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What is Pestle Analysis?

Pestle analysis is a concept that is used by companies as a tool for monitoring the macro-environment factors they are operating, their impact on the company, and their plan to launch a new project/product/service. The result is used for identifying threats and weaknesses that are used in SWOT analysis. It is a concept in marketing principles. It is sometimes also called a 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 the mnemonic of PESTLE are 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 tariffs, corruption, bureaucracy, internal political issues, trading policies, conflicts, wars, terrorism, etc. By this, it is clearly visible that political factors do have an impact on organizations and on how they do business. The organization’s task is to respond to the current and anticipated future legislation and accordingly adjust its marketing policy.

Economic Factors: Economic factors have a severe impact on how the organization 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, and the 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 mechanisms which are the interest rate control, taxation policy, and expenditure of the government. The micro factors deal with the way people spend their incomes. Overall this has a huge impact on B2C organizations in particular.

Social Factors: These are 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 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 in new ways.
  2. Distributing goods and services in new ways.
  3. Communicating with target markets in new ways. 

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

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

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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, and pay may not be convincing but offers more job opportunities.
  • Social factors: It is user-friendly, has quick pick-up available, and provides a better ride experience than taxis.
  • Technological factors: Excellent mobile app for users, uses electronic media and social media for promotional purposes.
  • Environmental factors: There may be an increase in fuel usage, and traffic congestion is also a concern.
  • Legal factors: Need to look after copyright laws, prevention of bans in many countries, and follow labor and employee safety.

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

  • Political factors: It should consider the 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 developing countries as they may be good opportunities 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 the finest technology, continuous changes in technology, opportunity, and threat.
  • Environmental factors: It needs to come up with environmentally friendly products.
  • Legal factors: It must look after copyrights and designs of shoes and apparel it produces, and must obey health and safety rules.

The advantages of a pestle analysis are:

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

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