The Four Basic Components of a PEST Analysis

Successful entrepreneurs understand that market research is crucial for developing strategic plans. You must properly assess external factors that can impact your business now and in the future. A framework for analyzing the political, economic, social and technological (PEST) factors that affect your business is known as a PEST Analysis. The results should guide your strategic planning.

Political

First, determine the political factors that may impact your organization. Consider how the government and politics can affect your business. This might include areas such as tax policy, trade restrictions, tariffs, and political stability. Ask what laws or political groups may be advantageous or harmful to success.

Economic

Economic growth, exchange rates, inflation, interest rates, and unemployment are some areas that may impact the business. Examine how the economy presently affects your organization, and what factors will affect you moving forward. Things such as pricing, revenues, and costs drive business and are directly influenced by the economy. An experienced entrepreneur such as Eyal Gutentag understands the importance of correlating the economy to market strategy.

Social

Determine how social attitudes, behaviors, and trends affect your target market. Your customer’s beliefs and values influence their spending habits. Shifts in priorities and culture significantly impact the perception of value that your company offers. Population growth, demographic shifts, religion and customer service are some of the many social factors that require investigation.

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Technological

Technology may influence the way you produce, distribute and market. Carefully appraise communications infrastructure, tech news, technology-related legislation, and emerging innovation and their immediate and long-term ramifications for your business. What technology is available now and in the near future? Is your organization positioned to leverage these changes?

A PEST Analysis is an effective tool as part of your overall market research and strategic development. It’s a continuous process that should be conducted regularly to remain competitive and/or gain an advantage. Not all factors bear equal weight. Some will be of greater consequence, depending on your type of business.