PEST AND PESTEL ANALYSIS

PEST analysis is a very effective tool used to analyse the catchment and other external environmental factors that will influence your business. This study is usually done by retailers before they setup a Business Unit or a Store in a location. Some retailers call it Catchment Study. PEST analysis analyses the below factors :

- Political Factor
- Economic Factor
- Social Factor
- Technological Factor

Recent studies and analysis required further addition of 2 more factors relating to Law and environment for better analysis and understanding of the areas impacting or affected by the business

- Environmental Factor
- Legal Factor

1. Political Factor :

This is one of the primary factors that you need to look at even before laying a  road map for your
business in that catchment.  You need analyse the stability of the ruling government, how encouraging are the government policies towards corporates, labour laws and subsidies on goods provided by the state and the central government

2. Economic Factor :

The economy condition of the country should be considered, for example when there is a recession and people are not willing to spend, we cannot launch new stores and expect business to double. Economic factors impact a grocery retailer when there is high inflation, so before setting a business unit we need to analyse the inflation for the last few years. We also need to understand the economic
condition of the catchment the store will cater to based on which the pricing and margin can be decided for the products sold at the store and also the class of product to be sold.
This also includes interests at which banks offer loans and exchange rate of the local currency.

3. Social Factor :

Social factors include the age, culture and behaviour of the people living in the country or state.
Due to high cost of living even the labour cost will be high in such areas. Sometimes it is also advisable to consult a local anthropologist to understand the clients or customers we will cater to. This is more particularly applicable when we open a fashion store or a restaurant, we must ensure we have the fashion and cuisine that is preferred by the locals apart from our signature products.

4. Technological Factor :

The technological development of the environment. For example we cannot launch in store promotions on mobiles for loyalty customers or launch RFID unless the customer or the staffs are
ready to embrace the technological change. With India having more villages than developed Urban areas, while planning for a chain of stores the sales and marketing strategy should be designed to accommodate both areas with technological advantage and rural areas with less technological advancement

5. Environmental Factor :

This includes the factors such as weather, climate change and the awareness the people have about the environment. Change is climate through the years will also lead to change in products required by the customers. For example, in India winters are getting colder and summer are getting hotter leading to extreme heat and cold in areas which were having milder weather. This change has led to new requirements such as winter clothing during winters and Air conditioners during summers in these areas.


6. Legal Factor :

Legal factors include the various laws enforced by the government and the impact of the same on our business. For example labour laws, food safety laws, customer law, establishment certificates, etc. which have direct impact on the way we will set our business practises. Frequent changes in legal structure due to change in political environment will lead to loss in business.