A LEVEL OF ACHIEVEMENT BUSINESS STUDIES A LEVEL RESOURCES.

Issue 3 Sept 2004

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PEST Analysis
A PEST analysis examines the Political, Economic, Social and Technological environments that affect industries and companies. (PEST analysis is also known STEP analysis). It is now recognised by marketing professionals that in the longer term survival and success of a business is dependant upon the external environment a business operates within. It is not enough to say we have the right marketing mix, or the best product portfolio without being aware of the external environment. And to make things a little more complicated the external environment i.e. the PEST factors, is not stable but forever changing. ness, however large. Firms must try to react to and predict how Political, Economic, Social and Technological factors, will impact the business, and how strategy can be adapted to meet the changes.

For large businesses the completion of a PEST analysis is an ongoing process, and remember that multi nationals will be operating in a large number of countries and it must also be noted that many PEST factors such as environmental controls, macro-economic policy and energy costs can and will can differ per continent, country or even region, so normally a PEST analysis should be performed per country.

Examples of the effects of changing PEST factors inThe PEST itself can be carried out through researchclude: ing the business environment. For example by extractPoliticalGordon Brown, the Chancellor of the Ex- ing business and market related information from newspapers, journals, government publications etc. chequer recently increased the tax payable on alcopops, such as Bacardi Breezer, well above the rate of The information collected is often fed into company workshops where managers use brainstorming techincrease in tax rates on other alcoholic drinks, sales niques to develop scenarios and possibilities. were markedly reduced. In the early 80s new emissions legislation in California destroyed the market for The output of the PEST analysis and how it is used MG cars which could not meet the pollution limits. will vary from business to business, but typically it will input into strategic planning, marketing planning, EconomicThe current low levels of inflation, has forced firms to cut costs and reduce profit margins, as product portfolio management and product developcost increases are more and more difficult to pass on ment. to the consumer. It is worth noting that PEST factors must not normally Social We have recently been seeing how increase be considered as either threats or opportunities, so PEST analysis is not to be confused with SWOT in health consciousness has forced McDonalds to analysis. change its menus. Technological The massive falls in the cost of long distance telecommunications have allowed firms to re- In the table on page 2 you find a range of examples covering each of the PEST factors. locate many of their back office service to India, Notes. These PEST factors play an important role in the value creation opportunities of a firms product development strategy. Prices can be increased during an economic boom thus increasing profitability, alternatively changing social attitudes force firms to be more environmentally aware, and this can increase costs and cut profits. PEST factors are usually beyond the control of a busiCopyright A Level of Achievement

Title PEST Analysis

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Political (incl. Legal)

Environmental regulations and protection

Economic
Economic growth

Social
Income distribution Demographics, Population growth rates, Age distribution Labour / social mobility

Technological
Government / university research spending Industry focus on technological effort New inventions and development Rate of technology transfer

Interest rates & monetary Taxation policies policies International trade regula- Government spending tions and restrictions / growth of EU Contract enforcement law Unemployment policy Consumer protection Employment laws

Lifestyle changes

Taxation

Work/career and leisure attitudes

Life cycle and speed of technological obsolescence

Government organisation / attitudemove from planned to market economies Competition regulation Political Stability Safety regulations

Exchange rates

Entrepreneurial spirit Education, - access to/ growth of Energy use and costs higher education sector

Inflation rates Stage of the business cycle Consumer confidence

Fashion, hypes

(Changes in) Information Technology Health consciousness & welfare, (Changes in) Internet use feelings on safety Living conditions (Changes in) Mobile Technology use and cost

Notes.

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