Marketing

Discover what a PEST Analysis is and the benefits it brings to companies

By May 16, 2020No Comments

The environment in which a company develops can affect it in various ways. The PEST analysis is a tool that allows to identify the external factors and how they can interfere in the evolution of the business.

There are many factors that can influence the progress of a business, internal and external elements. However, many times the variables of the external environment are left aside.

That is why today we have decided to better explain the PEST analysis, so important and useful for the creation of any strategic marketing planning.

Continue with me and discover what a PEST analysis is, its real importance and learn how to perform it.

What is a PEST analysis?

A PEST analysis, also known as PESTEL, serves to identify the external factors of the business that can influence its development.

By external factors we mean political, economic, social and technological conditions that can affect a company. That is precisely where the name comes from, from the acronyms of these variables.

What do you think if we understand better each of these factors?

Political

The political factors that must be considered are the position of government leaders in relation to certain attitudes.

A clear example in this respect is the taxes that may exist for certain products. Each government can make some alterations according to its position on certain products.

On the political side we can also include the legal factors, which for some products may be more rigid than others. For example, medicines, cigarettes and drinks.

As political-legal factors we can also consider subsidies, labour laws, environmental and safety regulations, etc.

Economical

On the economic side we must consider the economic situation we are going through.

Important factors to consider may be the unemployment rate, economic stability or growth, interest rate, inflation, etc.

These and other factors are important to the business we are working on. In addition, we must consider that some may influence more than others depending on the sector we are working in.

Social

We can say that not only the social factor should be considered but also the socio-cultural factor. We have to make an analysis of the situation of our target audience, or buyer person, to understand their real relationship with our product.

It is important to make an analysis of what consumers value. This varies not only according to the time of year but also according to a variety of factors and this should be analyzed so that the risk is less and less.

Within the social aspect, there is also the analysis of the competition, knowing what they are doing is important, not to do the same, but to understand what they offer our consumer.

Technological

This is an important factor to be analysed, as it can influence both the company and the consumer.

While for the company, technological advances can help by bringing faster and higher quality production, it is also easier for the consumer to access some products or services.

Technology is evolving faster and faster and it is difficult for companies to keep up with this development.

Many businesses do not know all the resources they have available and how they can help production.

Producing with a higher speed, having a better quality control and decreasing the waste. All this can be reflected, in the not too long term, in considerable savings in production.

On the other hand, consumers increasingly have access to resources that they did not have before. Examples include online downloads, e-learning, digital leisure, etc.

With this, some services or products if they do not alter their form of distribution can become obsolete.

Why is it important for companies?

The PEST analysis, despite being a simple and easy method to handle, brings a clear view of the characteristics of the environment. This is important at any stage of the business.

From the elaboration of the project to the structuring of a new business or to the realization of the strategic plan of any launch or change of direction that we can think of.

By doing the PEST analysis, together with the market study, the risks are minimised and a more effective strategy is possible .

How to perform a PEST analysis?

To perform a PEST analysis, you must first clearly understand the factors, mentioned above. Once it is clear you can follow the next steps to perform it.

1. Collect the relevant variables

The first step is to detect which are the variables that can influence the development of the business.

Once you have identified the political-legal, economic, social and technological variables that influence the business and its consumers, collect them and create a list.

The Internet is a good source to understand the environment of the sector in which your business is developed. For that, dont hesitate to spend some time discovering them.

2. Identifying opportunities

Once you have collected the factors that can influence your business, it is time to identify the opportunities that these variables can bring to the company.

For example, if there is a favorable trade agreement to export to new markets, or even if there is a way to make the processes more efficient.

3. Recognizing threats

Just as opportunities have been identified, it is also important to find the threats and everything that can jeopardize the success of the actions and the objectives of the business.

Identifying threats makes it possible to prevent future problems and minimize their negative effect before it is too late.

For example, if we use imported raw materials and the local currency suffers constant devaluation it is important to recognize the impact on the final product and move on to the next step.

4. Create an action plan

Once we are aware of the opportunities that can be taken advantage of and the threats that can bring risk to good business development, it is time to create the action plan.

In this way we can take advantage of the opportunity and guard against the risks.

Conclusion

PEST analysis is a useful marketing tool that can help determine the role that environmental factors play in the success of a business.

Thanks to this analysis it is possible to have a clearer view of the situations that can favour or harm the development of the business. In addition to including these variables at the time of creating a strategic marketing plan.

Besides the PEST analysis, the DOFA matrix is an excellent tool to help in the strategic planning of any company. With it you can learn more about the internal factors that can influence its development.

Do you want to know more about it? Then find out all about the SWOT analysis or DOT Matrix in this article!

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