How PESTEL Analysis Guides Your Important Business Decisions

Here is all you need to know about PESTEL analysis. Learn about the six factors that are external to an organisation, the variations of PESTEL analysis, importance and how you can do it yourself.

One of the most important frameworks apart from Porter’s Five Forces and SWOT Analysis that guides a business strategy is PESTEL Analysis. It is used by management experts and marketing teams worldwide and helps a business respond to the changing dynamics quickly to gain a competitive advantage. 

Table of Content

1. PESTEL analysis explained with examples
2. Variations of PESTEL analysis
3. Importance of PESTEL analysis
4. How to conduct PESTEL analysis

PESTEL Analysis Explained with Examples

PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal. 

It is a framework that is used for analysing the macro environment of the organisation. 

It is a type of situational analysis that is conducted after every few months or a year, as the macro environment remains largely dynamic. 

Also, one crucial aspect that differentiates PESTEL Analysis from SWOT analysis is that it only looks at the uncontrollable external factors/situations. SWOT looks into internal factors such as weakness and threats. 

Let’s explore all the external factors one by one. 

Political Factors

These factors determine the government’s policies and regulations that allow the organisation to operate in the city, state, or nation. 

In India’s context, GST, foreign trade policies, labour laws, etc, are political factors that businesses need to consider existing in the market. 

Economic Factors

These include all aspects of the nation’s or state’s economy – macroeconomic and microeconomic. Macroeconomic factors are inflation, GDP, employment and unemployment, costs of labour, etc. On the other hand, microeconomic factors include disposable income, spending potential of customers, etc. 

B2C organisations affected by microeconomic factors more than B2B companies. For example, the higher the spending potential of the customers, the more products the B2C companies can develop to meet more requirements. Learn more about the difference between B2B and B2C as well. 

Social Factors

These are aspects that are largely seen in the current society where the organisation is based. Factors such as demographics, religious beliefs, buying patterns of a specific target audience, etc., are social in nature. 

For example, exploring social factors such as demographics can help in customer segmentation. Based on segmenting customers, marketing departments can strategise a plan and leverage the marketing mix. 

Technological Factors

Technology drives innovation, and it is constantly changing. More than any of the factors mentioned above, technology evolves much faster. 

How do you think it affects marketing and production?

Technology leads to new ways of developing products, distributing them and creating newer means of communication. 

One of the key examples of this is digital marketing and its growing importance for businesses of all sizes today. So much so, with artificial intelligence becoming a recent trend, marketers are starting to leverage AI marketing in their marketing strategies. 

Check out the best digital marketing courses

Environmental Factors

These factors include climate change, pollution, etc. Today, they are changing consumers’ perceptions of brands that do not give importance to such challenges. Even the sourcing of raw materials, whether ethical or unethical, play a big role in the consumer’s decision-making process. 

Related: Green marketing

Legal Factors

These factors equate to consumer rights, protection of intellectual property, licences, etc. 

Variations of PESTLE Analysis

Some of the common variations of PESTEL analysis are mentioned below. 

Also read about Business Ethics

Importance of PESTEL Analysis

A key benefit of PESTEL analysis is that it offers the bigger picture of some of the most influential factors in developing a product. It ensures that the organisation is not overlooking the laws of the nation or forgetting about the environment. 

Another advantage is that it helps you understand the risks that may arise because of the changing factors in the business environment. 

PESTEL analysis can be used for a variety of purposes. Marketing, product development, change management, business strategy planning, etc. are some of them. 

How to Conduct a PESTEL Analysis

Here is how you can do a PESTEL analysis with eight steps. 

1. Determining the research scope with possible and future situations that can affect the business in the specific industry
2. Finding out more than one individual to gather different perspectives on the external factors, preferably a group or team
3. Determining the right sources of information about policies and changes
4. Creating a template of sorts to highlight all the factors and how each affects the organisation in which ways
5. Listing the challenges at the beginning after analysis of the information
6. Focusing on the solutions for each challenge as a business
7. Discussing the observations with top-level management
8. Taking the final decisions after discussions

Parting Thoughts

So there you go! This is PESTEL analysis in a nutshell. Hopefully, you can conduct one yourself and make the right decisions that benefit your business and society at large.