Saturday, September 12, 2009

What is the PEST Analysis?

It can be confusing to decide where to start when writing the market summary for your marketing plan. Exactly to simplify this process you can follow the PEST model, which will guide you on the four main areas of research you need to focus in order to conduct an appropriate research of the market and so that you don’t miss out on anything.

PEST is an acronym for Political, Economical, Social and Technological factors that will help you assess your business’ market. Such factors can have an impact on your business in the short or long term and both at a positive or negative level, hence why you need to analyse them properly.

Political factors – these include governmental legislation, tax policy, labour law, environmental law, trade restrictions, European or international legislation, regulatory bodies or processes, pressure groups, wars/conflicts, health & safety, data security or any other factors of political nature that might affect your business.

Economical factors – in this area you should consider the national and international economical current situation and trends, effects of inflation, market and trade cycles, market routes and distribution trends, seasonality or weather issues, interest and exchange rates. These factors might have significant effects on the way your business operates, particularly if you are planning to borrow capital from a lending institution or if you have plans of selling abroad, for example.

Social factors – these include from cultural society characteristics to lifestyle trends, demographics, education, ethnic and religious factors, ethical issues, consumer attitudes and opinions, consumer buying patterns, media views, fashion and role models, major events and influences, career attitudes or any other relevant social situation that might influence your business.

Technological factors – Such factors can have a serious effect on your business and on the way you conduct business as they can bring efficiency to your company, cost savings, influence the production levels or outsourcing decisions, for example. When analysing these, you should consider R&D activity, research funding, automation, competing technology development, associated/dependent technologies, maturity of technology, consumer buying technological mechanisms, technology legislation, technology licensing or intellectual property issues.

The above are the factors included in a PEST analysis and should be sufficient to make a proper analysis of the market where your business is involved, however, for certain markets it might be important to give further consideration to other market factors into more detail such as legal or environmental factors. In this way, there is, the so called extended PEST analysis that can be presented as follows:

PESTELI – Constituted by Political, Economical, Social, Technological, Ecological, Legislative and Industry analysis.

STEEPLED – Include Social, Technological, Economical, Ecological, Political, Legal, Ethical and Demographic factors.

A throughout market analysis using the PEST system will surely also help you identify the Opportunities and Threats of your SWOT analysis to conduct at a later stage in your marketing plan.