Definition: PEST Analysis is a measurement tool which is used to assess markets for a particular product or a business at a given time frame. PEST stands for Political, Economic, Social, and Technological factors. Once these factors are analysed organisations can take better business decisions.
Description: PEST Analysis helps organizations take better business decisions and improve efficiency by studying various factors which might influence a business such as political, economic, social, and technology.
PEST analysis helps in making strategic business decisions, planning marketing activities, product development and research. It is similar to SWOT analysis, which stands for Strength, Weakness, Opportunities, and Threats.
Let's study each individual factor of PEST analysis in detail. In PEST analysis, 'P' stands for Political environment. It includes government regulations or any defined rules for that particular industry or business. It also involves study of tax policy which includes exemptions if any, employment laws, environment laws, etc.
The letter 'E' in PEST analysis stands for economic factors. It gauges the economic environment by studying factors in the macro economy such as interest rates, economic growth, exchange rate as well as inflation rate. These factors also help in accessing the demand, costing of the product, expansion, and growth.
'S' stands for social factors that form the macro environment of the organisation. It includes the study of demographics, as well as the target customers. These factors help in gauging the potential size of the market. It includes study of population growth, age distribution, career attitude, etc.
The letter 'T' in PEST analysis stands for technology. As we all know, technology changes very rapidly, and consumers are hungry to adopt new technology. It involves understanding factors which are related to technological advancements, rate at which technology gets obsolete (Example: the operating system in mobile phones), automation, and innovation.
