The PESTLE Strategic Marketing Analysis Technique: Compiling the List of External Factors

There are many factors that companies needs to analyze and understand in the industry that they operate in, to be strategically aligned for success. These factors can all be classified into six main categories as follows: Political factors, Economic factors, Sociological factors, Technological factors, Legal factors and Environmental factors. If one isolates the first letter of each of these factors the acronym PESTLE results.

Conducting a PESTLE analysis is a useful method to use in order to understand the external factors that has an influence on the company. It is often used in conjunction with a SWOT analysis to give structure to the assessment of the situation of individual companies.

According to Kotler and Schlesinger, 1991 it is crucial to identify the political factors, economic factors, sociological factors, technological factors, legal factors and environmental factors in turn that may possibly affect the fundamental variables expected to influence the company's supply and demand curve as well as the influence of these factors on the cost structure to ensure maintained profitability. The PESTLE analysis is ideally suited to do exactly this in a structured, systematic and simple to understand methodology.

The PESTLE Methodology

The PESTLE methodology is not concerned with any of an organization's internal aspects such as the strengths or weaknesses, it focuses on the external environment to determine the impact of the external environmental factors on the success of the company.

The PESTLE analysis methodology consists primarily of four phases. One may find variations of this where experienced facilitators combine some phases, but essentially most PESTLE analysis processes follow these four phases. They include making an external factors list, identifying the implications of the external factors, determining the relative importance of the impacts of the listed external factors and building alternative scenarios for further analysis.

List External Factors

During this phase of the process a descriptive list of factors, influences or pressures that have identified repercussion, consequence and impacts for the company is compiled for each of the PESTLE elements. During the compilation of the list immediate and future factors, influences or pressures should be listed.

Political Factors

When generating the list for the political factors one should concentrate on the key political factors likely to affect the industry.

It is essential to assess global, national, regional, local and society developments and variations and specific actions to get a relevant yet comprehensive list.

The results often contain items about current and future taxation policy, current and future political situations, government grants, funding and import/export initiatives supported by specific governments as well as the effect of wars or deteriorating relationships with specific countries.

Economic Factors

For generating the economic factors list the important economic factors should be focused on. Yet again one should consider all assess global, national, regional, local economic factors.

This list normally contains items such as the overall economic situation, the strength of consumer spending in the company's market segments, the present and future levels of government expenditure and how it may affect the economy, the ease of access to funding, the current and future cost of capital and short term finance, levels of inflation and unemployment patterns, specific taxation policies and trends as well as exchange rates that may influence the company.

Sociological Factors

In determining the Sociological factors one should concentrate on determining the most important cultural aspects that will impact on the company's business. Developments in the society that is served by the company should be scrutinized carefully.

The list normally contains items about demographics (e.g. age, gender, race, family size, etc.), lifestyle patterns and anticipated modifications expected, the stance of the market towards social issues such as education, corporate responsibility and the environment, social mobility, housing trends, fashion, attitudes to work, leisure activities, occupations, and earning capacity. as well as ethnic and religious differences in the market segments.

Technological Factors

The generation of the technological factors list will include the consideration of technological innovations are likely to occur in the industry.

The list often contains items about relevant current and future technology innovations, the level of research funding for critical technology areas, rates of obsolescence of technology in use, the ways in which consumers make purchases, intellectual property rights and copyright infringement trends as well as global communication technological advances.

Legal Factors

The list of legal factors normally comprise of current and impending legislation that may affect the industry in areas such as employment, competition and health and safety, future legislation changes that is anticipated changes in legislation in main trading partner countries, Governmental trading policies and Regulatory bodies of the industry.

Environmental Factors

The environmental factors list will principally contain information about the level of pollution created by the product or service, recycling possibilities and considerations relevant to the products, attitudes to the environment from the government, media and consumers as well as current and future environmental legislative changes

Conclusion

When conducting a PESTLE analysis it is important to have a comprehensive list of factors to use in determining how, when and how much the factors that are contained in the list will influence the nature of the business and the impact these will have on the company and its competitors. It is the evaluation of the impact of each of the listed factors that distinguishes the analysis from other methodologies. For this reason it is important to ensure that the list is comprehensive and all-inclusive. If one tries to conduct a PESTLE analysis with an incomplete list of external factors the result can be disastrous for the company who implements the outcome as critical items may have been missed.

The rest of the PESTLE analysis methodology is explained in the article "conducting the PESTLE analysis by the same author.

© Carl Marx