Marketing Theories – PESTEL Analysis

A PESTEL analysis or PESTLE analysis (formerly known as PEST analysis) is a framework or tool used to analyse and
monitor the macro-environmental factors that may have a profound impact on an organisation’s performance. This tool
is especially useful when starting a new business or entering a foreign market. It is often used in collaboration with other
analytical business tools such as the SWOT analysis and Porter’s Five Forces to give a clear understanding of a situation
and related internal and external factors. PESTEL is an acronym that stand for Political, Economic, Social, Technological,
Environmental and Legal factors. However, throughout the years people have expanded the framework with factors
such as Demographics, Intercultural, Ethical and Ecological resulting in variants such as STEEPLED, DESTEP and SLEPIT. In
this article, we will stick simply to PESTEL since it encompasses the most relevant factors in general business. Each factor
will be elaborated on below:

PESTEL stands for:

P – Political
E – Economic
S – Social
T – Technological
E – Environmental
L – Legal
Political Factors
These are all about how and to what degree a government intervenes in the economy. This can include – government
policy, political stability or instability in overseas markets, foreign trade policy, tax policy, labour law, environmental law,
trade restrictions and so on.
It is clear from the list above that political factors often have an impact on organisations and how they do business.
Organisations need to be able to respond to the current and anticipated future legislation, and adjust their marketing
policy accordingly.
These factors are all about how and to what degree a government intervenes in the economy or a certain
industry. Basically 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, labour law, environmental
law and trade restrictions. Furthermore, the government may have a profound impact on a nation’s education system,
infrastructure and health regulations. These are all factors that need to be taken into account when assessing the
attractiveness of a potential market.
Economic Factors
Economic factors have a significant impact on how an organisation does business and also how profitable they are.
Factors include – economic growth, interest rates, exchange rates, inflation, disposable income of consumers and
businesses and so on.
These factors can be further broken down into macro-economical and micro-economical factors. Macro-economical
factors deal with the management of demand in any given economy. Governments use interest rate control, taxation
policy and government expenditure as their main mechanisms they use for this.
Micro-economic factors are all about the way people spend their incomes. This has a large impact on B2C organisations
in particular.
Economic factors are determinants of a certain economy’s performance. Factors include economic growth, exchange
rates, inflation rates, interest rates, disposable income of consumers and unemployment rates. These factors may have a
direct or indirect long term impact on a company, since it affects the purchasing power of consumers and could possibly
change demand/supply models in the economy. Consequently it also affects the way companies price their products and
services.
Social Factors
Also known as socio-cultural factors, are the areas that involve the shared belief and attitudes of the population. These
factors include – population growth, age distribution, health consciousness, career attitudes and so on. These factors are
of particular interest as they have a direct effect on how marketers understand customers and what drives them.
This dimension of the general environment represents the demographic characteristics, norms, customs and values of
the population within which the organization operates. This inlcudes population trends such as the population growth
rate, age distribution, income distribution, career attitudes, safety emphasis, health consciousness, lifestyle attitudes
and cultural barriers. These factors are especially important for marketers when targeting certain customers. In addition,
it also says something about the local workforce and its willingness to work under certain conditions.
Technological Factors
We all know how fast the technological landscape changes and how this impacts the way we market our products.
Technological factors affect marketing and the management thereof in three distinct ways:
New ways of producing goods and services
New ways of distributing goods and services
New ways of communicating with target markets
These factors pertain to innovations in technology that may affect the operations of the industry and the market
favorably or unfavorably. This refers to technology incentives, the level of innovation, automation, research and
development (R&D) activity, technological change and the amount of technological awareness that a market possesses.
These factors may influence decisions to enter or not enter certain industries, to launch or not launch certain products
or to outsource production activities abroad. By knowing what is going on technology-wise, you may be able to prevent
your company from spending a lot of money on developing a technology that would become obsolete very soon due to
disruptive technological changes elsewhere.
Environmental Factors
These factors have only really come to the forefront in the last fifteen years or so. They have become important due to
the increasing scarcity of raw materials, polution targets, doing business as an ethical and sustainable company, carbon
footprint targets set by governments (this is a good example were one factor could be classes as political and
environmental at the same time). These are just some of the issues marketers are facing within this factor. More and
more consumers are demanding that the products they buy are sourced ethically, and if possible from a sustainable
source.
Environmental factors have come to the forefront only relatively recently. They have become important due to the
increasing scarcity of raw materials, polution targets and carbon footprint targets set by governments. These factors
include ecological and environmental aspects such as weather, climate, environmental offsets and climate change which
may especially affect industries such as tourism, farming, agriculture and insurance. Furthermore, growing awareness of
the potential impacts of climate change is affecting how companies operate and the products they offer. This has led to
many companies getting more and more involved in practices such as corprate social responsibility (CSR) and
sustainability.
Legal Factors
Legal factors include - health and safety, equal opportunities, advertising standards, consumer rights and laws, product
labelling and product safety. It is clear that companies need to know what is and what is not legal in order to trade
successfully. If an organisation trades globally this becomes a very tricky area to get right as each country has its own set
of rules and regulations.
Although these factors may have some overlap with the political factors, they include more specific laws such as
discrimination laws, antitrust laws, employment laws, consumer protection laws, copyright and patent laws, and health
and safety laws. It is clear that companies need to know what is and what is not legal in order to trade successfully and
ethically. If an organisation trades globally this becomes especially tricky since each country has its own set of rules and
regulations. In addition, you want to be aware of any potential changes in legislation and the impact it may have on your
business in the future. Recommended is to have a legal advisor or attorney to help you with these kind of things.
Full list of PESTEL factors:
Political factors Economic factors
Government stability/instability Growth rate
Corruption level Interest rate
Tax policies Inflation rate
Freedom of press Exchange rate
Government regulation and deregulation Availability of credit
Special tariffs Level of disposible income
Political action committees Propensity of people to spend
Government involvement in trade unions and agreements Federal government budget deficits
Competition regulation Gross domestic product trend
Voter participation rates Unemployment trend
Amount of government protests Stock market trends
Defense expenditures Price fluctuations
Level of government subsidies
Bilateral relationships
Import-export regulation/resctrictions
Trade control
Lobbying activities
Size of government budgets

Social factors Technological factors

Population size and growth rate Technology incentives
Birth rates Automation
Death rates R&D activity
Number of mariages Technological change
Number of divorces Access to new technology
Immigration and emigration rates Level of innovation
Life expectancy rates Technological awareness
Age distribution Internet infrastructure
Wealth distribution Communication infrastructure
Social classes Life cycle of technology
Per capita income Environmental factors
Family size and structure Weather
Lifestyles Climate
Health consciousness Environmental policies
Average disposable income Climate change
Attitude towards government Pressures from NGO’s
Attitude towards work Natural disasters
Buying habits Air and water pollution
Ethical concerns Recycling standards
Cultural norms and values Attitudes towards green products
Sex roles and distribution Support for renewable energy
Religion and beliefs Legal factors
Racial equality Discrimination laws
Use of birth control Antitrust laws
Education level Employment laws
Minorities Consumer protection laws
Crime levels Copyright and patent laws
Attitudes towards saving Health and safety laws
Attitude towards investing Education laws
Attitudes towards retirement Consumer protection laws
Attitudes towards leisure time Data protection laws
Attitudes towards product quality
Attitudes towards customer service
Attitudes towards foreign people