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What is Pestle Analysis?

Pestle analysis is a concept that is used by the companies as a tool for monitoring the macro-environment factors they are operating, its impact on the company and their plan to launch a new project/product/service. The result is used for identifying threats and weaknesses that is used in SWOT analysis. It is a concept in marketing principles. It is sometimes also called as PEST analysis. PESTLE is the mnemonic which when expanded denotes:

  • P-Political
  • E-Economic
  • S-Social
  • T-Technological
  • L-Legal
  • E- Environmental

These are all external environmental factors.

The greater details of mnemonic of PESTLE is given below:

Political Factors: It is all about how the government intervenes and up to what degree in the economy. Political factors include policies on tax, fiscal policies, trade tariff, corruption, bureaucracy, internal political issues, trading policies, conflicts, wars and terrorism etc. By this it is clearly visible that political factors do have an impact on organisations and on how they do business. Organisation’s task is respond to the current and anticipated future legislation and accordingly adjust their marketing policy.

Economic Factors: Economic factors have a severe impact on how the organisation is doing its business and how profitable and successful they are. The factors which contribute to this are- economic growth, interest rates, exchange rates, inflation, disposable income of customers and businesses. The factors can be divided into two parts, macro-economic and micro-economic factors. In an economy the macro factor generally deals with the management of demand. The government uses main mechanism which are the interest rate control, taxation policy and expenditure of government. The micro factors deals with the way people spend their incomes. Overall this has a huge impact on B2C organisations in particular.

Social Factors: This is also known as socio-cultural factors. They are the ones that are involved in the shared belief and attitudes of the population. These factors generally include- population growth, age distribution, health consciousness, career attitudes and so on. These particular interest factors have a direct effect on how the marketers understand the customers and what will drive them.

Technological Factors: As we know that technology is changing rapidly and how this would impact the way when someone would market its products. Technological factors are affecting both marketing and management in three distinct ways:

  1. Producing goods and services by new ways.
  2. Distributing goods and services by new ways.
  3. Communicating with target markets by new ways. 

Environmental Factors: In the last fifteen years or so these factors are the only ones which have come to the forefront. With the increase scarcity of raw materials, targets of pollution, doing business as an ethical and sustainable company, targets set by government for carbon footprints the environmental factors become the most important ones. Marketers are facing many issues within this factor. The demand of the customer is that the products which they are buying that must sourced ethically and from a sustainable source.

Legal Factors: This factor has both internal and external sides. It includes labour laws, health and safety standards, consumer laws, product quality and labelling etc. In order to trade successfully the companies need to know what is legal and what is not legal. If an organisation is trading all over the world then this becomes very tricky as each of the country has its own set of rules and regulation.

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Example of Pestle analysis:

Pestle analysis of Uber which is the leading shared taxi service provider is given below:

  • Political factors: follows minimum wage rule, deals with bans in many countries, clears its stand about driver’s insurance.
  • Economic factors: It is easily accessible, affordable fare charges, pay may not be convincing but offers more job opportunity.
  • Social factors: It is user friendly, quick pick up available, provides better ride experience than taxis.
  • Technological factors: Excellent mobile app for users, uses electronic media and social media for promotional purpose.
  • Environmental factors: There may be increase in fuel usage, traffic congestion is also a concern.
  • Legal factors: Need to look after copyright laws, prevention of ban in many countries, follows labour and employee safety.

Pestle analysis of Nike, the famous sports shoes and apparel manufacturer is given below:

  • Political factors: It should consider taxation and manufacturing rules of each country, necessary to follow the import and export laws.
  • Economic factors: It should target customers with good purchasing power, to see for developing countries as they may be good opportunity for Nike.
  • Social factors: Target health conscious people, the shoes and apparel should be for health conscious people along with sporty people.
  • Technological factors: It uses finest technology, continuous changes in technology, opportunity and threat.
  • Environmental factors: It needs to come up with environmental friendly products.
  • Legal factors: It must look after copyrights and designs of shoes and apparel it produces, must obey health and safety rules.

Advantages of pestle analysis are:

  • Easy to understand.
  • Makes use of opportunities.
  • Preparedness for threat.

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