WJEC A Level Business Studies Resources.

Issue 3 Sept 20013

Page 1

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.
Examples of the effects of changing PEST factors include:
Political—There has been over the last 10 years a great deal of political focus on green and renewable energy. This has made it possible for firms in this area, such as those involved with wind turbines to thrive. On the other hand there have been increased restrictions on the sale of cigarettes, now only over 18s can buy, large shops must cover up displays.
Economic—The current low levels of inflation, has forced firms to cut costs and reduce profit margins, as cost increases are more and more difficult to pass on to the consumer. The recession has made this situation worse, but some firms such as pound shops have greatly benefited from the extended downturn and fall in real incomes.
Social— We have recently been seeing how increase in health consciousness has forced McDonalds to change it’s menus. Social also includes fashion changes—people are now happy to pay £3.00 for a cup of coffee as long as it has the right brand on the cup. Other social changes include change in demographics—the aging population.
Technological— The massive falls in the cost of long distance telecommunications have allowed firms to relocate many of their ‘back office’ service to India. PCs and tablets have led to a home shopping boom, one of the biggest winners from this have been delivery companies.
These PEST factors play an important role in the formation of a firms strategy, and the use of the Marketing Mix. 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 business, 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.
The PEST itself can be carried out through researching the business environment. For example by extracting business and market related information from newspapers, journals, government publications etc. The information collected is often fed into company workshops where managers use brainstorming techniques to develop scenarios and possibilities.
The output of the PEST analysis and how it is used will vary from business to business, but typically it will input into strategic planning, marketing planning, product portfolio management and product development.
It is worth noting that PEST factors must not normally be considered as either threats or opportunities, so PEST analysis is not to be confused with SWOT analysis.
In the table on page 2 you find a range of examples covering each of the PEST factors.
Notes.

Title PEST Analysis

Page 2

Political / (incl. Legal)	Economic	Social	Technological
Environmental regulations and protection	Economic growth rates	Income distribution	Government / university research spending
Taxation policies	Interest rates & monetary policies	Demographics, Population growth rates.	Industry focus on technological effort
International trade regulations and restrictions / growth of EU	Government spending	Social mobility	New inventions and development
Consumer protection	Unemployment levels	Lifestyle changes	Rate of technology transfer
Employment laws	Taxation changes	Work/career and leisure attitudes / Entrepreneurial spirit	Length of Product Life cycle and speed of technological obsolescence
Government organisation / attitude—move from planned to market economies	Exchange rates	Education, - access to/ growth of higher education sector	Energy use and costs
Competition regulation	Inflation rates	Fashion trends	Changes in information Technology
Political Stability	Stage of the business cycle	Health consciousness & welfare.	Changes in Internet use
Safety regulations	Consumer confidence levels	Living conditions	Mobile Technology use and cost

Notes.