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, Lahug, Cebu City ________________________________________________ In partial fulfillment of the course requirements of Management 173
Marketing Reflection #2 PEST and PESTLE Analysis ________________________________________________ Presented to Dr. Gretchen Chaves
Presented by Balingcasag, Honeylyn Gabucan, Anya Homecillo, Marie Grace Mesa, Maria La Arnie Laput, Wynn
February 19, 2010
SUMMARY In 1967, Francis J. Aguilar developed a tool and technique for “Scanning the
Business Environment” called ETPS. The term ETPS stands for: Economic, Technical, Political, and Social environments that may affect the businesses. After it was published, Arnold Brown for the Institute of Life Insurance in the US reorganized it as “STEP” or Strategic Trend Evaluation Process as a way to organize the results of his environmental scanning. Thereafter, this “macro external environmental analysis” was again modified to become STEPE analysis (Social, Technical, Economic, Political, and Ecological). In 1980, several authors including Fahey, Narayanan, Morrison, Renfro, Boucher, Mecca and Porter included a variety of orders like: PEST (Political, Economic, Social, Technical), PESTLE (Political, Economic, Sociological, Technological, Environmental, Labor), and STEEPLE (Social/Demographic, Technological, Economic, Environmental, Political, Legal, Ethical). Although it was suggested that there is no implied order or priority in any formats, many were still claims that STEP or PEST contain factors which are appropriate for all situations. Also, PESTLE is popular on Human Resource and introductory marketing courses in the UK. PEST and PESTLE analysis is a framework used in the environmental scanning component of strategic management. Under PEST and PESTLE analysis are external factors which are the major players in the success and failure of an organization. Political factor is the government intervention in the economy. This includes tax policy, labour and environmental law, trade restrictions, tariffs, and political stability. Under Economic factor is economic growth, interest and inflation rates. These factors directly affect the cost of capital in business operation as well as the costs in exporting goods and the supply and price of the imported goods in the economy. Social factors include cultural aspects, population growth rate, health consciousness and age distribution while trends in this factor will greatly affect the demand for the products. Another factor is Technological where R&D (research and Development), automation, technology incentives and rate of technological change fall in. With its technological shifts, it will affect the costs and quality of the products that will also lead to innovation. Environmental factors such as weather, climate, and climate change will be an important aspects in the organizations growth that help them develop strategies involving these kind of events. Lastly, Legal factors which include discrimination law, consumer law, antitrust law, employment law, and health and safety law will affect company's operation, costs, and demand for products. These laws will also have effect on employees in which they'll perform such standard under their respective organizations.
With these existing factors in external environment, company's success will highly depend on the industry it belongs. It is because each factor will have different impacts on the operation in the organization, as well as how it provides better information about certain opportunities and possible threats to be focus on.
VALLE ADDED/CRITIQUE The PEST or PESTLE analysis tool has been widely used since it helps firms
understand the different angles in the environment where they are operating; could be for market growth or decline, business position, potential and direction for operations. This has become a starting point for the analysis of an organization’s external environment and the forces at work here. It has been used by leaders and managers globally to build their vision of the future. This tool seems to be an essential element for firms to succeed with their objectives because it helps them direct their path towards their goals. However, the real value and the effectiveness of this analysis depend on the way it is used. The factors must be properly interrelated and understood in order for an organization to take advantage of its use like in forecasting and estimation of the availability of resources. The effective use of this tool ensures that the activities of the firm are still positively aligned with the powerful forces of change that are affecting the surrounding environment and even the world. It has made firms realized that taking advantage with the changes is more likely to contribute success than opposing to the changes. Likewise, the proper use of this tool also helps the firm avoids taking actions that are destined to fail for reasons beyond the firm’s control. Thus, firms become cautious of the situations that may contribute to the failure of their business. More importantly, this type of analysis is most preferably used when firms enter a new market or country. Firms can already avoid hasty and insensible assumptions which may just ruin the goal especially when assumptions become illusory. With the presence of these diverse changes in the world, firms can take advantage of the opportunities and minimize threats that lie within the environment they are operating. They can fully utilize this advantage in order for the company to obtain a context which will help them gain a detailed strategic plan. The meaning that each letters in the PEST or PESTLE bears differs on its meaning and the subject of its analysis. Despite of these differences, their subjects however, has roles for each one of them. Like, Political Analysis affects the Economic analysis. All of them are significant in the organizations success. However, the inclusion of the legal and ecological factors received doubts from literatures. The importance of these two factors
