Introduction to PEST analysis

PEST analysis is a useful business measurement tool for understanding market growth or decline, and as such the position, potential and direction for a business. PEST is an acronym for Political, Economic, Social and Technological factors, which are used to assess the market for a business or organizational unit. The PEST analysis headings are a framework for reviewing a situation, be used to review a strategy or position, direction of a company, a marketing proposition, or idea. Completing a PEST analysis is very simple. PEST analysis also works well in brainstorming meetings.

As PEST factors are essentially external, A PEST analysis measures a market. The PEST model is sometimes extended (some would say unnecessarily) to six factors, by adding Ecological (or Environmental) and Legislative (or Legal) (the model is then known as PESTEL). Arguably if completed properly, the basic PEST analysis should naturally cover these 'additional' factors: Ecological factors are found under the four main PEST headings; Legislative factors would normally be covered under the Political heading; Industry Analysis is effectively covered under the Economic heading.

A PEST analysis measures the market potential and situation, particularly indicating growth or decline, and thereby market attractiveness, business potential, and suitability of access - market potential and 'fit' in other words. PEST analysis uses four perspectives, which give a logical structure, in this case organized by the PEST format, which helps understanding, discussion and decision-making.

The PEST subject should be a clear definition of the market being addressed, which might be from any of the following standpoints:

  • a company looking at its market
  • a product looking at its market
  • a brand in relation to its market
  • a local business unit
  • a strategic option, such as entering a new market or launching a new product
  • a potential acquisition
  • a potential partnership
  • an investment opportunity

Be sure to describe the subject for the PEST analysis clearly so that people contributing to the analysis, and those seeing the finished PEST analysis, properly understand the purpose of the PEST assessment and implications.

Examples of PEST / PESTEL Analysis

To help you learn the basics of PEST and PESTEL Analysis we have prepared a selection of examples which you can use as a guide to writing your own report.