PEST or STEP Analysis

The PEST Analysis

A scan of the external macroenvironment in which the firm operates can be expressed in terms of the following factors: Political Economic Social Technological

PEST Analysis
The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework for the analysis of these macro-environmental factors. A PEST analysis fits into an overall environmental scan as shown in the following diagram:

PEST Framework
Environmental Scan / \ Macro-environment Micro-environment

PEST Framework

Political Factors
Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Some examples include: Tax policy Employment laws Environmental regulations Trade restrictions and tariffs Political stability

Political-Legal
Consist of ideology, laws, and ethics standards. International political environments are more volatile. Consider political as prime force in China.

Political-Legal
Organizations must operate within a framework or guideline based on national ideology. Regulation and policies reflect governmental ideology. Relating to organizations encompass subsidies, tariffs, quotas, and deregulation of industries.

Law and Legislation

Purposes of business legislation include protection of fair competition, consumers, interests of society For unbridled business behavior, the legal environment becomes more complicated Business subject to law of tax, antitrust, safety, consumer protection, environment protection

Economic Factors
Economic factors affect the purchasing power of potential customers and the firm's cost of capital. The following are examples of factors in the macroeconomy: Economic growth Interest rates Exchange rates Inflation rate

Economic Factors
The economic environment consists of factors that affect consumer purchasing power and spending patterns Economic factors include inflation, income level and its distribution, unemployment, business cycles Changes in major economic variables have a significant impact on the marketplace.

Economic-Political Interrelations Impact

USA global strategy Middle East War Oil Crisis Decline of business Energy efficiency demanding New business opportunity
Why Japanese car makers entered USA

Socio-cultural Factors
Social factors include the demographic and cultural aspects of the external macro-environment. These affect customer needs and the size of potential markets. Some social factors include: Health consciousness Population growth rate Age distribution Career attitudes Emphasis on safety

Socio-Cultural Influences
Social environment is a demographic aspect. Demography concerns population size, family structure, age distribution. Important variables indicating consumer base on which marketing firms target. Changes in the demographic aspects can result in significant problems for firms.

Socio-Cultural Environment
Major trends
Explosive population Changing age structure Ethnic and educational mix Types of households Geographical shifts

Socio-Cultural Environment
The cultural environment is behavioral aspects made up of forces that affect society's basic values, perceptions, preferences. and behaviors. Core cultural values are firmly established within a society and are difficult to change. Therefore, demanded is a function of peoples social conditioning. But once changing, many impacts on peoples views of themselves, others, and most importantly the firm image and its product

Socio-Cultural Special Interest Groups

Special interest groups representing social ethic standards protect our moral ground Green Peace environment protection Influence and limit various organizational behaviors in a given society. Limiting on over packaging Grown in number and power over 2 decades, putting more constraints on marketers. Organizations hire lobbyists to influence government and advocate their point of view on public issues.

Technological Factors
Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Some technological factors include: R&D activity Automation Technology incentives Rate of technological change

Technological Environment
The technological environment refers to new technologies, processes, materials, which create new or better product and market opportunities. Technology has a tremendous effect on life-styles, consumption patterns, and the economy. It is a driving force for changing every aspects of world and people on fast pace

Technological Environment
But thankfully, it is a most manageable uncontrollable force faced by marketers. Once advancing, you can start new industries, destroy existing industries, and stimulate entirely targeted markets. So, organizations must quickly adapt in terms of product and process, then turn resources and advances into opportunities and a competitive edge