PEST Market Analysis Tool

PEST Analysis

PEST Analysis

PEST analysis stands for “Political, Economic, Social, and Technological analysis” and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Some analysts added Legal and rearranged the mnemonic to SLEPT; inserting Environmental factors expanded it to PESTEL or PESTLE, which is popular in the UK. The model has recently been further extended to STEEPLE and STEEPLED, adding education and demographic factors. It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macroenvironmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.

The growing importance of environmental or ecological factors in the first decade of the 21st century have given rise to green business and encouraged widespread use of an updated version of the PEST framework. STEER analysis systematically considers Socio-cultural, Technological, Economic, Ecological, and Regulatory factors.

The Model’s Factors

Political factors, are how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Furthermore, governments have great influence on the health, education, and infrastructure of a nation.

Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm’s cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy

Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company’s products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers).

Technological factors include ecological and environmental aspects, such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.

Environmental factors include weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance.Furthermore, growing awareness to climate change is affecting how companies operate and the products they offer–it is both creating new markets and diminishing or destroying existing ones.
Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.

“Explanation of Life”

On the first day God created the dog. God said, “Sit all day by the door of your house and bark at anyone who comes in or walks past. I will give you a life span of twenty years.” The dog said, “That’s too long to be barking. Give me ten years and I’ll give you back the other ten.”
So God agreed.

On the second day God created the monkey. God said, “Entertain people, do monkey tricks and make them laugh. I’ll give you a twenty-year life span.” The monkey said, “Monkey tricks for twenty years? I don’t think so. Dog gave you back ten, so that’s what I’ll do too, okay?”
And God agreed.

On the third day God created the cow. “You must go to the field with the farmer all day long and suffer under the sun, have calves, and give milk to support the farmer. I will give you a life span of sixty years.”
The cow said, “That’s kind of a tough life you want me to live for sixty years. Let me have twenty and I’ll give back the other forty.”
And God agreed again.

On the fourth day God created man. God said, “Eat, sleep, play, marry and enjoy your life. I’ll give you twenty years.”
Man said, “What? Only twenty years? Tell you what, I’ll take my twenty, and the forty the cow gave back, and the ten the monkey gave back, and the ten the dog gave back, that makes eighty, okay?”

Okay,” said God, “You’ve got a deal.”

So that is why the first twenty years we eat, sleep, play, and enjoy ourselves; the next forty years we slave in the sun to support our family; the next ten years we do monkey tricks to entertain the grandchildren; and the last ten years we sit on the front porch and bark at everyone.

Life has now been explained to you.