What Is PEST Market Analysis?

A PEST market analysis is a four-step process by which businesses study the various factors that will affect them in their business environment. These factors are often beyond the control of management, but must be taken into consideration to learn about potential obstacles to business that can come up. When conducting a PEST market analysis, management must consider political, economic, social, and technological aspects of the community and market they inhabit. Some firms might wish to go even further with a PESTLE market analysis, which also factors in legal and environmental issues that might come into play during the course of business.

It is common for a business either just starting out or wishing to branch out with some sort of new initiative to look inward at its own strengths and weaknesses before making these moves. While that can be useful, it is also just one part of the business picture. There are also external factors within any business environment that can have definite impact on how a business is conducted and whether or not it will be profitable. All of these external factors are taken into consideration in a PEST market analysis.

To begin a PEST market analysis, the political environment surrounding a business should be studied closely. Strict government regulation in a specific area can hamper a business, while tax codes, which vary from place to place, can obviously affect the bottom line. Economic factors are the next part of the equation, since the wealth of citizens in a specific area or market will obviously impact the prospects of a business.

Continuing a PEST market analysis, businesses should be aware of the social factors that might affect them. These social issues can range from the religious beliefs prevalent in a society to population statistics which can certainly impact the demand for products in an area. Concluding the PEST analysis, firm managers should consider technological factors in the area of its business. Getting a business off the ground would be impossible without the proper technology in place.

There are numerous issues to study within each part of a PEST market analysis, depending on the type of business and the market it plans to enter. In some cases, businesses may wish to even stretch the analysis out to include in-depth study of legal and environmental issues in a certain area. Adding these two areas to the analysis makes it a PESTLE analysis.