Definition of PEST Analysis
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”.
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.
However, the external environment is a broad category which has been divided into micro environment and macro environment. The micro environment is made of factors such as the customers, suppliers, distributors, competitors etc whereas; factors making up the macro environment include political, economic, social and technological forces.
Significance of PEST Analysis on Marketing and Management Environment
When an organization is in the process of formulating or revising its strategies, conducting a market research or devising a business plan, it has to carry out a complete environmental analysis so that it takes into account those factors of external environment which can have a positive or negative impact on it.
Recently, experts have argued that there are two other forces which make an important part of the macro environment namely “Environmental” and “Legal” factors. Therefore, the PEST analysis has now been renamed as PESTEL analysis.
Let us have a look at each of the six factors and learn their importance in strategic management.
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
Business Cycle
Stability of currency
Skill level of employees
Economic Growth
Income distribution
Examples of PEST Analysis
During research reports and market analysis, PEST is normally run for the following companies and areas:
Pest Analysis of Nike
Pest Analysis of Coca Cola
Pest Analysis for UK
Pest Analysis for Tesco
Pest Analysis for Wal-Mart
Pest Analysis for Nestle
Supermarket PEST Analysis
This article has been contributed by Feisty Ash. Visit www.writeawriting.com to find more about PEST analysis.