PEST analysis helps to understand how external conditions — crises, new laws, scientific discoveries — affect business development. We tell you how to conduct it.
What is PEST Analysis
Why Conduct a PEST Analysis
Pros and Cons of PEST Analysis
Types of PEST Analysis
Differences between PEST and SWOT analysis
Stages of PEST analysis
Expert advice
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What is PEST Analysis
Table of Contents
PEST analysis is a strategic marketing tool. It is used to study external environmental factors – everything that happens around the company and influences it. These factors make up the abbreviation PEST:
Political
- political. The country’s foreign and domestic policies, subsidy programs, tax policy;
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Economic —
- economic. The level of inflation, GDP dynamics, changes in exchange rates;
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Social —
- socio-cultural. The level of education, demographic data, customs and values of the population;
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Technological —
- technological. Scientific discoveries, development of the patent system.
PEST analysis is used for different purposes and situations: to analyze an industry or market, to assess the prospects for launching a new direction or brand. It is used in strategic sessions when a company needs to determine development steps for a year or several years ahead. Some organizations conduct strategic sessions and PEST analysis more often – for example, once every six months.
PEST analysis is a universal marketing tool for studying the external environment: it can be applied to the entire company or to its individual areas, for example, when entering a new market. PEST analysis is used by business owners, department heads, marketers, analysts and product managers.
Conducting market analysis and making marketing decisions for business development is taught in the course “Market Analysis and Assessment” . Students go from choosing a methodology to researching trends. And in the end, they receive a ready-made market analysis algorithm that is relevant for business in any field.
Why Conduct a PEST Analysis
The environment in which a business exists is constantly changing. These changes need to be noticed and their impact on the market analyzed: for example, how will export restrictions affect the company’s revenue, whether it can take advantage of new subsidy programs. This is why PEST analysis is carried out, which helps to determine:
- market trends;
- the company’s position in the market;
- new directions for development strategy;
- risks – for example, when introducing a new product to the market or when launching an advertising campaign;
- factors that hinder business development;
- the format by which to organize teamwork.
Pros and Cons of PEST Analysis
PEST analysis is a useful tool for a marketer. But it has both pros and cons.
Pros
✅ The company receives data on the external environment
They are necessary for developing a development strategy.
✅ The results of the PEST analysis help to build work within the team
Different departments are synchronized to work together with the identified opportunities and threats.
✅ No uncertainty
Thanks to marketing analysis and ranking of PEST factors, risks and prospects become visible.
Cons
❌ The results may be subjective
if only one expert is involved in the research. In addition, the specialist may conduct a superficial analysis and not take into account some important factors. It is also better to make decisions about their ranking and develop hypotheses in a team.
❌ It is necessary to process a very large volume of data
in order for the analysis to be of high quality.
❌ It can be difficult to determine which factor to attribute a trend to
For example, is the introduction of sanctions a political or economic factor? Because of this, you can evaluate the aspect from the wrong side and draw the wrong conclusions.
❌ Results quickly become outdated
The analysis performed may become irrelevant due to sudden changes in the external environment.
Types of PEST Analysis
There are several types of PEST analysis, they differ in additional factors that are studied together with the main ones:
- PEST. Analysis of the main factors: political, economic, socio-cultural and technological.
- PESTEL: PEST + Environmental / Ecological + Legal. Analysis of the main factors, environmental and legal trends.
- PESTELI: PESTEL + Industry analysis. Analysis of the main factors and research of the industry in which the company operates.
- STEEP: PEST + Ethical . Analysis of the main and ethical factors. For example, religious norms in different regions of the country – they must be taken into account in communications and when creating advertising creatives.
- LONGPEST: PEST + Local + National + Global Factors . An extended version of PEST analysis: all the main factors are studied at the local, national and global levels.
Differences between PEST and SWOT analysis
SWOT analysis is also a method for studying a company, department, brand or new production direction. But, unlike PEST analysis, SWOT analysis studies both external and internal factors. These two methods are interconnected, in fact, PEST is the first stage of SWOT analysis.
What does the abbreviation SWOT stand for?
S trengths — the company’s strengths.
W eaknesses — the company’s weaknesses.
Opportunities — the company’s opportunities for development.
T hreats — threats that hinder business development.
For example, a tableware company decided to launch a new product — a reusable silicone coffee cup. To do this, you first need to study the external environment factors (PEST): for example, environmental trends and dynamics in the silicone products market. Then you need to find out what resources the company has for this and its shortcomings, that is, conduct a SWOT analysis. For example, the strength is the quality of the product, and the weakness is low brand recognition. Next, you need to recognize the threats and opportunities of the business. This could be high competition or an eco-agenda.
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Stages of PEST analysis
Marketing PEST analysis consists of four stages:
Collect factors
To do this, study analytical articles, market reviews, legislative changes in the industry, conduct in-depth interviews with experts and customer surveys. It is important to immediately filter out factors that do not affect the company and the industry.
Divide the factors into clusters
political, socio-cultural, economic, technological. Some factors can be classified into several clusters and considered from different angles.
Rank the factors
At this stage, you need to arrange the factors from the most important to the least significant. Often the degree of influence is indicated by a number, where 1 is a minor influence, 3 is a strong influence. Determine how the factor changes over time, whether it is a threat, an opportunity, or both.
Work out hypotheses
PEST analysis is a tool that should lead to a specific action plan: after conducting the analysis, it is necessary to decide how the company will develop based on the findings.
