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PESTEL Analysis
- Prof. Suvendu Kr. Pratihari

1. Political
A. Taxation:
a. When the taxation decreases, this will lead to increase in the disposable
income (gross income minus income tax on that income). When the
normal individual's disposable income increase, this will results in
increasing the buying power, which means the individuals are becoming
more able to buy things and facilities, so you have a good chance to make
a profit from selling your product to that country (which has a
good buying power).
B. Protection of the Environment:
a. Are you going to manufacture a product which could harm the
environment?
b. If you are going to harm the environment in small extent, you should
know that there is are tax and penalties from the government for the
environmental damage you make. Also you should select the place of your
factory, if your company is going to build a factory that manufacture your
product, then choose a region that is close to factories environmental
areas and try to be away from the main populations.
c. Do you have manufacturing wastes that could harm the environment? You
should consider this issue well, because there are millions of dollars could
be spent on making products, developing factories which its wastes are
less harmful to the environment and human health. And by the way this
will get you a profit on long term and you will have a good corporate
social responsibility (CSR) towards society, environmental groups, and
pressure groups, legal and regulatory authorities in your country.
C. Environmental law
a. What about the hiring and firing costs in the country that you are going to
market your products in?
b. Are employees in your country having instability in their job? Do they
have stability with their job?
c. You should know how much the normal cost that you are going to
purchase to your employees (if you are going to make new companies) or
your employees (are they satisfied with their salaries), what about the
compensation and benefit schemes? Do you have a good compensation
and benefit scheme to your employees (because the normal people of your
country are stable at their job)?
D. Health and safety
a. You should know that your product has the highest safety profile and
minimum hazard on consumers' health. Also you need to read and apply
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the 'Consumer Safety Act 1974'.

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E. Foreign Trade Agreement

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a. The Foreign Trade Agreement (FTA) gives the companies that are from
foreign countries to penetrate your country market and marketing their
products there. So you should know if the Foreign Trade Agreement
(FTA) applied in your country or not.
b. If the no. of imported products (that comes from the foreign countries)
decrease, that will help you to establish your product in the market (if your
product is newly starting its business in that market).

F. Stability of the Political System

a. You should know and study the political stability of the country that you
will market you products in. This issue affects your long term investment
of your products; also it gives you indication about the duration that you
should spend in marketing your products in that country.

2. Economic
A. Inflation Rate
a. The inflation rate is affecting the Purchasing Power in each country, which
affects the ability of the consumers to buy, that affecting your chance of
making profit and hinder any new entrants in the market.
b. When the inflation rate increase, the purchasing power decrease, and
the disposable income decrease then chance of making profits of your
product decreases.
B. Interest Rate
a. Increasing the interest rate will be decrease the purchasing power of the
consumers, which affect their ability to buy your products.
C. Income Level
a. The income levels of the country you are going to market your product in,
is determine the pricing strategy of your products or services. This will
indicate if the people in that country are being able to purchase your
products or not.
D. Resource of Country
a. Increasing country resources are affecting organizations and companies to
release new product, also this is telling you which are the industries that
you need to invest your money in.
E. GNP (Gross national Product) and GDP (Gross Domestic Product)
a. Gross domestic product (GDP) is defined as the "value of all final goods
and services produced in a country in one year". On the other hand, gross
national product (GNP) is defined as the "value of all (final) goods and
services produced in a country in one year, plus income earned by its
citizens abroad, minus income earned by foreigners in the country"
F. Employment Level
G. Exchange rate-Currency Valuation
H. Consumer Spending Pattern
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3. Social
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To know about the social factors affecting the business environment in the target
market, it is needed to understand the social contribution of the consumers in country
being planed to market product in.
Given below different types of social factors that affect the business environment in
the marketing plan:
A. Demography
B. Society
C. Culture
a. Language
b. Religion
c. Values
d. Attitudes
e. Healthcare
f. Education
g. Occupation
h. Social organization
i. Any other cultural factor
To study each social factor affecting business environment in the marketing plan
in a effective manner, it is needed to collect all of the data you need to customize
your product to them, it has to be selected the your way of communication that match
their language, develop a product that is not contradictory to their religion and values,
create a product that match their real needs. Each age' needs, for each sex's needs has
to be considered.

