The PESTEL analysis is a strategic tool used in businesses to help them identify and evaluate the macro-environmental factors that impact their business operation. The PESTEL analysis mainly looks at the macro trends surrounding a particular business environment.

PESTEL analysis majorly examines the political, economic, social, technological, legal, and environmental factors surrounding a business in an operating market, which can challenge or create opportunities for a particular business.

For you to be successful in the business and gain market advantage, it is important to understand the aspects of PESTLE analysis and the factors influencing it. This article will provide detailed information on PESTLE analysis while providing real-world examples and effective tips on how to use PESTLE analysis.

What is PESTLE Analysis?

Have you heard business people and entrepreneurs say that you need to focus on the bigger picture when launching your business? If yes, then in other words, what they say is that you must analyze the elements surrounding the macro environment, be aware of the factors affecting your business, and find strategic approaches for decision-making.

PESTLE analysis is a framework that supports businesses in organizing themselves and identifying and evaluating the opportunities and challenges associated with macro environment factors.

PESTLE is a mnemonic and acronym for Political, Economic, Social, Technological, Legal, and Environmental. These are all the elements existing in the macro environment.

These external influences are examined to determine their impact on your business. Knowing and understanding these external factors helps your business to see opportunities and strengths, acknowledge threats, and mitigate the risks associated with their business.

PESTLE analysis as a marketing tool is important to any business in identifying changes that can affect its business background and developing the right strategic business planning.

PESTLE analysis is mainly used as an extension of the SWOT analysis. The external matrix of SWOT analysis assesses, evaluates, and creates awareness of the business existing opportunities in the business or organization. It also informs the business of the threats available in the market so that they can avoid them.

The external analysis of the business is part of the evaluation to place your business strategically in the market, in a given industry, and in the operating environment.

What are the 6 PESTLE Factors?

Here, we will discuss the 6 common PESTLE factors with examples and understand how they can impact your business.

Political

The “P” letters stand for political in the PESTLE analysis. The political aspect is an essential factor to consider in business to be on the right side with the government measures and policies that impact your business. Political factors play a huge role in the business’s existence, and the government has the power to interfere with the economy, thus impacting your business.

Government policies design a certain pattern in the business that shapes the business laws and regulations; they are entitled to tax guidelines. The government also deals with political relations and their impact on their business in terms of the market. The political stability or political instability in a given country determines the business’s position and outcomes.

Generally, government behavior affects the business, and it raises many questions which affect the business.

The main political factors likely to affect your business are as follows.

1. The government stability
2. Tax guidelines and policies
3. Trade regulations and restrictions
4. Safety regulations
5. Political Policies and Stability
6. Employment laws
7. Fiscal Laws

Examples of the Political Factors

• War in a given region or country

War is a major threat to business operations. The people involved in the war have the power to impact foreign relations, thus affecting the business’s normal operation. Your business is responsible for designing effective strategies to sustain its stability in the market.

• The change in the government operation and change in the election cycles

This change comes with a consequence that automatically affects the economy. The shift of party manifesto in a given country is at risk of affecting the normal business operations in several industries. It leads to regulation or deregulation of the market. It is likely to threaten the existing opportunities in the market.

• Political movement

This is a challenge to the business operators in that you must be aware of the current issue that attracts political movement. Also, examine how it affects your access to the target population in the market. Have an idea of how it affects your relationship with your customers and brand.

• Trade agreement

You should research whether the existing new foreign market will give you opportunities in your business. Also, consider if there is any threat in the new market that is likely to affect your business and prepare for it.

• Fiscal and taxation policies

The change in the taxation policies and codes will likely affect your business in terms of profit return and adjusting your budget. You must develop strategies to remain sustainable in the business.

6. Legislation changes

Be aware if any legislation passed or proposed in the market can affect your normal business operation. Consider how it can affect your customers and prepare to overcome this issue.

