PESTEL analysis allows you to understand the changes and thanks to that adapt to the business environment. The transformations that take place in it may, on the one hand, create enormous opportunities for the company. On the other hand, they can cause serious threats. What areas does the PESTEL analysis cover and can marketing benefit from it? Find out what this acronym stands for and what factors should be considered when conducting the analysis.
The PESTEL analysis is also known as general segmentation of the environment. Marketing theory distinguishes between microeconomic and macroeconomic business environment, also known as micro- and macroenvironment. Microenvironment refers to the immediate business environment: a specific industry, competitors, and all of the company's stakeholders.
It is not always possible to directly control the factors of the microeconomic business environment, but they can always be influenced. In this sense, they are different from macro-environmental factors that also affect the company but cannot be controlled or influenced. The microenvironmental study typically includes stakeholder, competition and industry analysis, a marketing audit allows you to evaluate the effectiveness of activities in this area. On the other hand, a popular method of studying the macro-environment is the PESTEL analysis.
What is PESTEL analysis?
PESTEL analysis is an acronym for the tool used to identify the macro forces facing an organization. Figuratively speaking, it allows you to look at the company's surroundings - also marketing environment - "bird's eye view". It also allows you to view it from many different points of view. It also focuses on those elements that the company wants to check and track while considering next moves and planning a business strategy.
In marketing, a situational analysis should be done before implementing any strategy or tactical plan. The PESTEL analysis is part of it and therefore should be repeated at regular intervals - approximately every 6 months - to identify changes in the macro-environment. Organizations that successfully monitor and react to changes in the macro-environment are able to distinguish themselves from the competition and create a competitive advantage.
But let's start by explaining this mysterious-sounding acronym. What exactly do the individual letters in the name PESTEL mean? Let's check.
What do the letters hidden in the name PESTEL mean?
P. how politician, that is, political factors. They define the extent to which government and government policy can influence an organization or a specific industry. They include, among others the adopted political strategy and its stability, including trade, fiscal and tax policies, etc.
E. from economicand thus economic and economic issues. These factors affect the economy and its performance, which in turn directly affect the business and its profitability. They include, among others interest rates, employment or unemployment rates, raw material costs, exchange rates, etc.
S. how social, that is social and demographic conditions. These factors focus on the social environment and identify emerging trends. In marketing, this knowledge helps to better understand the needs and desires of customers. PESTEL analysis in this area may include, among others demographic changes in families, the level of education, cultural trends, changes in attitudes or lifestyle changes.
T. from technological, factors related to technological trends. They take into account the pace of technological innovation and development that can affect a market or an industry. These factors may include changes in digital or mobile technology, automation, research and development. It can be seen that there is a tendency to focus solely on the development of digital technology. Meanwhile, companies should also pay attention to new methods of distribution, production as well as logistics.
E. how environmental focuses on environmental aspects. They concern the impact of the surrounding environment as well as the impact of ecological aspects on the company's operations. This element gains importance as its importance increases CSR (Corporate Sustainability Responsibility). Environmental factors include climate, recycling procedures, carbon footprint, waste disposal and sustainability.
L. comes from legal and it addresses legal issues. Each organization must be aware of what is legal and allowed in the areas where it operates. It must also be aware of any changes in regulations and their impact on business. PESTEL analysis in this regard may include, among others, labor law, consumer law, health and safety, international and trade regulations and restrictions, etc.
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Sample PESTEL analysis step by step
PESTEL analysis requires a separate look at all the factors that are the subject of its study, determining the status quo and current trends. The questions that the company should answer itself relate to, inter alia, what changes to expect and when. Can the company identify the driving forces that will drive these changes? What are the opportunities and threats to the company's business, for example, in terms of demand or market behavior from customers, suppliers and competitors? Each examined element should be broken down into "prime factors". This is the only way to make sure your business is able to develop practical strategies and action plans.
PESTEL analysis is a process that consists of 5 key steps.
1. It is worth starting with the first component in the PESTEL analysis, which is the political factor.
2. The task of the company is to find or identify trends that could potentially affect the organization due to these conditions.
3. The entire team should discuss and discuss the possible consequences for the company (brainstorming is highly recommended here).
4. Findings should be written as strategic hypotheses.
5. With each subsequent component of the PESTEL analysis, proceed in the same way as in points 2 - 4. PESTEL analysis is a process that should be repeated cyclically every six months.
What happens to the strategic hypotheses formulated in step 4? The company can use them when building a strategy map, i.e. it must transform the findings into strategic goals. It is important to understand the cause and effect relationship that exists between them.
Quantify them using leading and lagging indicators. Finally, there is the development of an action plan.
Why does the company need the PESTEL analysis?
Changes that are constantly taking place in the external environment of the company are associated with the emergence of opportunities but also threats. PESTEL analysis allows you to see them. For example, opportunities can come from new technologies that will help the company reach new customers - new target group means more profits. The opportunity for the company may be the emergence of new sources of financing that allow you to invest in better equipment. Another - a changed government policy that opens up new markets. In turn, the risks can include deregulation, which exposes the company to increased competition. A shrinking market or interest rate hikes can cause problems if a business is burdened with debts or struggles with liquidity.
PESTEL analysis is a simple and widely used tool that helps to analyze political, economic, socio-cultural, technological, environmental and legal changes in the business environment. Because it takes a broader perspective, it helps you understand the power of change your business is exposed to. Thanks to this, the company can take advantage of the opportunities created by changes and prepare for possible threats.
Keeping your finger on the pulse is also appropriate communication strategywhich can be implemented in good time if there are further steps foreseen. PESTEL analysis is often associated with SWOT analysis, however the two tools have different areas of interest. The first one looks "from a broad perspective" of those factors that may influence the company's decisions, the market or a potential new business. In turn, the SWOT analysis examines these factors at the business, product line or product level. Due to the fact that the two tools complement each other, they are often used together.