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Marketing Environment - PEST Analysis

Introduction

An organisation’s success is influenced by factors operating in it’s internal and external environment; an organisation can increase it’s success by adopting strategies which manipulate these factors to it’s advantage. A successful organisation will not only understand existing factors but also forecast change, so that it can take advantage of change within the environments in which it operates.

PEST & Micro environmental Factors

The following type of forces influence an organisation’s operating environment:

• Pest Factors – These are external forces which the organisation does not have direct control over these factors. PEST is an acronym and each letter represents a type of factor (Political, Economical Social and Technological).
• Micro environmental factors – These are internal factors, which the organisation can control.

PEST & PESTLE analysis

A PEST analysis is used to identify the external forces affecting an organisation .This is a simple analysis of an organisation’s Political, Economical, Social and Technological environment. A PEST analysis incorporating legal and environmental factors is called a PESTLE analysis.

Political

The first element of a PEST analysis is a study of political factors. Political factors influence organisations in many ways. Political factors can create advantages and opportunities for organisations. Conversely they can place obligations and duties on organisations. Political factors include the following types of instrument:

- Legislation such as the minimum wage or anti discrimination laws.
- Voluntary codes and practices
- Market regulations
- Trade agreements, tariffs or restrictions
- Tax levies and tax breaks
- Type of government regime eg communist, democratic, dictatorship

Non conformance with legislative obligations can lead to sanctions such as fines, adverse publicity and imprisonment. Ineffective voluntary codes and practices will often lead to governments introducing legislation to regulate the activities covered by the codes and practices.

Economical

The second element of a PEST analysis involves a study of economic factors.
All businesses are affected by national and global economic factors. National and global interest rate and fiscal policy will be set around economic conditions. The climate of the economy dictates how consumers, suppliers and other organisational stakeholders such as suppliers and creditors behave within society.

An economy undergoing recession will have high unemployment, low spending power and low stakeholder confidence. Conversely a “booming” or growing economy will have low unemployment, high spending power and high stakeholder confidence.

A successful organisation will respond to economic conditions and stakeholder behaviour. Furthermore organisations will need to review the impact economic conditions are having on their competitors and respond accordingly.

In this global business world organisations are affected by economies throughout the world and not just the countries in which they are based or operate from. For example: a global credit crunch originating in the USA contributed towards the credit crunch in the UK in 2007/08.

Cheaper labour in developing countries affects the competitiveness of products from developed countries. An increase in interest rates in the USA will affect the share price of UK stocks or adverse weather conditions in India may affect the price of tea bought in an English café.

A truly global player has to be aware of economic conditions across all borders and needs to ensure that it employs strategies that protect and promote its business through economic conditions throughout the world.

 

 

Social

The third aspect of PEST focuses its attention on forces within society such as family, friends, colleagues, neighbours and the media. Social forces affect our attitudes, interest s and opinions. These forces shape who we are as people, the way we behave and ultimately what we purchase. For example within the UK peoples attitudes are changing towards their diet and health. As a result the UK is seeing an increase in the number of people joining fitness clubs and a massive growth for the demand of organic food. Products such as Wii Fit attempt to deal with society’s concern, about children’s lack of exercise.

Population changes also have a direct impact on organisations. Changes in the structure of a population will affect the supply and demand of goods and services within an economy. Falling birth rates will result in decreased demand and greater competition as the number of consumers fall. Conversely an increase in the global population and world food shortage predictions are currently leading to calls for greater investment in food production. Due to food shortages African countries such as Uganda are now reconsidering their rejection of genetically modified foods.

In summary organisations must be able to offer products and services that aim to complement and benefit people’s lifestyle and behaviour. If organisations do not respond to changes in society they will lose market share and demand for their product or service.

 

Technological

Unsurprisingly the fourth element of PEST is technology, as you are probably aware technological advances have greatly changed the manner in which businesses operate.
Organisations use technology in many ways, they have

1. Technology infrastructure such as the internet and other information exchange systems including telephone
2. Technology systems incorporating a multitude of software which help them manage their business.
3. Technology hardware such as mobile phones, Blackberrys, laptops, desktops, Bluetooth devices, photocopiers and fax machines which transmit and record information.

Technology has created a society which expects instant results. This technological revolution has increased the rate at which information is exchanged between stakeholders. A faster exchange of information can benefit businesses as they are able to react quickly to changes within their operating environment.

However an ability to react quickly also creates extra pressure as businesses are expected to deliver on their promises within ever decreasing timescales..

For example the Internet is having a profound impact on the marketing mix strategy of organisations. Consumers can now shop 24 hours a day from their homes, work, Internet café’s and via 3G phones and 3G cards. Some employees have instant access to e-mails through Blackberrys but this can be a double edged sword, as studies have shown that this access can cause work to encroach on their personal time outside work.

The pace of technological change is so fast that the average life of a computer chip is approximately 6 months. Technology is utilised by all age groups, children are exposed to technology from birth and a new generation of technology savvy pensioners known as “silver surfers” have emerged. Technology will continue to evolve and impact on consumer habits and expectations, organisations that ignore this fact face extinction.

PESTLE

A PEST analysis is sometimes expanded to incorporate legal and environmental factors; this is known as a pestle analysis. There are many statutes books containing company law as almost every aspect of an organisation’s operation is controlled through legislation from treatment of employees through to health and safety. Legal factors are important as organisations have to work within legislative frameworks. Legislation can hinder business by placing onerous obligations on organisations. On the other hand legislation can create market conditions that benefit business.

 

Diagram: PEST analysis and the marketing mix.

 

 

For information regarding environmental factors please refer to environmental marketing mix.

 

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