What is PEST Analysis
PEST analysis is a tool to analyze the macro factors that affect the company’s future opportunities and threats within the marketplace that the company wants to invest in. PEST is an acronym for four external factors from the macro-environment that can affect the business which include: political, economic, social, and technological.
The company uses the PEST analysis when they’re developing a marketing plan and try to understand the market attractiveness. However, the different types of businesses can be affected by each factor differently.
For example, a financial company may have a higher weight on an economics factor since the central bank’s policy rate can be effect directly to the financial industry.
Political of PEST Analysis
Political factors mostly affect the costs and ease of doing business in the country, very few markets can escape from political effects. Political can be imposed in any of the following ways:
- The political stability of a region – the main point of political stability is the risks of war and military action.
- Taxes on goods – these can affect the price of domestic goods and imports. Taxes on goods are including value-added tax, sales tax, and import duties. If the government raises these taxes, the price of products will increase and also slow sales.
- Income Taxes – taxes on people and companies are taxes that we pay on profits. High taxes ability of cash for spending and investment.
- Labor laws – labor laws can affect issues such as hiring and firing, wage, pension rights, maternity rights, minimum wages, etc.
- Government policy – most governments have policies that influence businesses. Some encourage free trade and foreign investment. Some governments like state control while others encourage free enterprise.
- Anti-trust Laws
- Environmental laws – these mostly affect the company in case of waste disposal, labeling and prohibited chemicals.
Economic of PEST Analysis
Economic factors influence the attractiveness of the market because economics directly influences customers’ purchasing power. The economic factors include:
- Economic growth rate (GDP)
- Inflation rate and forecast in the future
- Exchange rate (include its volatility)
- Interest rate and policy rate
- Labor costs
- Unemployment rate (and employment rate)
- Infrastructure quality
- Current economic cycle
Social of PEST Analysis
Social factors are affecting the workforce and customer behavior in the marketplace. The social factors include:
- Demographics of the population – include age, gender, religion, education skills, household, and composition
- Population size and growth rates – the population is the number of customers, it’s involved directly to the market capitalization
- Age structure in the country
- Physiological such as attitude on work and life
- Culture and ethical considerations
- Social class structures within the country
Technological of PEST Analysis
Technological is the last factor in the PEST analysis, this factor mostly affects the costs of doing business within the country. The technology factor can be imposed in any of the following ways:
- Technical infrastructure – such as internet penetration in the region or in the country.
- Speed of technological change – how long these people will switch to newer technology.
- Technological skills – how much they know about technology.