PEST Analysis for Strategic Marketing and Management Environment

Published: 16th August 2011
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The PEST Model



PEST is the acronym for Political, Economic, Social and Technological factors. The environment in which an entity, lets say an organization operates is made up of external and internal environment. The internal environment is composed of the internal customers, which are the employees of the organization, the internal policies, mission and vision.



PEST Analysis can be defined as,



"A framework which describes the arrayed inter-dependence of macro-environmental factors used in the environmental scanning component of strategic management”.



Let us have a look at each of the six factors and learn their importance in strategic management.

Political Factors



Political factors refer to the degree of intervention of government in the economy. There are certain formal and informal rules laid down by the government which every organization has to abide by in order to sustain its operations in a particular country. Important political factors include:



Political stability

Taxation laws

Entry mode regulations

Trade regulations such as NAFTA

Pricing regulations



Economic Factors



Economic factors are those which have a direct impact on the capital loss of organizations and purchasing power of customers. These include:



Inflation

Exchange Rates

Rate of unemployment

Literacy Rate

Effectiveness of financial institutions

Efficiency of free market

Quality of infrastructure

Interest Rates



Social Factors



Social factors are cultural aspects and demographic variables which are closely linked to the market potential and customers needs. These include:



Age distribution

Attitude towards health and environment

Education

Leisure activities

Attitude towards career

Changing lifestyle

Gender Role



In developed countries such as UK and USA, the labour pool is growing. This means the costs for firms, who are paying pension to their employees have increased because the staff are living longer.

Technological Factors



Technology is what drives the phenomena of globalization. It provides competitive advantage to firms. Major technological factors include:



Rate of technological innovation

Rate of obsolesce of technology

Technological development

New technological platforms



Environmental Factors



Industries such as tourism, insurance and farming are being affected by environmental and ecological aspects. Environmental factors include:



Environmental protection laws

Waste disposal laws

Energy consumption regulation

Global warming



Due to the growing awareness of climate change, organizations are moving towards making products and processes which are environment friendly thus, creating new business opportunities.

Legal Factors



These are related to the legal environment of an organization and impact its demand and cost. Major legal factors include:



Health and safety law

Consumer law

Competition law

Employment law

Discrimination law



This article has been contributed by Feisty Ash. Visit www.writeawriting.com to find more about PEST analysis.


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