PESTLE / PESTEL Analysis: Tool to assess the Macro-Environment

PESTLE analysis consists of components that influence the business environment and each letter in the acronym denotes a set of factors that directly or indirectly affect every industry. The Pestle analysis allows marketers to analyse the major environmental factors and examine the effect of these factors on marketing planning and implementation.

What is PESTLE / PESTEL / PEST Analysis?

PESTLE, acronym for political, economic, social, technological, legal and Environmental, is an analysis tool that allows businesses to assess various external factors that can influence its long-term operation and profitability in order to become more competitive in the market (Kotter and Schlesinger, 1991).

• Political: Government policy, Political stability, Corruption, Tax policy, Labor law, Trade restrictions
• Economic: Economic growth, Exchange rate, Interest rate, Inflation rates, Disposable income, Unemployment rates
• Social: Population growth rate, Age distribution, Career attitudes, Safety emphasis, Health consciousness, Lifestyle attitudes, Cultural barriers.
• Technology: Technology incentives, Level of innovation, Automation, R&D activity, Technological change, Technological awareness.
• Environmental: Weather, Climate, Environmental policies, Climate change, Pressures from NGOs
• Legal: Discrimination laws, Antitrust laws, Employment laws, Consumer protection laws, Copyright and patent laws. Health and safety laws.

Political Factors

The industry has to follow the taxation policy, implement labor laws in industry, trade restrictions, political stability in the country, environmental laws and tariffs.

Things to consider include:

• Political stability or instability of the country and the region (indicators are e.g. number of riots, political executions, bureaucratic delays, soldier civilian ratio).
• The country’s laws, regulations and government actions. Market prohibitive conditions (tariff/non-tariff barriers, important restrictions). Government regulations (import restrictions, local content laws, price control, labour restrictions)
• Tax controls/reliefs
• Government support programmes
• Activities of various professional bodies, trade unions, pressure groups and voluntary associations.
• Political/legal barriers between the countries
• Relationship between home and host country
• Government bureaucracy: efficient customs handling; planning permission; good market information; Bribery, corruption.
• Proposed changes to any of the above.

More factors include: Current legislation in the home market. Future legislation – effects of BREXIT. International legislation – EU. Regulatory bodies and processes. Government policies. Government term and change (Labour change to Conservatives). Trading policies. Funding, grants and initiatives. Home market lobbying/pressure groups. International pressure groups. Wars and conflicts.

Related: The Political Environment facing business

Economic Factors

These factors have the influence of the supply and demand of the product, substitute resources and the exchange rates.

Some of the factors to consider include Buying power affected by income, debt and credit usage. Interconnected global economy: the impact of recession or recovery in one country or region on consumers and businesses purchases in another country or region. Home country’s economic growth rate vs. other countries’ growth rates.

• Economic stability
• Degree of economic freedom
• Economic development (national production: GNP, GDP, GDP per capita)
• Stage of market development (worldbank)
• Income and wealth (to determine people’s purchasing power) (income growth rate, personal or household disposable income, purchasing power parity (PPP); income distribution)
• Infrastructure: transportation, education, health care
• Economic integration (free trade areas)

Here are some more factors:

Wage inflation – annual wage increases in a particular sector will depend on the supply of labour in that sector. Where there is scarcity of supply, wages usually increases (e.g. doctor).

Price inflation – how much consumers pay for goods and services is dependent on the rate of supply of those goods and services.

Gross domestic product per capita – combined output of goods and services in a particular nation determines relative wealth between countries when comparisons are calculated per member of the population.

Income, sales and corporation taxes – typically operating in all countries around the world usually at different levels, substantially affecting how we market goods and services.

Exchange rates – the relative value of a currency vis-à-vis another currency impacts on businesses operating in foreign markets or holding financial reserves in other currencies.

Export quota controls and duties – there are often restrictions placed on the amounts (quotas) of goods (and services) that any particular firm or industry can import into a country, depending on to which trading bloc or country a company or firm is exporting.

Related: The Economic Environment facing business

Social Factors

This element include things like demography, income migration, religion, culture, and ideological views on the issues.

There are several social-cultural factors that need to be considered, such as:

• total population, population growth rate, age distribution of the population, degree of population density
• Demographic trends, birth rates, people live longer, etc. size of country in terms of geographic area, climatic conditions, topographical characteristics.
• Education
• Trends
• Size, composition of markets and segments.
• Customer characteristics and needs.
• Feelings and attitudes toward products, companies, brands.
• Values, belief systems, tastes. Religion. Language. Rituals, routines, manners, customs
• Changes in social values, e.g. Health, relationships, etc.
• Changes in attitudes towards working women
• Classifying culture to formulate cultural differences and similarities
• High and low context cultures
• Hofstede’s culture dimensions
• Market similarity/Psychic distance (from home base to foreign market)

More factors include: Lifestyle trends. Demographics. Consumer attitudes and opinions. Media views. Law changes affecting social factors. Brand, company, technology image. Consumer buying patterns. Fashion and role models. Major events and influences. Buying access and trends. Ethnic/religious factors. Advertising and publicity. Ethical issues.