certainly just differs from industry to industry. If such factors have high relevance on the industry, then must be analyzed separately. Otherwise, the firm can just allocate them to other categories in the analysis. PEST and PESTLE analysis’ main aspects focus mainly on how organizations cope up with their changing environment. It is important for an organization to consider these factors since it would greatly affect the whole process involve in the firm. Economic conditions affect how easy or how difficult it is to be successful and profitable at any time because they affect both capital availability and cost, and demand. The timing and qualified success of particular strategies can be influenced by economic conditions. When the economy, as a whole or certain sectors of the economy, are growing, demand may exist for a product or service which would not be in demand in more depressed circumstances. Similarity, the opportunity to exploit a particular strategy successfully may depend on demand which exists in growth conditions and does not in recession. Although a depressed economy will generally be a threat which results in a number of organizations going out of business, however, some may consider them as their opportunity. Economic conditions are influenced by political and government policy. These conditions are the major influence affecting government decisions. Say for example, imported and exported products can be seen expensive or inexpensive depending only on the currency exchange rates. On the other hand, socio-cultural environment summarizes demand and tastes, which vary with fashion and disposable income. Same with the previous environment, changes also can again provide both opportunities and threats for organizations. As time pass by, products change from being a novelty to maturity. When this happens, pricing and promotion strategies have to change. Organizations should be aware of demographics changes as the structure of the population and other aspects can have an important bearing on demand as a whole and on demand for particular products and services. Threats to existing products might be increasing, and opportunities for differentiation and market segmentation might be emerging. Lastly, technology has been widely accepted as part of the organization and the industry as it is used for the creation of competitive advantage. However, technology that is external to the industry can also be captured and used. When this happens, this again can be influenced by government support and encouragement. Technological breakthroughs can create new industries which might prove a threat to existing organizations whose products or services might be rendered redundant, and those firms which might be affected in this way
should be alert to the possibility. Equally, new technology could provide a useful input, in both manufacturing and service industries, but in turn its purchase will require funding and possibly employee training before it can be used. Thus, PEST and the PESTLE provide a pathway for the company to come up with a strategic plan for activities aligned to their objectives and mission. These tools help the organization continue to exist despite the rapid changes that are happening in the environment. When strategic planning is done correctly, it provides a solid plan for your company to grow in the future. With a PEST and PESTLE analysis, the company can see a longer horizon of time, and be able to clarify strategic opportunities and threats that the company faces. This would also help companies create good forecasts, short term and long term. By looking to the outside environment to see the potential forces of change threatening on the horizon, firms can take the strategic planning process out of the situation of today and into the possibility of tomorrow. PEST and PESTLE are not sets of rigid compartments into which ideas need to be sorted. It is better to think of it as a fishing hook used to catch information and important facts.
PRACTICAL APPLICATION Each organization would want to succeed in the respective field that they had chosen
to purse. The PEST or PESTLE is a tool that most organizations use for the analysis of the environment, in which they are operating in, and the opportunities and threats that lie within it. It provides a summary of the driving forces in the macro environment and how these forces affect or will eventually affect the course of business. It is commonly used for business and strategic planning, marketing planning, organizational change, business and product development and research reports. It can either be used from a departmental or individual perspective to look at what you deliver to whom and how you do it. This tool can also be used on how their competitors would be affected. This would enable the company to predict future reactions of competitors to external forces, as well as know how far they would be in terms of their capacity to respond to the outside environment.
PEST in Business and Marketing Planning When doing a business or marketing plan, a management team needs to have a background and context information about targets towards growth, new product development and brand positioning. Thus, a PEST analysis is a useful tool to have available at the start of a business planning process. Together with the SWOT analysis, the management can develop strategies to avoid or minimize the impact of threats and to build on the opportunities presented.
PEST in Product Development A PEST analysis on the external environment helps the organization make the decision to enter or to leave an area of product development. For instance, a portable CD player is an excellent device for playing music anywhere, anytime. However a PEST analysis might show, that socially and technologically, MP3 players are more acceptable because they are easier to carry without the burden of bringing CDs. A PEST analysis also plays an important role in the value creation opportunities of a organization’s product development strategy. For example, prices can be increased during economic boom thus increasing profitability or the changing social attitudes can force an organization to be more environmentally aware.
PEST in Research Reports A PEST analysis can be used as a framework for looking outside the organization to hypothesize what may or may not happen. It can be used to ensure that some of the basic factors are not overlooked or ignore. It is used in the same way as the business planning but the application of the data is different. The format of PEST and PESTLE has also proven to be useful in practice especially in compiling and structuring of information, as well as in presenting information. In the sorting of facts into four or six categories can help to get the general idea of a problem and make it easier for tracking information in the future. Its structure is widely known by others and is easy to understand.
