PEST Analysis

The PEST Analysis is a Tool that Helps Companies analyze External Factors and How they can Impact their Business.

 

To do this, it Proposes that the Markets are affected mainly by 4 important Agents.

• And that Companies must take them into account to be Successful.
  • Adapting their Business to Different Markets.

 

Its name is an acronym for the 4 Agents Proposed:

• Political.
• Economic.
• Social.
• Technological.

1. Political: What are the Main Political Concerns in a certain Market.

• Environmental Policies, Unions, National sentiment… Can shape Markets.

 

2. Economic: How is the Economy and Wealth Distribution in a Market.

• Purchasing Power, Middle Class size, Percentage of Poor People, etc.

 

3. Social: What are the Traditions and Sociocultural Values in a Market.

• Family Structure, Beliefs, Average Behavior, Social Cohesion, etc.

 

4. Technological: Everything related to Technology in that Market.

• Improvements, Availability, Future Trends, Access to Internet, etc.

PEST Analysis Template

 

Some People Add 2 more Factors to this Analysis:

• Environment.
• Legal.

What is Called a PESTEL Analysis.

However, you can analyze these Agents as PEST’s Political Factors.

 

* We have a Brief Publication talking about it.

• Check our “PESTEL Analysis” Page if you are interested about it.

 

Now, let’s see the first example so that you understand Why this Tool is Useful:

 

Let’s imagine that you are Starting you Own Business.

• A Small Business, of course.

 

You may think that you don’t need a PEST Analysis  but…

• You would definitely need it.

 

Why?

Let’s imagine that you Started a Wine e-commerce.

 

Political

When selling a Food Consumption Product, you would be affected by several Policies:

• Some countries may have Bans on foreign Wine.
• The label you use (Organic, Gluten-Free, etc) should adapt to each Country.
• You should be aware of legal issues like “Taxes on Alcohol”.

 

Economic

The type of Wine you could Sell would vary according to each Country:

• You would find it difficult to sell $ 300 wines in Poor Countries.
• In Rich countries, you would have many more Competitors.
•  Some Countries experience a large fluctuation in their National Currency.

 

Social

Some Countries don’t like wine. In others, their Culture don’t allow to drink it:

• You would have a great acceptance in Spain or France but none in Iran.
• Some Countries prefer Beer and are unwilling to Spend money on Wine.
• Wine Consumption depends enormously on the Country.

 

Technological

Even if this is a Traditional Product, there are Improvements you should be aware of:

• New Wine making Procedures: Wine matured in Clay barrels, etc.
• New Ways of blending different Strains.
• New Conservation Techniques that allow to develop Organic Wines.

 

As you can see, there is much more to consider besides the Price of the Bottle.

• If you wanted a Successful Business, you would have to Take all of this into account.

Now, before we see more examples, we want to Clarify one thing that tends to Confuse People:

• The Difference between a SWOT and a PEST Analysis.

 

Let’s see How these 2 Analysis methods differ:

 

The PEST Analysis focuses exclusively on External Factors.

• Factors that don’t depend on the Company.

 

The SWOT Analysis focuses on External and Internal Factors.

• Internal Factors: Strengths and Weaknesses.

 

The PEST Analysis is a pure Descriptive Analysis.

• It doesn’t say whether an External Agent is good or bad.

 

The SWOT Analysis Judges External Events from the Perspective of the Company.

• Opportunities and Threats are Judgments.

 

A PEST Analysis is Common for all Companies in a Market.

• External Facts are common (or should be) to everybody.

 

The SWOT Analysis is particular for each Company.

• All its Factors depend on the Company analyzed.

 

* If you are Interested about SWOT Analysis, check our Page:

• “SWOT Analysis“.

The best way to understand the PEST Analysis and How you can use it is by sharing some examples with you:

We have chosen 3 examples of Industries in which a PEST Analysis is essential.

• Since these industries can be greatly affected by External Agents.

 

Let’s see what we can learn:

 

Imagine that you work in the Food Industry.

