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What is a PESTEL Analysis?

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Last editedSept 20212 min read

There’s a multitude of external factors that can impact your organisation. One way to identify and track these variants is through performing a PESTEL analysis. We’ve taken a closer look at the main elements of the PESTEL framework below.

What does PESTEL stand for?

PESTEL is an acronym used in marketing to analyse external factors. It’s sometimes arranged as PESTLE, but the meanings of the letters are the same:

P – Political
E – Economic
S – Social
T – Technological
E – Environmental
L – Legal

You can adapt the PESTEL framework to choose the elements most relevant to your business. For example, some organisations will shorten PESTEL to PEST to leave out the environmental and legal aspects of the analysis.

When should you use the PESTEL framework?

The PESTEL model can be applied whenever you’re analysing the viability of a new project or start-up venture. You can use this type of analysis to identify external forces that might have an impact on your organisation, using its outcomes as a jumping-off point to examine further opportunities or threats.

It's a good idea to run a PESTEL analysis at least every six months, identifying changes to the external environment. By monitoring and responding to these changes, you can keep your strategy fluid and current.

Elements of the PESTEL analysis

You’ve already learned the answer to ‘what does PESTEL stand for’, but what do these factors actually represent?

Political factors

This element of the PESTEL analysis includes anything government-related that might impact your business:

Government policy
Overseas political instability
Tax policies
Labour laws
Foreign trade policies
Trade restrictions

Political factors like these are particularly important for any business conducting overseas trade, as government interventions will have a direct impact on your activities.

Economic factors

Current and future market conditions are also important to analyse. When the economy is strong, more people will be willing to spend money on your products and services. Economic factors might include the following:

Interest rates
Exchange rates
Rate of inflation
Disposable income
Economic growth forecasts

Rather than hard facts and figures, social factors take into account current attitudes within a population. Examples could include:

Age distribution
Career growth
Attitudes to health
Attitudes to religion
Lifestyle preferences
Population growth

Including the social element within your PESTEL analysis allows you to gain greater understanding of your customers, which can be useful for creating viable segments.

Technological factors

Technology is a continual driving force for businesses, perhaps now more important than ever to understand. As part of your analysis, you should include factors like:

New production methods
New distribution methods
New communication methods
Upcoming trends in technology

These will directly impact the ways that you target customers, distribute products, and improve your own services as a business.

Environmental factors

A growing awareness of environmental issues has led to this element being added to the original PEST framework. Examples of environmental factors include:

Carbon footprint
Sustainable materials
Availability of raw materials
Pollution legislation

There’s a growing demand from consumers for ethical, sustainable products, which marketers should include as part of any analysis.

Legal factors

Finally, legal issues must be weighed into the equation. This can be difficult with global trade, where laws between countries can vary. Think about issues such as:

Product labelling
Consumer rights
Advertising standards
Diversity and inclusion laws
Health and safety standards

Political and legal factors experience some crossover, since government legislation creates new laws. However, the legal component of a PESTEL analysis can focus more on compliance.

New addition to the PESTEL model

A new addition to PESTEL is an extra ‘E’ for ethical factors. This addition makes the acronym either PESTELE or STEEPLE. Part of the ethical component relates to some of the environmental factors listed above, such as sustainability. But there’s more of an emphasis on factors like:

Fair trade
Child labour
Corporate social responsibility

Increasingly, consumers look to see if companies are contributing to charity or activist goals. By including the additional element of ethical factors, you can work these ideals into your marketing strategy.

Overall, performing a PESTELE or PESTEL analysis improves your situational awareness, ensuring your organisation doesn’t get caught short by external trends.

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