4. Technological
The technological factors affecting business environment in marketing planning
includes the entry of new technologies either in Products or Processes or both.
i. Products
a. Improvement in the current products
Technical improvement of the current products means the creation or the
development of new technology that related to the product usage.
b. Products outdated or obsolete
Example: transformation from the old camera films to the digital cameras
c. Change in usage pattern
E.g. when people or organizations were looking for files or documents
transfers, they were communicating by the courier companies which were
costly and times consuming. But with the new technologies as internet, the
people found it easily to communicate by e-mails and sending their files
through different Microsoft office formats and PDF format.

ii. Processes
a. EPOS (Electronic Points of Sales)
i. EPOS (electronic points of sales) is a smart technology that had enabled
reaching impressive improvements in Shops (food, fashion,
computers…etc) it’s a system that discovers what the consumer like and
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gives the marketers valuable information about the consumer needs.

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ii. EPOS (electronic points of sales) is a system that put on cashier system,
which record all of the products for each consumer. When the
marketers start to analyze that system, they found some common needs
between consumers; like they found all of the consumers who like to buy
pampers, buy peers too. So the marketers make a special offers for those
segment who buy twelve pampers packs take a peer for free.

iii. The EPOS (electronic points of sales) includes loyalty cards distributed for
the consumers, so they fill their personal information in those cards, the
marketers analyze the buying behavior of those consumers, their ages, sex,
income levels, personal interests, geographic locations of the
consumers…etc.

iv. So if the system discovers that there is a big segment of the pregnant
women, this helps the marketers to develop a new partition in the market
for the infants (after 2 or months) so those consumers will buy these
products.

b. Internet based supply chain

It's a system that makes the balance between the stock and the new orders for
the Shops.

e.g. if you go to VIRGIN megastores, you will find that every book bought are
recorded on the system (Internet based supply chain) and if the stock reached
a specific levels (e.g. 2 or 3 books) it will automatically request a new
quantities for backup (Extranet system).
The previous system found in books stores, mobile shops, hypermarkets,
computer shops and many shops of different categories.

c. Outsourcing
i. What is the outsourcing?
The company A makes a contract with another company (Company B) to
conduct its business. Company B is recruiting their own employees, and
work for company A as outsourcing company to promote their products
and services to selected target segments.
ii. Why organizations need outsourcing?
As it is found in the Political factors affecting business environment in
marketing plan, in Employment law, you will find a high cost spent on the
hiring, firing, and compensations. So Organizations are looking for
2nd organizations that didn't belong to the employment law of the country
(which the 1storganizations exists in) and also their salaries, hiring and
firing costs are profitable for the 1st companies also.

For example:
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VODAFONE telecommunication company wants to open a new branch

for it in Australia to handle the customer needs there (as Customer Service
department). VODAFONE will spend millions in the hiring, firing and
paying compensations for their employees in Australia. So they make a
deal with other companies like India telecommunication companies or any
other companies in the Middle East, and recruiting employees who have
the same capabilities of Australian employees and matching the same
standard of skills of those employees. VODAFONE may pay thousands
instead of millions by the idea of outsourcing.

5. Environmental
The environmental aspect of PESTEL is very important for the marketers. One
should understand the environment of the country that your product will be released
in and the effect of the weather on the industry, agriculture and on human health.
Environmental factors includes the effect of the weather on three factors; industry,
agriculture and on human health.

A. Effect of the weather:

More hot days, more frequent heat waves.
More frequent heavy participation, intense tropical cyclone activity.
More areas affected by drought.
Rise in the sea levels.

B. The impact of the weather on:

On industry, human settlements and society
On agriculture, forestry, ecosystems, and water
On human health

At the time of the study of the environmental factor well, it has to be considered how
to create or develop a product that match the environmental aspect of your country, or
may be find a solution that make your product persistent for many environmental
factors that other products suffers from. Also you should assess the environmental
threats to predict the actions you will take before they could happen.
So any environmental threat could happen, should be analyzed from its probability of
occurrence (high or low) and its impact on your business (high or low).

6. Legal
There are two types of legal factors that are affecting the business environment
of the marketing plan:
a. Legal factors affected by industry:
Each industry has its own code of ethics and code of conducts to make an
established rules, policies and regulations in business ethics. Most -if not all- of
the companies are asked to sign on code of ethics.
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b. Legal factors affected by environment:

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As; laws, legislations, and regulations from the government, environmental

groups, and pressure groups that are affecting your business and companies
should follow those laws and regulations, otherwise penalties would be imposed.

There are also many factors that could affect the Legal aspects of the external audit

i. Monopolies and mergers

ii. Competitive activities
iii. Unfair trading
iv. Consumer legislation
v. Trade descriptions
vi. Health & Safety
vii. Professional Code of Conducts

Source for Data:

http://www.icmrindia.org
http://www.euromonitor.com
http://www.mckinsey.com
https://www.cia.gov
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