Some companies and organizations that use the PEST analysis:
1. COCA COLA COMPANY A PEST analysis conducted on the Coca Cola Company: Political: Changes in laws and regulations including changes in accounting standards, taxation requirements and environmental laws in domestic or foreign jurisdictions. Economic: The US government declared that the US has been in recession since March 2001. There was a two consecutive quarters of contraction or negative GDP growth. Social: Consumers were becoming more concerned with nutrition and as such, this affected the non-alcoholic beverage industry by increasing the demand for healthier beverages. Technological: The new technology of internet and television which used special effects for advertising makes the product attractive. Furthermore, introductions of new machineries increased the production of the Coca Cola Company than it was a few years ago.
2. MOBILE BANKING Mobile Banking was a development in the banking sector in India that was expected by the industry experts to replace the credit/debit card system in the future. A PEST analysis conducted on mobile banking: Political: only licensed banks that have a physical presence in India were allowed to offer mobile banking services. Certain requirements were to be complied with before transactions can occur. Economic: Cost of handsets and call rates. Social: People still find many features complex to handle and some were unwilling users. Illiteracy was also an issue when using technologies like mobile phones. Technology: a major challenge was to develop one comprehensive application that would work for all mobile handsets. The application should function on all handsets available on the market.
3. NESTLE INDIA LIMITED Nestle India aimed to strengthen its presence in the market by launching new products at a brisk pace. In order to determine the present environment that they were operating in, a PEST analysis was conducted by the company. Through the PEST analysis, the company was able to point out some threats such as the reduction of the Indian government of the import duty of food segments (political), sectoral woes such as the rising prices of raw materials and the increasing of packaging and manufacturing costs (economic) and the changing consumer trends (social).
4. UNILEVER The Unilever Company is one of the biggest Fast Moving Consumer Good companies in the world. The organization has a mission of adding value to life to its present and future customers. It is a multinational company that tries to accomplish its mission in a very tumultuous environment. During 1960s many companies began to nationalize foreign firms. Nationalization policy like in India by 1970 had undesirable effect to multinational firms that caused some of them, like IBM and Coke to leave the country. Fear of issues of knowledge leakage, loss of trademarks and others had been not good for foreign companies, including Unilever. But by analyzing the political situation in different countries, the company got over this external disturbance. Unilever used its tactical strategy, experience and goodwill to make contacts in many countries to bargain with governments and modify regulations. In turn, it enabled Unilever to still have control and serve their established markets.
5.TOYOTA One of the companies that had seen and responded to changes in the external environment is Toyota. The turbulence in the crisis of the gulf region around the year 1992, the unstoppable increase of oil prices and the decrease of global oil reserves show the car industry’s limits. The laws on exhaust fumes had also tightened around the world to diminish the emission of carbon dioxide because of the increasing pollution. With these situations, the craving for renewable energy sources to make the automobile ecologically competitive had been pressing in the car industry.
As a result of the changes in those times, Toyota had strived to develop new technologies to have eco-friendly cars. In the later years, the company’s goal for eco-friendly cars had led them to develop hybrid cars like Prius that had been received well by consumers, especially in Europe and in the U.S. 6. ADIDAS This multinational company had also made use of PEST and PESTLE analysis. In the 2004 Olympic Games in Germany, it had taken the opportunity of this event to boost up its image and sales by sponsorship. Not only had this step benefited the company but also it had aided the country to decrease its unemployment rate. The company had also analyzed the labor market of Germany in deciding if it was going to put a factory for Europe-based customers. Adidas found out that salary of workers in Germany and France are high compared to China particularly in Suzhou. This is the reason why Adidas factories are located in Asia.
REFERENCES http://www.learnmarketing.net/theory.htm http://rapidbi.com/pestle/ http://www.themanager.org/models/pest_analysis.htm PEST - Analysis By Dagmar Recklies http://www.pdfqueen.com/pdf/pe/pest-analysiz/8/ Porsche’s success in the automobile sector and its involvement in VW (pdf file) Université Paris X | Nanterre Master 1 | Statégie et Politique gérnérale Professeur M. Benavent Academic Year 2006 · 07 by Christina Dietz | No. 26 00 10 61 http://www.oppapers.com/essays/Pest-Swot-Analysis-Adidas/161644 Pest and Swot Analysis of Adidas ,Lopito Jan 25, 2008 http://www.codewit.com PESTEL ANALYSIS: A REPORT ON UNILEVER (pdf file)
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