• And your Company is thinking about expanding its Operations.

Therefore, you decide to develop a PEST Analysis.

 

What Factors (among many) should you consider?

 

Political

You should consider the following Political Issues:

• Legislation regarding Intensive Farming.
• Trends in aid to the agricultural Sector.
• Taxes and Import Prohibitions on food Products.

 

Economic

You should consider the following Economic Factors:

• The Wealth of the Population (not everybody can afford a $100 Steak).
• Economic Trend; Will people have more Purchasing Power in the near future?
• How Big is the Food Industry in that Market and main Competitors.

 

Social

You should consider the following Social Factors:

• What Traditional Foods are consumed in that Country / Market.
• How People perceive Food; As something Luxurious, as something Utilitarian, etc.
• How food is consumed; Most typical cuts of meat, if Meat is consumed minced, etc.

 

Technological

You should consider the following Technological Variables:

• How is the Preservation Technology in that Country.
• What is Supply Chain Technology like in your target market
• What Access does this Market have to the Technology you would need.

 

Now, we’ll imagine that you work in the Clothing Industry.

• And your Company is also thinking about expanding its Operations.

Again, you decide to develop a PEST Analysis.

 

What Factors should you consider?

 

Political

You should consider the following Political Issues:

• Labor Contracts (minimum wage, flexibility, etc); if you want to produce there.
• Taxes and Bans to foreign Products.
• If there is any Law that obliges to Demonstrate where Products were developed.

 

Economic

You should consider:

• The Purchasing power of the Population and its distribution.
• If there is any Crisis that may come soon; Fashion is the first Sector affected.
• How Big is the Clothing Sector in that Market and Its Competitors.

 

Social

You should consider the following Social Issues:

• Traditional Clothes people use.
• How people regard Clothes; Is it something they Value, or not?
• How flexible are People to adopt new Fashion Trends.

 

Technological

You should consider:

• How Fast is the Supply Chain in that Market; Important for New Trends.
• How advanced is the Manufacturing Technology; If you produce there.
• How Implemented are Social Networks; They are the best fashion showcase.

 

Finally, we’ll imagine that you work for a Hotel Chain.

• And the Company is thinking about expanding its Operations.

Again, you decide to develop a PEST Analysis.

 

What Factors should you consider?

 

Political

You should Consider:

• Political “feeling” towards Hotels; In Touristic cities, people don’t want more Hotels.
• How is the Legislation regarding Hotel Density in the Target Market.
• Efficiency of the Bureaucracy: How long does it take to obtain building permits.

 

Economic

You should consider the following Economic Factors:

• Average Price per Night in your Target Market.
• How Big are the Luxurious, Mid-Priced and Cheap Hotel Segments.
• Is there any Economic Event that may alter the Market?

 

Social

You should consider:

• What is the Aspect of a Traditional Home in that Market?
• What People Value; For example: In Japan, people love “smart” toilets.
• Cultural aspects to consider: What food do people Eat in that country?

 

Technological

Technological Factors to consider:

• What do people expect from Technology in their Room? Wifi, TV, AC, etc.
• How advanced is the Construction Technology in that country?
• Is people used to use Management Software? To control Spending and Income.

The PEST Analysis is a Tool that Helps Companies analyze External Factors and How they can Impact their Business.

 

It Proposes that the Markets are affected mainly by 4 important Agents.

1. Political: What are the Main Political Concerns in a certain Market.
2. Economic: How is the Economy and Wealth Distribution in a Market.
3. Social: What are the Traditions and Sociocultural Values in a Market.
4. Technological: Everything related to Technology in that Market.

 

Difference between PEST and SWOT Analysis:

• The PEST Analysis focuses exclusively on External Factors.
• The SWOT Analysis focuses on External and Internal Factors.
• The PEST Analysis is a pure Descriptive Analysis.
• The SWOT Analysis Judges External Events from the Perspective of the Company.
• A PEST Analysis is Common for all Companies in a Market.
• The SWOT Analysis is particular for each Company.