposal laws, environmental protection laws, energy consumption regulation.

This aspect of the PESTLE is crucial for certain industries particularly example tourism, farming, agriculture, etc. However, Global warming and the increased need to switch to sustainable resources; ethical sourcing (both locally and nationally, including supply chain intelligence) have compelled every organization to consider the environmental factors. Corporate Social Responsibility (CSR) has been made compulsory for organizations.