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PEST Analysis – Definition, Framework, Variants

PEST Analysis

Examanation of Macro-Environmental Elements

The PEST analysis is an examination of macro-environmental elements that can affect your business. The process helps you identify growth patterns, downturns, business position, and direction of operations. This examination helps you avoid problems and identify growth gaps. The information collected allows you to begin strategic planning.

Furthermore, this examination can be used to complement your external analysis. It can be investigated through executing market research or conducting a strategic analysis.

What is PEST Analysis?

PEST is an acronym that stands for political, environmental, social, and technological. The PEST analysis is used to identify components that may impede your business. It identifies macro-environmental factors that can affect your business.

Additional variants that build on the PEST analysis framework include:

  • PESTEL or PESTLE, which adds legal and environmental elements.
  • SLEPT adds legal factors.
  • STEPLE adds ecological factors.
  • STEEPLE and STEEPLED add ethics and demographic factors.
  • DESTEP adds demographic and ecological factors.

All in all, it’s critical to identify factors that can prevent your business from moving forward. Examining these elements gives you the ability to make better marketing decisions.

PEST Analysis Framework
PEST Analysis Framework

Political Factors

Political factors refer to government intervention in the economy in which your organization operates. Every country or city operates by different laws. Therefore, you need to research tax policies, foreign trade policies, tax rates, trade agreements, and other conditions to determine if your organization is legally operating.

All organizations must abide by the law of the land. Laws are different in most cases, each city, state, and territory has its own unique set of laws. For example, internet gambling is legal in Madrid (Spain), however, it’s illegal in Washington State (United States).

When all is said and done, scanning political components will give you a peace of mind. You can sleep better when you know your business is operating legally.

Economical Factors

Economic factors include economic growth, exchange rates, inflation, interest rates, and seasonality.

When it comes to business ownership, economic factors will always influence how companies (especially financial institutions) operate. For instance, when countries experience a recession, it creates a snowball effect for banks. People are not able to pay bills on time, individuals are not investing like they normally would.

All in all, economical elements measure the amount of potential revenue earned by an individual organization. More specifically, an organization’s profit margin. Additional elements include exchange rates, economical cycles, and seasonality, economic growth, interest rates.

Social Factors

Social factors refer to individuals or groups that influence you, people that you’re connected to socially, i.e., social influencers, role models, friends, family, etc. These factors include age, distribution, health consciousness, culture, subculture, and population growth rate.

Furthermore, social factors can affect organizations on many levels. These elements include income, education, employment, and community.

Unfortunately, many social components are out of your control. However, you can control some aspects like the people you hang around or the people who influence you. These factors can lead to unhealthy habits, poor decisions among others.

Understanding social conditions can help you understand the demand for your product or service. Consequently, you’ll discover more qualified leads and prospects.

Technological Factors

Technological factors refer to technological shifts that can lead to breakthroughs. By the same token technology can also create problems or barriers that may become obstacles for your organization.

For instance, newspapers were the main source of news prior to the evolution of the internet. However, the development of digital technology would forever change the way people read the news.

Furthermore, the expansion of digital marketing has affected every business in one way or another. Organizations have either hopped on board and increased profits or got left behind.

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