What is a PESTLE analysis?
PESTLE analysis factors are Political, Economic, Sociological, Technological, Legal and Environmental. The PESTLE analysis examines each factor to assess what their impact or potential impact on the organisation. In this way, they can prepare strategically for any changes that need to be made in the organisation or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry. Examples of each PESTLE analysis factor are:
- Political: what is happening politically with regards to tax policies employment laws, trade restrictions, tariffs
- Economic: what is happening within the economy i.e economic growth/ decline, minimum wage, unemployment (local and national), credit availability, cost of living, etc.
- Sociological: what is occurring socially i.e cultural norms and expectations, health consciousness, population growth rate, career attitudes,.
- Technological: new technologies are continually being developed. There are also changes to barriers to entry in given markets
- Legal: changes to legislation. This may impact employment, access to materials, resources, imports/ exports, taxation etc.
- Environmental: what is happening with respect to ecological and environmental aspects.
Why is a PESTLE analysis used?
A PESTLE analysis is used in business and is a method of assessing the industry which an organisation is in. The PESTLE analysis looks specifically at factors which are external to the organisation which will impact on the business. This is with a view to determining the current role and status of the organisation in relation to its competitors and can be used as a marketing tool.
How is a PESTLE analysis used?
‘Knowledge is power’ and therefore the process of obtaining information by the firm is critical to its success. The gathering of important information is known as a strategic audit which is an audit of both external and internal factors. Whilst the internal audit looks at all aspects internal to the company, we are concerned with the external audit which examines macroenvironmental facts such as PESTLE analysis factors.
There are other methods of analysis which the PESTLE analysis works alongside such as a SWOT analysis. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. The Opportunity and Threats aspect are concerned with the external factors what influences the market and performance. It can therefore be said that the PESTLE analysis is useful in assessing opportunities and threats to the organisation. An example of a PESTLE analysis factor which may also be an opportunity or threat is the economy. Due to the present credit crunch, it is now difficult to secure a mortgage. Therefore organisations in the property industry are now threatened as their individuals jobs and organisations as a whole have been deeply affected leading to some redundancies.
What is marketing?
Marketing is traditionally known as selling and advertising but more modernly known as satisfying customer needs. It is formally defined as “a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others”. It is another tool of strategic management as with the PESTLE analysis as it is setting and achieving long term objectives.
The marketing process starts from before the organisation is set up as a marketing assessment can be done to check the profitability of a market. Marketing also continues throughout the life of a product or service to retain old customers and attain new customers. The PESTLE analysis can be of great assistance in obtaining the necessary information.
What is a PESTLE analysis in marketing terms?
The marketing concept is about achieving organisational goals which is determined by the target markets wants and needs and satisfying those needs better than competitors can. The marketing aims are more long term than quick sales as it focuses more on customer satisfaction with a view to retaining long term customers who are satisfied.
To meet the customer’s demands and wants, it is therefore necessary to get the right marketing mix of product, price, place and promotion. This however cannot be achieved without having knowledge of the external factors which is where use of the PESTLE analysis is necessary. For example, it would be difficult to know how to competitively price your product if you do not know how much your competitors were pricing the product at. The PESTLE analysis would involve looking at the economical factors which would assist with pricing decisions.
There are also different types of marketing concepts. An example is the societal marketing concept which concentrates not only on gaining profits through customer satisfaction but also through maintaining or improving the consumer’s of society’s well-being. The PESTLE analysis incorporates such issues, for example, when examining sociocultural factors such as health consciousness. This will then to a great extent shape any advertisements or other forms of marketing.
As the PESTLE analysis examines the external market, the customers needs and wants can be ascertained. But most importantly, through the PESTLE analysis the organisation can assess if they are able to deliver what the customer wants providing i.e there are no laws that prevent it or the technology is available etc. A good example is the changes in law on smoking. These political changes have had a massive impact on clubs and bars. A PESTLE analysis in advance of the changes in law would have given the bars the opportunity to make changes in advance. An example of keeping a customer happy in this incident may be with the provision of heated lamps for cold winter evenings. However, this information would not be obtained without first conducting a PESTLE analysis.
It can therefore be seen that the PESTLE analysis is also a form of marketing tool. It is pertinent to the successful development of the organisation to do regular scans of the external environment as changes can happen swiftly.
Whilst having the right marketing mix is essential to the success of an organisation this is not enough without having a good awareness of the external environment in which the organisation operates in.
PESTLE analysis Examples
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