The PEST analysis is one of the popularly use strategic tool for assessing a marketing location. It plays an important role in formulating the most effective business plan for a company. PEST is the acronym for political, economic, social and technological factors which a company needs to analyze before entering into a market. This theoretical framework provides a clear idea of the target market based on these four external environmental factors. While preparing a marketing essay in which you are required to formulate new marketing strategies or business plan, you first need to conduct a PEST analysis so that you can understand the target market better. This as a result makes it easier for you to formulate the right strategies which properly fit the market conditions.
Let us look at each of the individual factors and see how we can use them to conduct a thorough market analysis.
Political: The political factors refer to the governmental polices and regulations which can influence the business venture of an organization. Such policies determine the boundaries in which an organization is allowed to conduct its business operations. The local government of a region may choose to impose certain restrictions on some product categories or operational process, while offering subsidy on others to encourage their sale. Therefore, for a company it is important to identify these policies and regulations which can have any direct or indirect impact on the business of the company. The political factors also determine the bilateral relationship between two countries, particularly between the home and the host country. A good bilateral relationship with a host country can prove to be beneficial for an organization seeking for international business expansion. Therefore, it is essential for you to ensure that the target market where the firm is willing to enter has favorable business ties with the home country. The political factors also include the political stability of the region. The presence of any political conflicts in the region can also have a prominent effect on the business operations of the company. Thus, it is quite important for a firm to assess the political factors of the target market before entering.
Economic: The economic factor determines the affordability or the degree of disposable income of the customers. A strong economic condition of a country indicates towards high disposable income, which can prove to be beneficial for the chosen firm, as the customers are more likely to be able to purchase the products. However, a poor economic condition may compel the customers to be thriftier and they are less likely to spend money except for bare essentials. Thus, it is always preferred by a company to operate in a region with stronger economic conditions. Apart from the affordability of the customers, the economic condition also determines the financial capacity of the nation to support business ventures. A country with a higher GDP is likely to be able to support its business ventures and build up new trade relationship with other host nations, which in turn can also be beneficial for its organizations. It should also be noted that the economic factor also determines the conditions of the labor market of that region. The availability of skilled labor in the market also plays a crucial role in behind the success of a firm, as stronger human capital can help in fostering better competitive advantage.
Social: The social factors determine the behavior of the customers and their consumption patterns. Before introducing a new product or service, it is important for an organization to have a clear understanding of the behavioral trends of the customers in the chosen market. Customers belonging to one market region may have different preferences in lifestyle and product consumption than that of other regions. Therefore, the social factors highlight the needs and preferences of the customers which are specific to a particular target market. While you are determining the social factors, which can influence your chosen organization, you may start by looking at the demand and popularity of the product category offered by the company. High popularity of the product may suggest that this market is a viable option for the company to expand its business. In this case, you may also highlight the cultural factor of the target market. The cultural background of a nation or a region can have a significant effect on the consumption and purchasing behavior. A highly collectivist society is likely to prefer products and services that are suitable for a large family setting, compared to an individualistic society. Moreover, a society with high degree of indulgence is more likely to spend money on leisure products, as opposed to the one with low degree of indulgence. Thus, the social factors are extremely important to consider while conducting the market analysis.
Technological: The technological factor highlights the availability of advanced technologies in the market, which can help an organization to develop valuable products, services and operational processes through innovation. Availability of technology can vary greatly from one region to another, which is often indicated by the innovation and technology ranking. From the organizational perspective it is always advised that a firm should enter into a market which the presence of advanced technologies, which can be used to improve the business operations. It is important to understand, that the company needs to identify the technologies which are specifically beneficial for its business and also if they are available to use.
The PEST analysis should help you to conduct a thorough assessment of the market in which your chosen organization is proposed to run its business. This article should help you to implement the framework into your paper on your own, without asking any essay helper.The PEST analysis model can be used in various scenarios, where you are required to conduct an external environmental analysis for your assignment.
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