Economic Factors

Economic factors are critical to the success of a business, as well as its growth and stability in the market. “E,” the second letter, stands for economic. The economy directly impacts the growth of the business, such as the Gross Domestic Product (GDP), which affects the performance of the business in the market.

You must be considerate of the end consumers’ financial state, providing a quality and affordable product in the market to maintain your customer loyalty and stability in the competitive market.

The main economic factors are as follows

1. Interest rates
2. Inflation rates
3. The cost of raw materials
4. Economic growth
5. Exchange rates of currency
6. The rate of employment and unemployment

Examples of the Economic Factors

• Market inflation

Be aware of how inflation can affect the price of the raw materials essential to your business operation. Also, the change in inflation is likely to affect the customers’ spending and determine how much they can purchase.

• Stock market and values

You must research the recent or predicted trends in the stock market that you think can impact your line of industry and extend to your business. Design strategies to remain sustained in the market.

• Currency status

The currency devaluation affects your currency and the currency of your customer base. A shift in currency affects your business returns and performance in the market. It determines how its currency affects your business revenues and product costs.

• Employment status and employees’ compensation

You must check the labor market to see if you can easily find a good team and committed employees or if it takes time for them to come. Work on having a good team that is productive. Be aware of the trend in the market and where it is heading. In compensating employees, consider critical factors that help the talent grow and remain productive in your organization.

Social Factors

Social factors help you understand the nature of your businesses and meet customers’ needs. “S” stands for social. Your business must focus on the social environment associated with the trends among consumers and public behaviors.

The social factors in the business focus its interest on the consumers’ values, hopes, and desires to ensure their preferences are met.

Social factors help your business develop an effective business plan and functional strategy. It helps you engage in an effective customer analysis to effectively solve your customers’ problems regarding the products and services.

The main social factors influencing the market are as follows.

1. Population growth
2. Consumers’ demographic characteristics
3. The consumer’s lifestyle
4. Cultural trends
5. Consumers’ attitudes
6. Social values of the population

Examples of Social Factors

• Religious and cultural beliefs

Consumers have different spiritual and cultural beliefs, which shape how they see products in the market and their purchasing power. You must research and ensure your business products and services align with most consumers’ beliefs to attract more consumers.

Your business must be sensitive to the consumers’ cultural and religious beliefs to be inclusive of all the consumers within your segment.

• The demographic characteristics

You must be aware of your consumers’ ages, social and cultural backgrounds, and racial and gender identities to help you produce goods that meet the demands of your diverse customers. In the case any shift in this demography is likely to affect your business, you need to be mindful of any changes in the demography. Be prepared to accommodate a shift in the demography to meet their demands equally.

• The consumers’ purchasing patterns

Consumers’ purchasing patterns are influenced by several factors, such as economic changes and financial status. Understand the status level of your consumers and where they spend more or less on your products.

• The consumers’ reviews

Take a survey or interview a portion of your consumers to know how they feel about your products. Act on those reviews to adjust the consumers’ needs to sustain old and new customers and remain competitive.

• The popular media news

Be aware of what is going on in the popular media to ensure what you share with the market is influenced by the media and that the consumers will be willing to buy. Also, consider some of the media influences that will affect your ideas and thoughts of the customers against your products.

Technological Factors

Technological development and advancement in the business world are critical. The increasing innovation in various industries is attributed to the change in the technology you must be aware of as a business person. Technology and innovation are likely to affect your business in the market.

Technology is advancing rapidly, and your business should be able to adapt to the changes to remain competitive in the market.

Aside from the positives of technology, it also has threats which you must be aware of. In the market with increased technology, some products with the help of technology can be replaced with much cheaper products, thus shifting the consumers towards a cheaper product.

The following are the main technological factors

1. Innovation
2. Technology infrastructure
3. Automation
4. Digital technology
5. Research and development activities

Examples of Technological Factors

• The cloud software

Cloud storage is advancing with technology, and businesses that embrace cloud storage have found it advantageous. However, there are security threats that you must be aware of to avoid making mistakes that can ruin your organization.

