What is a PESTEL Analysis?

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

Social factors

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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