Biz Strategy 101: How to do a PEST Analysis

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Biz Strategy 101: How to do a PEST Analysis

Introduction

This series looks at the different strategic tools and methods used when designing your business strategy for execution.

In this article we will look at the PEST analysis.

 

What does “PEST” mean ?

It refers to “Political, Economic, Socio-Cultural, Technological”.

This analysis is used for marketing and business development assessments.

What is the main outcome of using “PEST” ?

It helps management to identify threats and opportunities in its market as part of its strategic planning initiatives.

The PEST analysis is different to the SWOT analysis as it looks at the opportunities and threats across Political, Economic, Socio-Cultural, Technological factors.

It specifically focuses on measuring the market potential and situation in order to determine;

  • Market attractiveness
  • Business potential
  • Suitability of access

 

What is the approach to this model ?

  1. Discuss all four factors in a brainstorming session.
  2. Draw conclusions based on discussions and findings.

 

Which are the key areas and factors for consideration ?

1. Political Factors

For each factor ask yourself ?

  • How will it impact your business’s strategy and to what extent ?
  • How will it impact the market ?
  • Is it an opportunity or a threat ?

Factors are;

  • Environmental regulations and issues
  • Ecological issues
  • Tax policies
  • Internal trade regulations
  • Contractual enforcement laws
  • Employment laws
  • Government organisation attitude
  • Competition regulation
  • Political stability
  • Consumer protection
  • Future legislation
  • Government type and stability
  • Government policies
  • Government term and change
  • Funding, grants and initiatives
  • Regulatory bodies and processes
  • Internationale pressure groups
  • Current legislation home market
  • Wars and conflict
  • Monopolies legislation
  • Environmental protection laws
  • Levels of corruption
  • Trade restrictions and tariffs
  • Likely Political change

2. Economic factors

For each factor ask yourself ?

  • How will it impact your business’s strategy and to what extent ?
  • How will it impact the market ?
  • Is it an opportunity or a threat ?

Factors are;

  • Economic growth
  • Interest rates
  • Monetary policies
  • Government spending
  • Unemployment policy
  • General Taxation issues
  • Taxation specific to products and services
  • Exchange rates
  • Inflation rates
  • Stage of business cycle
  • Labour costs
  • Consumer confidence
  • Home Economic situation
  • Home Economy trends
  • Overseas economies and trends
  • Seasonality / Weather issues
  • Market and trade cycles
  • Specific industry factors
  • Market routes and distribution trends
  • Customer / End-user drivers
  • Impact of Globalization
  • Disposable income
  • Energy availability and cost
  • Likely Economic change

3. Socio-Cultural Factors

For each factor ask yourself ?

  • How will it impact your business’s strategy and to what extent ?
  • How will it impact the market ?
  • Is it an opportunity or a threat ?

Factors are;

  • Income distribution
  • Population Demographics
  • Age distribution
  • Emphasis of safety
  • Population growth rate
  • Labour / Social mobility
  • Lifestyle trends and changes
  • Consumer attitudes and opinions
  • Consumer buying patterns
  • Media views
  • Law changes effecting social factors
  • Brand, company, technology image
  • Work / career attitudes
  • Attitudes to leisure
  • Entrepreneurial spirit
  • Level of Education
  • Fashion and Trends
  • Level of Health and consciousness
  • Welfare
  • Living conditions
  • Major events and influences
  • Buying access and trends
  • Ethnic / Religious factors
  • Advertising and publicity
  • Ethical issues
  • Consumerism
  • Employment patterns
  • Likely Socio-Cultural change

4. Technological Environment Factors

For each factor ask yourself ?

  • How will it impact your business’s strategy and to what extent ?
  • How will it impact the market ?
  • Is it an opportunity or a threat ?

Factors are;

  • Government research spending
  • Industry focus on technology
  • New inventions
  • Competing technology developments
  • Automation
  • Associated / dependent technologies
  • Replacement technology solutions
  • Manufacturing maturity and capacity
  • Information and communications
  • Global communications
  • Reduced communications costs
  • Intellectual property issues
  • Technology access, licensing and patents
  • Technology legislation
  • Innovation potential
  • Rate of technology transfer
  • Life cycle of technologies
  • Energy use and costs
  • Changes in IT usage
  • Changes in Internet usage
  • Changes in Mobile technology

 

Examples

Pest Analysis of Apple

Pest Analysis LG

Videos

 

 

 

 

Conclusion

Use the PEST analysis in conjunction with the SWOT analysis. This analysis will give you a good sense of the challenges your business will be facing in both existing and new markets.

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Arno Wakfer CA (SA)

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Article published with permission from the author.

By |2018-03-13T10:11:15+00:00February 2nd, 2016|Ask the Business Sales Expert, Business Exit Strategy, Strategy|0 Comments

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