• The internet usage

The internet is becoming common in many business platforms, and you should be aware of the speed needed to make maximum use of the internet to increase your returns. The reliability of the internet in supporting your online team should be the line of consideration.

• The increasing use of Artificial intelligence and machinery

You must know how to utilize AI for the good and create opportunities to sustain your business on the market. The new machines in the market can improve the quality of the goods and quantity of the products released in the market to meet the demands of the consumers.

• Energy usage

Your business must be willing to embrace the market change that will promote saving energy costs and create a good environment to promote a positive change in the market.

Legal Factors

Your business must be aware of what is allowed by the law to operate in the business to remain sustained in the market. Each region and country has laws that govern the business world, and thus, any entrepreneur must be ready to comply with the existing laws on the market.

The change in the laws and legislations governing a business can have a huge impact on the normal operation of the business.

The following are the main legal factors

1. Consumers’ protection law
2. Health and safety law regulations
3. Employment laws
4. International trade laws and regulations
5. Intellectual property rights
6. Discrimination laws

Examples of Legal Factors

• The consumer protection laws

Some consumer laws are likely to affect your business and how you interact with consumers. How you do your business with the consumers is determined by consumer law, which can be an advantage or a threat to your business.

• Mandatory license

You must be aware of what type of license is needed or what your employees need so that you can operate freely in the market. Failure to have these licenses can affect your market freedom and gain a competitive advantage.

• The patent and the intellectual rights

You must be aware of how the changes and decisions in the intellectual property law affect your business. It can also affect how you interact with your consumers, thus impacting the level of sales and business performance in the market.

Environmental Factors

Environmental factors are critical to business success, and every business must understand the need to show concern for the environment in which they operate. The environment is associated with several factors, such as the carbon footprint, which is essential to the industries operating in the manufacturing sector.

Your business should be concerned with the environmental impacts and how they impact your products’ quality.

The environmental factors associated with the business entails

1. Climate change
2. Environmental laws and regulations
3. Carbon footprint
4. Sustainability initiatives
5. Waste disposal
6. Resource scarcity

Examples of Environmental Factors

• Energy sources

Non-renewable energy is becoming a threat due to the fear of its depletion in the future. You must find an alternative energy source, probably clean energy that will have lasting benefits for your business.

• Climate change

Climate change is attributed to increasing human activities, and its consequences have long-term or short torn to your business. You must be aware of how the climate impacts your business and find an alternative to remain sustained in the market.

• Natural and man-made disaster

Natural disasters are uncontrollable and a threat to your business. It is a threat to the business, especially when it affects a location where many of your customers reside. You must be prepared to deal with such things when they happen.

• Gas emission

Consider whether your business emitted dangerous gases into the atmosphere and come up with an effective strategy to deal with the issue. Find an effective way to reduce the gas emitted to the environment.

What are the Tips for Conducting an Effective PESTLE Analysis?

A pestle analysis should be done effectively to help the business remain competitive. You can consider the following tips as you engage in the pestle analysis.

• Identify the key and relevant factors

You should focus on the critical factors in your business and industry. Not all factors will have the same impact on all businesses, so learn to prioritize what matters most.

1. Use reliable data sources to gather information

You must use data from relevant and reliable sources to have clear information on the status of the market. The updated information is essential to ensure the information delivered for analysis is accurate. Information can be obtained from government reports, relevant industry publications, market research journals, and news articles.

• Involve your team and analyze the impact

It is important to engage and interact with all the departments in your business; this is critical in having diverse ideas to make good decisions. Conduct a comprehensive analysis to assess your business’ positive and negative impacts to support your business growth.

• Use strategic tools

The PESTLE analysis and others, such as SWOT analysis, to understand the nature of the business. Strategic tools are critical to understanding the internal and external status of the business for a proper understanding of the business.

• Monitor changes

It is necessary to monitor the changes to understand the status of your business based on the pestle analysis. Be informed of the external factors impacting your business.