How To Identify Your Microenvironment Using a PEST Analysis

The external factors that impact a firm’s decisions or their marketing strategies are known as the macroenvironment. Assessing these factors is an important part of market research that a firm must conduct in order to be successful within their industry. Several different strategic analysis processes are used within market research, and a PEST analysis is just one of many tools.  

What Is a PEST Analysis and How Is It Important For the Success of Any Business?

While a SWOT analysis focuses on the microenvironment (internal factors) of a firm to help devise a market strategy, a PEST analysis is focused on four important external factors. Namely, it focuses on: 

  • Political factors that can impact a business, such as policies by the government or instability in another country that is crucial for the business. 
  • Economic factors such as changes in interest rates or financial crises. 
  • Socio-cultural factors that are directly related to the business such as public education and population growth. 
  • Technological advances and innovations that impact the industry as a whole. 

A PEST Analysis Helps Businesses Understand Which Forces Are Part of the Macroenvironment

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Companies perform a PEST analysis because it allows them to speculate how their business will perform in the long run, especially when combined with other market research tools and analyses. Together with SWOT and the Five Forces Model, the three analytical grids are known as the Environmental Scanning Process, that is, understanding the environment of a business.

Marketers need to consider everything that can impact a business and take into account all the external factors that can sever the relationship between the business and its potential customers. Thus, marketing strategies cannot ignore the results of market research such as a PEST analysis.

How Does Ignoring the Results From a PEST Analysis Impact the Marketing Efficacy of a Business?

The impact of external factors on a business is not to be taken lightly. There are many ways that marketing efforts can be lost if marketing specialists ignore the results of a PEST analysis. Here are some examples:

Political Factors

These are factors that are mostly about how governments impact an industry. For example, if there are trade restrictions, a marketing strategy must take into account that the business may not have access to certain goods. To further illustrate, a grocer who advertises that he will bring mangoes from a nearby country, should take into account any trade restrictions in place. Otherwise, potential customers will be disappointed when, ultimately, he will not be able to fulfill the promise of his advertisement.

Economic Factors

Because economic factors such as inflation or exchange rates can have a drastic effect on a business. If they are not taken into account when devising a marketing strategy, it will likely fail. Economic factors affect competition between companies and the consumer’s purchasing decisions. For example, during the Great Depression, food manufacturers may have had trouble advertising luxury items to a market that could not afford them. Instead, they devised marketing strategies that focused on price and other more relevant factors. 

Social Factors

The social and cultural norms of a society can change over time, and they differ vastly between nations and countries. When a business is trying to bring a new business into a new market, they must consider the social and cultural implications. For example, international dairy companies failed to penetrate the Indian dairy market, despite the abundance of cows in the country. The reason being that most Indians favored milk from small farmers who had one or two cows at best, that were nearby. Milk from factories was not favored by the Indian market because there is a deep cultural connection to milk from cows that were raised in a small household. 

Technological Factors

This is probably the most obvious factor to impact marketing, as new trends of online marketing and social media marketing arise. Failure to use these advances in technology for marketing can create a consumer perception that the business is not innovative. Also, overcoming the competition without marketing on the same technological level (digital media) means allowing the competition to reach a wider audience. Businesses must always strive to keep up with the advances in various forms of technology if they hope to be successful on any level.

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