Why PESTLE Analysis is important for your Business?

Oct 16, 2020

Marketing is an important aspect for an Organization's products and services. The right Marketing Strategy allows Organizations to achieve their respective goals and also helps to have an upper-hand in this Competitive Market. Enterprises worldwide conduct various short-term and long-term analysis to assess their business environment. One such analysis is PESTLE Analysis.

 

What is PESTLE Analysis (Macro-Environmental Factors)?

It is a framework/tool used to examine and monitor the “Macro-Environmental Factors” that may have an extreme impact on an Organization’s performance. This tool is very useful when starting a new business or expanding your business Globally.

 

Now, let’s dive deeper and understand which are those factors that makes the PESTLE Analysis:

 

  1. Political Factor - All the influences that a Government has on your business could be classified here. This can include Government Policy, Political Stability or Instability, Corruption, Foreign Trade Policy, Tax Policy, Labor Law, Environmental Law and Trade Restrictions, etc…

Political factors have an effect on Organization to a huge extent as any decisions made by Government regarding Laws and Policies will have an direct impact on the business. Political and Government intervention (interference) is not feasible for the business and can hurt the business setup in the long run. Similarly, Trade Regulations imposed by the State Government might impact an Organization’s cost of labor and their ability to target an Overseas Market. 

Example - Let’s say, currently “Govt. A” is in the ruling power and Govt. A has made the decision for “Globalization”. So naturally, Overseas Companies will be eager to invest. Now due to Globalization, they will invest as much as they can to expand their business and will leave no stone unturned to make their Company's Name a trusted one. Now, to sell their products, they will open Factories and Stores in various states. But now what if in the next Elections “Govt. A” lose the elections and new “Govt. B” becomes the ruling power and denies Globalization? Just imagine to what extent that Overseas Companies who invested so much in the country have to suffer?

So, Political Factor is The Most Important Factor for your Business. PERIOD.

 

  1. Economical Factor - Marketing is directly proportional with the Economic Factors. Organizations won’t be able to launch or promote their product and service appropriately if the Economy isn't steady and progressing.

Economic Factors have a direct or indirect long term impact on an Organization, since it affects the purchasing power of consumers and can possibly change the demand/supply models within the Economy. However,  it also affects the way Companies price their products and services.

Economical Factors includes GDP, Economic Growth, Exchange Rates, Inflation Rates, Interest Rates, Disposable Income of Consumers and Unemployment Rates. 

 

  1. Social Factor - Social Factor includes Demographic, Customs, Norms, Culture and Population within which the Organization operates. 

This also includes Population Trends such as the Population Growth Rate, Age Distribution, Income Distribution, Career Choices, Safety Importance, Health Consciousness, Lifestyle Trends and Cultural Barriers. These factors are especially important for marketers when targeting niche customers.

Example - Social Factor is the reason why Youth-Centric Start-ups, Companies, Products and Services are doing very well in many countries, especially INDIA.

 

  1. Technology - It refers to the Innovations in Technology that may affect the operations of an Organization, favorably or unfavorably. In today’s era, the impact of Technology is enormous and multifaceted. Marketing Strategies must focus on the constant changing Technology as Technology strengthens the business structure. 

Technology includes Technology Incentives, Level of Innovation, Automation, Research and Development (R&D) Activity, Technological Change and the amount of Technological Awareness that a market possesses. These factors influence the decisions whether to enter into certain industries or not, whether to launch certain products or to outsource production activities abroad or not. By knowing what is going on in the current technology-market, you may be able to prevent your company from spending a lot of money on developing a technology that would become outdated very soon.

 

  1. Legal Factor - When it comes to the Legal Factor, Organizations need to be crystal clear about what is legal and what is not in order to trade successfully and ethically. 

This situation (Legal Factor) becomes even more tricky when an Organization is trading globally because every country has its own Rules and Regulations. However, you also need to be aware of the possible changes in legalization rules by the Government which may affect your business in the future.

In such situations, having a “Legal Advisor” could prove very beneficial.

 

  1. Environmental Factor - Organizations cannot survive if the Environment is not suitable or favorable. However, Environmental Factors are not in control of the Organizations but Organizations need to be clear about whether the products/services they offer are suitable to the respective Environment or not, before setting up the business . Location impacts the Organization’s marketing plans since changes in climate and consumers’ desire for a particular offering can be an issue.

Weather, Climate, Environmental Policies, Natural Disasters, Air and Water Pollution, Recycling Standards, Support for Renewable Energy all these affect the long-term planning of an Organization.

 

Conclusion - PESTLE Analysis provides a vast study of the external and internal factors that pose a challenge to the Organization’s Marketing Strategy. To successfully achieve marketing goals, Organizations must use PESTLE Analysis to assess the market conditions so that they can plan and strategize accordingly.

 

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