The Leading Source Of Original Research And Insights On Business Model Strategy, Digital & Tech Business Models
What Is A PESTEL Analysis And Why It Matters
The PESTEL analysis is a framework that can help marketers assess whether macro-economic factors are affecting an organization. This is a critical step that helps organizations identify potential threats and weaknesses that can be used in other frameworks such as SWOT or to gain a broader and better understanding of the overall marketing environment.
A PESTEL analysis is one of the tools and frameworks that marketers can use to assess the impact of external market forces on the organization’s growth and profitability over time.
Indeed, the PESTEL analysis becomes a companion framework to other tools, and frameworks, like the SWOTanalysis as it allows to gain a broader perspective on the overall market and industry where the organization operates.
In too many cases marketers fall into the trap of analyzing an organization as it operated in a vacuum. Understanding macro trends, and how those are and will affect the organization is a crucial skill for marketers to gain perspective on the company’s overall marketing strategy.
And to perform a better analysis of the current and future scenario. This also allows an organization to formulate a better business strategy. This also helps organizations adapt their business models based on the changing macroeconomic landscape.
What are the critical components of a PESTEL analysis?
The PESTEL analysis comprises six macro-environmental factors that span from political to legal:
Political: how much is the government involved in the economy or in that particular market? And how much a government policy can influence that?
Economic: how many economic factors, such as interest rates, employment, foreign exchanged, unemployment and other factors will affect the company’s profitability?
Social: how much emerging trends or demographics, such as population growth, age distribution, and so on affect the organization?
Technological: how much technological innovation, development, and disruption might affect a market or the industry in which the organization operates?
Environmental: how much the surrounding environment and the impact of a business on ecological aspects are influencing the organization’s policies as well?
Legal: how will change in legislation affect the organization’s profitability, sustainability, and growth?
Let’s now evaluate the global retail giant Amazon in the context of a PESTEL Analysis by looking at the following external factors:
P – Political.
E – Economic.
S – Social.
T – Technological.
E – Environmental.
L – Legal.
Amazon PESTEL Analysis
Let’s now perform a PESTEL Analysis on Amazon, addressing each factor in more detail.
Political
Political factors encompass the level of governmental intervention in an economy. This may include policy decisions relating to foreign trade and tax or laws relating to labor or the environment.
As a global retailer, Amazon is not immune to political factors. Politically stable western countries with similar laws to the USA offer Amazon expansion opportunities. However, the company has faced stiff competition in China where the government tends to back Chinese e-commerce companies.
Economic
Economic factors are those that directly impact on the performance of the economy. In turn, these factors influence the profitability of an organization. Economic factors may include unemployment rates, raw material costs, and foreign exchange rates.
In the wake of the coronavirus pandemic, Amazon has benefitted tremendously from economic stimulus measures that have increased consumer discretionary income. However, this income has also allowed competitors to enter the market.
Social
Social factors describe the general beliefs and attitudes of a population, most often related to cultural and demographical trends. These factors ultimately determine and then drive consumer behavior.
With the shift toward convenient, fast, and contactless delivery, Amazon has again taken advantage. Savvy and computer literate millennial consumers are also driving huge growth in mobile shopping as the availability of 5G networks increases.
Technological
This describes the rate of technological innovation and development and how it might influence a given market. Digital technology is often the focus, but non-tech companies also look for advances in distribution, manufacturing, and logistics.
Amazon is highly innovative within the retail sector. The company has invested heavily in drones to deliver parcels. It has also created an unattended locker system called Amazon Hub so that consumers can receive parcels when it is convenient for them to do so.
Environmental
In the 21st century, environmental factors are becoming increasingly prevalent. They encompass such things as carbon footprint, waste disposal, and sustainable access to raw materials. Climate change has also meant that businesses must be more adaptable to frequent natural disasters.
As Amazon’s distributionnetwork grows, the company must sustainably address its greenhouse gas emissions. In the United States, Amazon Prime is particularly polluting because of the promise of 1 or 2-day delivery.
Legal
Large organizations that operate in many countries must have a detailed understanding of the laws applicable to each. This is especially true in countries where employment, consumer, tax, and trade law directly impacts on business operations.
Amazon has had to deal with legal challenges regarding its tendency to subvert tax law and move profits into tax havens such as Luxembourg. The company was also recently investigated by the US Federal Trade Commission for misleading discount claims on over 1000 of its products.
Key takeaways:
The PESTEL analysis is a tool that businesses use to analyze macro-environmental factors that have the potential to impact on performance.
PESTEL is an acronym for six factors: political, economic, social, technological, environmental, and legal.
As a large, global retail company, Amazon has been able to take advantage of the shift toward convenient and contactless consumer goods delivery. However, it’s global reach also leaves it vulnerable to sustainability trends and investigation for tax evasion.
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.
A SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.
BCG Matrix
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful businessproduct portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.
First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is valueinnovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.
Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.
This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
Strictly Necessary Cookies
Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.
If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.
Published by