I discussed the 5Cs of marketing analysis in detail in the last chapter. Here, I will explain what PESTEL analysis is and how it is integral to 5Cs marketing analysis. You already know that context is the first C of marketing analysis' 5Cs, and a business tool like PESTEL can provide an effective context analysis of a company.
The PESTEL analysis of the company is used to assess all external factors that can affect the company's performance, specifically the impact of macroeconomic external factors.
Before I explain the whole framework of PESTEL analysis, allow me to define what the external environmental factors PESTEL covers precisely.
What factors does the PESTEL analysis cover?
When I say that the PESTEL analysis covers external factors affecting the company, I mean to say the macroeconomic environmental factors.
To explain this, let me take an example of an imaginary company X. So, what all factors affect company X?
- Internal Factors - The company X itself and all the happenings within the company can be considered as internal. It can be the organizational structure of the company X, the Work Culture, Employees, Management, Shareholders, Reward Systems
- External Factors- These are the factors closely surrounding the company, these are the competitors, suppliers, distributors, customers, strategic partners.
PESTEL Analysis - The complete framework
PESTEL analysis acronym stands for Political, economic, social, technological, environmental, legal. PESTEL analysis covers all these macroeconomic factors in detail.
Let me discuss all of the six factors one by one.
PESTEL Analysis - The complete framework
PESTEL analysis acronym stands for Political, economic, social, technological, environmental, legal. PESTEL analysis covers all these macroeconomic factors in detail.
Let me discuss all of the six factors one by one.
Source: Corporate Finance
Political Factors
Political factors affecting a business include government interference in the economy.
It includes all the government policies affecting a company, the political (in)stability caused by the government in the economy, corruption, foreign trade, tax policies, etc.
Moreover, Political factors also include the government’s impact on the education system, healthcare system, etc. You need to keep in mind these factors while assessing the attractiveness of a market.
Economic Factors
Economic factors include all those factors which determine the performance of an economy. These factors include economic growth, exchange rates, inflation rates, interest rates, Disposable income of consumers, and unemployment rates.
These factors directly or indirectly affect your company as they determine the purchasing power of the consumer, which can change the demand and supply model of an economy.
So, next time you are pricing a product for your company, keep all these factors in your mind.
Social factors
These factors relate to the demographic characteristics, customs, and values of the population where your company operates.
Population growth rate, age distribution, income levels, and attitudes toward careers, health, lifestyle, and cultural barriers are among these.
In addition to helping you understand your target customers, these factors also assist with your understanding of the local labour force.
Technological factors
These factors tell you about the technological advances in the industry. These include technology incentives, level of innovation, automation, R&D activity, etc.
When doing a PESTEL analysis, the technological factors can be very useful when determining how much to spend on developing certain technology for your business.
Environmental Factors
Environmental factors have only recently been taken into account due to the growing population and restrictions on CO2 emissions from various industries.
Factors related to the environment include weather, climate, environmental offsets, climate change, etc.
Taking into account these factors will help you better comprehend how important Corporate Social Responsibility is to your business.
Legal Factors
Among these factors are the legal laws embedded in the constitution that may affect your business. Among these are Discrimination laws, Antitrust laws, Employment laws, Consumer protection laws, Copyright/Patent laws, Health/Safety laws.
Your business should hire a legal advisor knowledgeable about all the laws related to its operations, whether national or international. A legal advisor's expertise is crucial to the smooth running of your business.
Conclusion
Each of the six factors above is equally important to analyse in the PESTEL analysis.
However, depending on the country and the industry you are in, one factor may be more important than another; for instance, analysing environmental factors could be most important in the oil and petroleum industry.
