PEST analysis


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External Environment

  • External factors can be opportunity/ threat


  • Helps business be sucessful because they can adapt and change based on what the external environment needs
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  • Should be under continuous review


  • STEEPLE- social, technological, economic, environmental, political, legal and ethical.


  • PESTLE- same but without ethical
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Political Factors

  • Employment Law- voting and strike laws may mean businesses replace people with machinery.Discrimination may make firms wary of recruiting but also could make them desirable and motivational if they are fair and caring. Minimum wage means business incur costs but businesses that pay over min gain good PR and larger choice of job candidates
  • Consumer Law- Cooling- off period if a customer wants to go back on a contract agreement, laws on faulty goods mean that product quality must be high (this is expensive). If a product is faulty business may be sued and PR damaged
  • Competition and Tax law- changes in coperation and purchase tax rates and law on fair trade. Business may not be able to buy a competitor, coperate tax increase may mean new businesses are set up as a sole trader/partnership rather than limited company.


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Economic Factors

  • Interest Rates- National interest rates increase loans more expensive savings gain more interest. Demand for luxuries may fall, less likely to take out loan, move to cheaper suppliers lower quality/basic goods.
  • Exchange Rates- Affect demand and price of imports and exports. rising will make exports more expensive for overseas customers this may lead to businesses cut prices if goods are PRICE ELASTIC, focus on marketing in countries where exchange rate has dipped or plateued.
  • Economic Growth- As an economy grows so does demand. Reduce stock levels in recession as sales are harder and supplies expensive, redundancies to cut costs-bad PR. Businesses that adapt quickly will cope with this others will struggle.
  • Inflation- Tendency for prices to rise in an economy. Rise=people are worse off if incomes remain the same. Extra expense will mean changing to cheaper suppliers If a business can find a country where their exchange rate is high, this will help reduce push-cost inflation. If demand for goods is price sensitive then businesses may chose price inelastic products so that prices can be increase without sales decreasing.
  • Unemployment- fall= harder to recruit may retrain and pay higher wages. Possibly relocate or buy machinery instead of recruiting.
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Sociological Factors

  • Lifestyle changes- more internet advertising and E-commerce, change in marketing objectives and strategies.
  • Demographic changes- Is the area ageing or de-populating? May relocate or train older staff
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Technological Factors

  • New Products- technology shortens product lifecycle and speeds up innovation. Businesses need to invest in R and D and if they lead their market they need to constantly review their product portfolio.
  • Improving Production Processes- CAD/CAM has improved production and its effciency. Computers mean stock can be monitored more easily and orders are quick. Internet opens up new markets to businesses. CAD/CAM can help businesses improve design and reduce the number of staff needed to operate machinery. Small businesses can export via the internet and search for cheap suppliers instantly. Businesses can plan to minimise stock level and release more working capital.
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