Blog 5: 2022 Comprehensive Guide to PEST Analysis: Examples, Methodology, and Applications
Updated: Jun 3
PEST Analysis (Political, Economic, Social, and Technological) is a strategy used by business and non-business entities alike. It is useful in figuring out the past, present, and future of any company, service, or product.
PEST analysis is an extension of the classic SWOT analysis which can be used to help identify your own marketing needs. it is a business tool used to assess the external environment in which a company operates. A PEST Analysis helps businesses to understand how changes in these areas can impact the company and what risks and opportunities may arise. The analysis can be used at any stage of a company's life cycle, from startup to expansion to divestment. It is also used in a variety of industries, including finance and human resources.
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What are the components of a PEST Analysis?
The PEST analysis looks at the macro-environmental factors to help formulate business strategy in an organization. This method looks at four key areas:
Political - Include government policy, tax changes, trade restrictions, regulations, and trade barriers. The political environment can impact a business greatly, especially if it operates internationally.
For example, new government regulations on a business's industry could lead to increased costs.
Economic – Include GDP, interest rates, inflation, and unemployment. Economic factors have an important impact on how businesses operate and make decisions.
For example, interest rates affect a firm's cost of capital and therefore to what extent it can grow and expand its operations.
Social - Include demographics, population growth rates, cultural influences, and age distribution. Businesses don't operate in a vacuum. They operate in societies that have unique cultures, values, beliefs, and norms.
For example, clothing retailers need to be sensitive to religious beliefs when deciding where to open stores. They also must consider shifting social trends, such as rising obesity levels among children or an aging population of baby boomers.
Technological - Include research and development (R&D), automation, technology incentives, innovation, and diffusion of new technology. They can have major impacts on how businesses operate.
For example, When the Internet took off in the 1990s, companies had to adapt their marketing strategies accordingly or risk being left behind by competitors that did so.
There are several variations on the PEST theme, including:
PESTLE - adding Legal and Environmental dimensions
STEEPLE - adding Ethics (as ethical behavior/culture)
STEER - adding Regulatory dimension
STEEPLED - adding Demographic dimension
PESTEL - adding Environmental and Legal dimensions
What are the applications of a PEST Analysis?
The PESTLE system was created by Harvard professor Francis Aguilar in 1967. It has since gained popularity in modern marketing and business management textbooks.
PESTLE analysis is a useful tool for understanding the "big picture" of the environment in which you are operating and the opportunities and threats that lie within it. By understanding your environment, you can take advantage of the opportunities and minimize the threats. PESTLE is especially useful when starting a new business or entering a foreign market. It could also be used to assess the risks and opportunities associated with introducing a new product or service.
For example, if your business is based in India but you are selling to customers abroad over the internet then you won't be affected by India's economy as much as you would if you were operating only within India. But if your business imports goods from other countries then you might be affected by import taxes or tariffs which could raise the cost of those goods.
A PEST Analysis can be used by startups, investors, and fundraisers to help them understand the risks and opportunities associated with a particular market or industry.
How is PEST Analysis done with the Example of TESLA?
TESLA Company is a multinational technology company that designs, manufactures, and sells electric cars and other battery products. The company was founded in July 2003 by Elon Musk, who is the current CEO. Tesla has had a large impact on the global market with its innovative production methods and effective marketing strategies.
In this case study, we will look at TESLA Company through the lens of a PEST analysis to understand how they have made their mark in the global market.
· Tesla Motors is headquartered in Palo Alto, California. It has been able to expand its operations across North America, Europe, and Asia Pacific (APAC) regions due to political stability and economic growth in these regions.
· The company also faces fewer political risks as compared to its competitors who are based in China or Japan where there are frequent trade wars between these countries due to geopolitical factors.
· It has improved its overall performance due to Government incentives for its environmental sensitivity.
· The economic factors affecting Tesla Motors Inc. include the oil prices and emission regulations which have increased the demand for electric vehicles.
· Recession or inflation can affect Tesla's sales positively or negatively depending upon how much money people are willing to spend on electric vehicles.
· The socio-cultural factors affecting Tesla are how society views electric cars and how much they think they should cost compared to regular gasoline-powered cars. People have started thinking about ways to protect the environment.
· It also includes a commitment toward sustainability and clean energy for future generations as well as its commitment to producing zero-emission vehicles which will help reduce pollution levels around the globe.
· The advancement of Tesla’s automotive and energy solutions business depends upon the new technology they have developed in the case of automatic driving leading to reduced car accidents.
· Their online mobile systems and automation technology are unparalleled. Also, their latest gadgets are the point of attraction for the public.
· Their material engineering technology gives efficiency and cost-effectiveness to the company’s batteries.
Ecological or Environmental Factors:
· The company supports the expanding environmental programs to deal with climate change and controlled use of resources. The company’s CEO Elon Musk has been vocal about his views regarding climate change, and he has also supported the idea of creating a carbon tax to tackle the issue of global warming.
· Tesla needs to maintain the regulations and update their policies as they choose to expand across the globe. It has a great scope in the international market owing to its patents.
· Many states have put restrictions on direct sales, Tesla might face a problem in that case.
A PEST Analysis is a powerful tool that can be used for a variety of purposes, including business planning, marketing, and strategy formulation. By understanding the political, economic, social, and technological landscape of an industry or market, businesses can better assess the risks and opportunities associated with operating in that environment.
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