Technological Factors

Changes in technology can influence the organization with the need to get modern technology, learn new techniques and use different methods.

New technology changes the way companies go to market through moves towards more email and web-based marketing and greater efficiency in direct and database marketing techniques (Sclater, 2005).

Changes in technology particularly affect high-technology industries, where firms must decide whether they wish to dominate that market by pushing their own particular technology standards, and especially where new technology renders existing standards obsolete.

In scanning the technological environment, we are particularly interested in research and development (R&D) trends, and our competitors’ R&D efforts. For example, in the pharmaceutical and chemical industries, companies have for a long time developed new compounds based on modifications of compounds registered for patents by their competitors in a process known as ‘reverse engineering’.

Innovation becomes a necessary condition in the strategic marketing decision-making of high-technology firms. For less technology-intensive firms, innovation of some form, whether it is process- or product/service-focused, or at least rapid adoption of new product/service variants based on competitors’ offerings, is still usually necessary to stay ahead of the competition.

Questions to Ask

• What are some technological trends that have occurred or are occurring? i.e. new technologies, transportation, ICT and media etc.
• What impact do you think each of these changes might have on the case study organisation?
• What impact do you think each of these changes could have on marketing activities?

Legal Factors

Laws and regulation are enacted in most countries ranging from the transparency of pricing, the prevention of restrictive trade practices, product safety, good practice in packaging and labelling, and the abuse of a dominant market position, to codes of practice in advertising, to take just a small selection.

There is formation of laws, rules and regulations of concerned department, governments and the international organizations and communities.

Product Safety, Packaging, and Labelling – Generally, in the EU, product labelling regulation tends to relate to recycling of packaging and waste to ensure it complies with environmental regulations, whereas in the USA, for example, packaging and labelling regulations are more concerned with fair practice and ensuring that packaging does not contain misleading advertising statements.

Codes of Practice in Advertising – Advertising standards differ around the world. In some countries, for example, the UK, advertising is self-regulated, i.e. by the advertising industry itself. In other countries, advertising is restricted by government legislation.

Related: The Legal Environment facing business

Questions to Ask

What are some legal developments and/or changes that have or are occurring? i.e. Data protection law, driving laws, alcohol consumption etc.

Environmental Factors

Ecological Factors such as impact on the environment – temperature, food, pollutants, population density.

In the 1990s, companies became concerned with the concept of ‘green’ marketing, and later in the 2000s with the concept of marketing sustainability. Increasingly, consumers are worried about the impact of companies on their ecological environments. They are demanding more ‘organic’ food, incorporating principles of better welfare for the animals they consume as food products and less interference with the natural processes of growing fruit and vegetables (e.g. the use of pesticides and chemical fertilizers).

Orsato (2006) suggests that a company can adopt one of the following four different green marketing strategies:

Eco-efficiency – developing lower costs through organizational processes such as the promotion of resource productivity (e.g. energy efficiency) and better utilization of by-products.

Beyond compliance leadership – the adoption of a differentiation strategy through organizational processes such as certified schemes to demonstrate their ecological credentials, their environmental excellence, for example, the adoption of the UN Global Compact principles or other Environmental Management System (EMS) schemes and codes such as ISO14001.

Eco-branding – the differentiation of a firm’s products or services to promote environmental responsibility. Examples include Duchy Originals, the British Prince of Wales’ food brand, the Thai King Bhumipol’s Golden Place brand, or the Toyota Prius labelled as ‘mean but green’.

Environmental cost leadership – the offering of products and services that give greater environmental benefits at a lower price.

Useful Read: IBM and the smarter planet

Questions to Ask

What are some ecological trends that have or are occurring? What are we concerned about today than what we weren’t 10 years ago? i.e. environment, pollution, product packaging, ingredients, advertising etc.

What impact do you think these changes might have on your case study organisation?

