PESTEL is a framework used by marketers for the purpose of assessing the macroeconomic factors that affect the functioning of an organisation. The result of this process is used in SWOT analysis to assess the strength and weakness of an organisation. Each syllable of PESTEL stands for political, economic, social, technological, environmental, and legal. The tool PESTEL very often referred to as PEST is used by organisations to evaluate the environment they are working in; it is often used during the launch of a product.Get assignment help on PESTEL Analysis from EssayCorp.
Let’s discuss the elements of PESTEL Analysis in detail.
- Environmental: This element has become important only in the last few decades. Before that, it was non-existent or no one really cared about it. It has come to the forefront because of the scarcity of raw materials, the continuous rise in atmospheric temperature (pollution), and the carbon footprint limit set by the government.
- Political: This includes all the different kinds of intervention of the government in an economy. It includes things like – political stability and instability in the international market, government policies, tax policy, labour law, foreign trade policy, environmental law, trade restrictions, etc.
- Legal: The legal factor involves a wide variety of things, both the internal and the external factors that affect the functioning and the operations cost. Some of the things are – consumer protection law, labour law, health and safety, advertising standards, equal opportunity, product safety, etc. These laws can increase the overall cost of functioning of the company.
- Economic: Economic factors are directly linked to the profitability of a business, if the economy is recession hit or it is going through stagflation ( a process where inflation and unemployment are both high and demand is low in the economy), in such a situation it is inevitable that the business is going to be hit. Other factors like – interest rates, exchange rates, economic growth, and disposable income of consumers, etc. These factors also play a pivotal role in the functioning of a business.
- Technological: The technological space is changing very rapidly, the advancement in technology in the last 20 years has been more than the entire human existence. And this rapid change is not slowing down anytime soon. In the technological factor, we are mainly talking about the research and development, new innovations and, the changing technological paradigm.
- Social: When we talk about the social factor, we are mainly talking about the demographics and the culture of the society in which the business is operating. Supposedly, if you are the selling sugary drinks and the consumer becomes health conscious, this will negatively impact the sale of your product.
Certain questions to ask before the analysis
1. The marketer needs to evaluate the political situation of the country and how it could impact the organisation.
2. What is the economic condition they are planning to operate in, suppose you want to open a business in a country like Pakistan or Syria; you would need to evaluate the economic condition if it is viable for the company to operate there.
3. What role does the culture of the region play in the decision making of the consumer; does it affect the buying decision the consumer makes.
4. Technology is a very important factor, it helps you stay up-to-date. The organisation must be ready to adopt new technology if it is for the benefit of the organisation.
5. Before launching a product or a service the marketers and the head of the organisation must make sure they are not breaking any legislative rules, as this could put the organisation in a very bad spot, not just legally and financially but the reputation of the organisation can also be tarnished.
6. The organisation must make sure that they are not breaking any environmental rules.
How to do PESTEL analysis?
PESTEL analysis can be done in five easy steps:
1. Understand the PEST factors: The first step is understanding the political, economic, social, and the technological factors.
2. Accumulation of relevant data: The next step in the process is gathering all the relevant data related to the external environment.
3. Recognise the opportunities: Once the relevant data is accumulated, you must go through them to identify the opportunities that can bring a transformation in the organisation.
4. Locate the threats: You have identified the opportunity but is there some underlying threat that the business could face in the future.
5. Decision-making: In the final step, you have identified the opportunities; you must take appropriate step to take advantage of the opportunity and if there is some underlying threat then you must take appropriate measure to tackle the threat.
Case study on Coca-Cola using PESTEL analysis
Coca-Cola is a soft drink giant, it has its production plant all over the world. There is hardly any country in the world where its products are not sold. Coca-Cola uses the most advanced technology for the production of its soft drink. It is widely popular among its consumers.
Let’s look at the PESTEL analysis of the company.
Coca-Cola and all its variants have to get the approval of FDA to be able to sell their product. If the FDA decides to change its established rules, this could place Coca-Cola in trouble.
The majority of the income of Coca-Cola comes from countries outside the US. The main revenue generating machine of the company is the soft drink line and these days people are getting more health conscious and moving away from sugary drink to more healthier options. As of yet, Coca-Cola has not taken any significant step in that direction.
Coca-Cola markets and sells its product in different countries around the world, all with different culture and taste; to cope with this Coca-Cola has created a huge number of different flavours of its product; like in Japan it has almost 40 variants of its soft drink, it is trying a similar effort in China. But in many western countries, people are shifting from Coke to much healthier drink like water and green tea, etc. Coca-Cola should put in an effort to optimise on this customers by bringing in much healthier products.
Coca-Cola has been pro-technology ever since the inception of the company. Its factory in the UK has the start-of-the-art technology for quick and efficient delivery of its product. The company is very active on social media websites and it very frequently conducts contests and other sponsoring activities to connect with its consumer.
Coca-Cola retains all the right and the right of all its variants, whether produced in the past or in the process of production currently.
Coca-Cola is hugely dependent on the availability of water for the production of its product. If in the near future, should it happen that water starts to become scarce, Coca-Cola will be hit first and badly.
PESTEL analysis is an important tool used by most managers around the world to take account of macroeconomic factors; it helps the organization in making a sound decision and take precautionary measures against any threat. It is a must for any student or professional indulged in management.