PESTLE stands for Political, Economic, Social, Technological, Environmental and Legal. It is basically a tool or a framework for doing an analysis. This model has been widely used by marketers to understand the factors that have an effect on a company. The factors in questions that are analyzed by the experts are the external marketing aspects (Academy, 2018).
This analysis is not a holistic one. There are other business analytical tools as well like the SWOT Analysis and the Porter’s Five Forces that are used along with PESTLE for deeper understanding of the internal as well as the external factors influencing a particular business (Contributor, 2018).
Understanding each component of PESTEL
The first component of this business analysis framework is – Political. Under this, the influence and the interference of the government of a particular nation is analyzed. How and to what extend the government effects the business performance is studied and evaluated. The factors that are taken into consideration are the policies of the government, the current political stability along with the probability of instability, the condition of the surrounding markets, the policy adopted for tax, the labor laws, the environmental restrictions, trade facilities and limitations, foreign trade regulations and so forth (Academy, 2018). These factors are very crucial for business and companies would always want to analyze these aspects in detail so that accordingly they can formulate their future approach.
The second component is – Economic. The economic factors play an important role on how a company would run its business and what profit they can expect after a certain interval of time. The factors that are analyzed by the experts include the growth of the economy, the prevailing and the predicted rate of exchange, the extent to which inflation might happen, the condition of spare income of the prospects, the reserve fund of the organization as well as others. These factors can further be classified into macro as well as micro economic aspects. Macro is concerned with the demand management of a particular economy. Factors like rate of interest, tax scheme and national expenses are the prime aspects. The micro level factor deals with the spending habit of the people of a nation (Academy, 2018). These have a major influence on the B2C setups.
The third – Social. Here, the social factors affecting the needs of the customer are evaluated. These factors are: the lifestyle of the people, the level of education, the religions and the beliefs that are in practice, the average size of a family and its structure, sex distribution data, safety policies, practices pertaining to investment planning, awareness on environmental friendly products, knowledge about renewable energy sources, the population growth, distribution of age, average life span, willing to accept products manufactured out the country, culture of the working people, whether carrier conscious or not, leisure interests and desires, retirement planning, concept of customer service, understanding of product quality, purchasing habit and the average spare cash (Mindtools.com, 2018).
The fourth Technological – These are variables related to the use and development of technology ranging from computation to output efficiency. Considering requirements like the servers hosting the numerous web pages, the fuel used in vehicles, printing equipment’s, etc. that people need on a daily basis indicated that technology has become a part of human life. At the same time technology has a prominent impact on business, too. Technological factors affecting business could be calculation speed of computers, internet connectivity and speed, WiFi, automation of unskilled tasks for evolving cost effective processes, use of mobile technology for convenience and increased coverage, remote monitoring, etc (Mindtools.com, 2018).
The fifth Environmental – During a business analysis, environment represents any or all external aspects that influences a business. These are vary from legal to political or anything that falls in between or is a part of it. While running a PESTEL analysis, the environmental factors might interchangeably be represented as ecological factors as well. It can cover aspects like the health of the buyers or change in climate or any result of these. From the top, this factor may seem less significant but is a major factor of the business process. The factors influencing business under this model are the climate in question and the extent to which the climate might change, the condition of the weather, the level of pollution and the stock of non-renewable products (Mindtools.com, 2018).
The last component of the model is – Legal. These are external aspects that have an influence on how a company operates and how the buyer responds. Things that are affected by this factors could be profit margin of the firm, market potential and options for transportation of goods. This component is perhaps above the rest since this would decide how the goods are stocked and how a company interacts with its clients. The legal factors influencing businesses could be the copy right law, consumer law, employment law, IP law, etc (Contributor, 2018)
Advantages and Disadvantages of PESTEL
The advantages include – It’s a pretty simple tool and can be understood by most. It gives a better understanding of the of a particular business scenario. It can help in developing the strategy of a particular business. It can avoid the consequences of unseen business threats. This model can pin-point on opportunities and help explore them in detail (Bright Hub PM, 2018).
The disadvantages are – Possibility of missing out important data, requires regular update, date considered is on assumption. Therefore, limited use for anticipating development(s) (Bright Hub PM, 2018).
The best approach for using the PESTEL model is to list out all the factors and then go for a brain-storming session with a subject matter expert. Once the analysis is over, the outcome of each of the aspects studied should be arranged based on dynamics, time and type. The classification basis should be as per relevance or criticality. If used appropriately, this tool is the best for getting an overview of the business and the market. There are other models as well that when combined can provide a more detailed analysis of a business.
Academy, P. (2018). Marketing Theories – PESTEL Analysis. [online] Professionalacademy.com. Available at: https://www.professionalacademy.com/blogs-and-advice/marketing-theories—pestel-analysis [Accessed 21 Dec. 2018].
Bright Hub PM. (2018). Understanding a PESTLE Analysis and Its Components. [online] Available at: https://www.brighthubpm.com/project-planning/51754-components-of-a-pestle-analysis/ [Accessed 21 Dec. 2018].
Contributor, P. (2018). Understanding Pest Analysis with Definitions and Examples. [online] PESTLE Analysis. Available at: https://pestleanalysis.com/pest-analysis [Accessed 21 Dec. 2018].
Mindtools.com. (2018). PEST AnalysisIdentifying Big Picture Opportunities and Threats. [online] Available at: https://www.mindtools.com/pages/article/newTMC_09.htm [Accessed 21 Dec. 2018].