PESTEL analysis is a great tool if facilitated properly. It makes you look at the different external forces that your business has to operate within.
It is a discussion between managers rather than an academic exercise done by individuals on their own. A whiteboard where everyone’s contributions can be captured. The discussion is probably more useful than the output.
It can be used at any stage in the business lifecycle, but the real value comes from when it’s a repeated exercise. The interval really depends on how fluid those external forces are – at times of great change, the business may need to review/do the PESTEL analysis relatively regularly, certainly as part of its annual planning process.
The three key elements of marketing are a great place to start your strategic planning process:
- Segmentation: as in who are our customers and what are the key elements that make them a common group?
- Targeting, how do we get at those customers? What is the channel of distribution and communication?
- Positioning, how do we differentiate ourselves from the other choices and potential competitors.
Then we want to know what the environment is that we are conducting this business hence PESTEL analysis.
Working through the headings PESTEL (Political, Economic, Social, Technological, Environmental and Legislative) can throw up all manner of insight where the team think about the business strategy in the light of what their colleagues might offer. It is a ‘think different’ exercise and should not be inhibited or judgemental.
PESTEL. Political, Economic, Social, Technological, Legislative, the headings for the discussion.
Political, we often say with a small ‘p’ because it’s the politics of the industry and society. What are the standards, best practices, the sentiment of the market? Are there major large competitors to fear or alternatives such as alliances to help sustain the business? Not being the number one brand or product in a sector is sometimes valuable as following the market with a ‘me-too’ means the leaders define the market. Who does the brand or product serve, what is going on in that sector? For food and drink this can be about supply, dominant players, access to markets and access to supply. Think where there is only one of two key ingredient suppliers?
Economic, are we in recession or boom? Are we reliant on discretionary spend or are we producing a staple that a budget can be written for? Is the price-sensitive to competitors and or the positioning of the product or service? What do we think the economics (currency, supply, demand etc) might be in the future?
Social, are we for the good or are we on the defensive? As in, when people think of the brand or the product what would they perceive? Good? Bad? Borrowed time? Things like High-fat, high-sugar or other carbs might mean that the social impact of the product is perceived as less favourable. However, perhaps the products are ethical, portray an ethos that many consumers value? Can accreditations be useful in supporting social worth? (Organic, B Corp, ISO etc) Can sponsorship or shared affinity such as a charity help position a brand or business?
Environmental, what impact does the product or its route to market? Does it contribute to the environmental issues positively or negatively? In a world of energy costs and packaging concerns can a different route to market, a re-think of packaging, switching to renewables be considered? Seasonality of both market and supply is valuable here. Especially where the environmental issues may drive costs, availability and the need for alternatives.
Legislative. Laws coming that will impact the sourcing, production, or labelling. Will the product eventually have to be phased out or reworked to comply? Employment, tax, environmental and health laws, planning. The inexhaustible list of rules that any business must comply with impacts on strategy. In-house production versus outsourcing can be decided on the basis of the plethora of rules associated with manufacturing. But it could be that these are a strength for the business and a barrier to others competing so important to understand what the implications might be. Tax goes digital to pensions and potential carbon tax. The focus must be to see the advantages rather than worry yourselves into doing nothing.
The output is probably a tangible list of to-dos. Things that everyone realised needs attending to as a result of the exercise. However, the real benefit is the whole team involved, now appreciate what they collectively need to deal with as well as having some priorities but also perhaps appreciate what their colleagues must deal with too.
Don’t leave it as a document gathering the proverbial dust – think about how the issues discussed should play out in your long-term strategy. You can’t do/respond to everything, so you need to prioritise.
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