Pros & Cons of PESTEL

Here are the advantages od using the PESTEL model:

• It is a simple framework that is easily understood
• It enables key opportunities & threats to be identified & managed
• It encourages the development of strategic thinking within organisations
• It enables organisations to assess implications of entering new markets – both domestic & global markets
• It can also be used to identify trends

Here are some of the disadvantages of the PESTEL model:

• It focuses more on the current situation and may not consider long-term issues
• The analysis is a “snapshot in time” & can become out of date quickly
• It can generate long lists so it must be applied selectively for the applicable market or industry
• Relevant external information may not be accessible by the organisation
• Assumptions often form the basis for most of the data used, making any decision made based on such data subjective

PESTLE Examples

PESTLE analysis for Giordano

Giordano is a popular apparel retailer of apparel in the Asia Pacific region with shops operating in over 30 countries worldwide.

Political

Impact of events that can cause business disruption, changes to tax structure. How easy is to setup a manufacturing plant, or a store – bureaucracy, licenses. For example, anti-extradition protests in Hongkong had crippled the city during the second half of last year, when Giordano shops were vandalized and many were forced to close during police operations (Jeff Pao, 2020). Sales performance were also impacted due to Sino-US trade dispute.

Economical

Coronavirus has impacted sales as people are confined indoors (Jeff Pao, 2020). Labour costs can put pressure on margins. Increase in cost of raw materials, currency exchange rates are other factors that can impact business. A weak economy also discourages people to spend on apparel.

Social

Social factors include cultural influences, local tastes and preferences. Do people wear reserved clothing most of the time? Do they wear skimpy clothes? More factors include demographics of the population, class structure, education levels.

Technological

Technology related innovation can affect operations and the market. Giordana is enhancing its e-commerce capabilities to cater to consumers who prefer shopping (Michael Arnold, 2020). Digital and social marketing efforts will also help the company build brand loyalty.

Legal

Companies whose business spans multiple countries have to adhere to the legal laws of the countries within which it operates. So, Giordano will have to adhere to the labour laws, environmental laws, and other laws of countries where it is present.

Environmental

Environmental factors have become more important in recent times as people become more conscious about protecting the environment. Committed to minimizing the environmental impact due to its operations, Giordano will be using energy efficient lighting solutions in all its new stores (Giordano, 2020).

PESTLE Analysis for Oil & Petroleum Industry

The Oil & Petroleum industry plays an important role in the economy of a country and also gives good opportunity to investors. PESTLE Analysis would help to understand the nature of the working, the conditions of business and necessary regulations.

Political Factors: The industry has to follow the taxation policy, implement labor laws in industry, trade restrictions, political stability in the country, environmental laws and tariffs. Government also supports this industry and helps it to flourish so that it can contribute to the economy.

Economic Factors: These factors have the influence of the supply and demand of the oil prices along with supplementary goods, substitute resources and the exchange rate of American dollar in the market.

Social Factors: This include the demography, income migration, religion, culture, and ideological views on the issues. Skilled and professional workers work in this sector get good wages and relaxing working hours. The countries want to have oil and gas industry, so that they can meet their future demands and it can help them to raise their living standards.

Technological Factors: Changes in technology can influence the organization with the need to get modern technology, learn new techniques and use different methods. The latest technologies are used for the exploration of oil and gas and use roads, pipelines, transport and oil tanks. This industry is working for the complementary products, like synthetic fibers, and various other products. Substitute industries are introduced like biomass industry, nuclear industry, natural gas, coal industry, renewable energy resources and nuclear industry.

Legal Factors: There is formation of laws, rules and regulations of concerned department, governments and the international organizations and communities including European Union, African Union, North American Free Trade Agreement, ASEAN are included. The legal factor influences the exploration, exploitation, and the commercialization of oil products. There are legal obligations like work regulation, work protection, social protection, competition regulation, pollution, international trade and consumer protection. Further this industry has to pay the subsidies, taxes for fuels and oil prices etc.

Ecological / Environmental Factors: The geographic position of the oil reserves and refinery has great influence on the activity of the oil companies. The latest report of OPEC shows that most of the natural oil and petroleum is produced in the countries like Saudi Arabia, Kuwait, Russia, US, Iran, Canada etc., they have to face natural disasters like earthquakes, hurricanes, cyclones, tsunami that affect the economic situation in the country. The Government should ensure strict regulations for the use of oil and gas to combat with the negative effects of oil and gas industry as well as design the structure to utilize these resources in preventive and safe manner.

PEST Analysis for Decathlon India

• Political: In India, Decathlon business operations won’t be disrupted due to civil unrest, government regulations. The business environment in India is also conducive for foreign entrants.
• Economic: The Indian market provides easy availability of capital, and the middle class has good disposable incomes in India
• Social: More people in India are indulging in fitness and sports activities. Advertisements should be sensitive towards Indian culture.
• Technology: More people are buying products online. Mobile payment is popular in India

References

Kotter, J. and Schlesinger, L. (1991) “Choosing strategies for change” Harvard Business Review, pp.24-29