What is a PESTEL analysis and how to perform it?

Macro-environment factors can influence each company’s competitive advantage, overall profitability levels and new product launches. A PESTEL analysis will help us to identify these variables. In this article we explain what it is and how to perform a PESTEL analysis.

What is a PESTEL analysis?

It consists of an analytical strategy that studies all the elements of the external environment that affect companies and product development. It also helps us to form an overall picture of the factors affecting a given project.

PESTEL – whose acronym stands for political, economic, social, technological, ecological and legal factors – is a tool used to analyze and control macro-environmental factors that can have a profound impact on the performance of a new product.

Below, we show you the relevance of each of the factors so that you understand the need for an expert strategic design team to analyze them before the launch of the new project.

Elements of a PESTEL analysis

Political factors:

These factors relate to the manner and extent of a government’s intervention in the economy or in a particular industry and determine the extent to which government policy can influence a specific business or sector. Some of these factors include political stability, foreign trade and trade restrictions, as well as trade, fiscal and tax policies.

Economic factors:

PESTEL economic factors are decisive in determining the performance of our project. Economic factors have a direct impact on profitability and, consequently, also affect the pricing of products if we want to make a profit.

Among the most important macroeconomic factors are economic growth, exchange rates, inflation rates, interest rates, consumer disposable income, unemployment rates, supply and demand patterns and raw material costs. Therefore, a detailed economic feasibility study will be of utmost importance to ensure the success of the product.

Social factors:

These elements require a focus on the social environment and the identification of emerging trends, which will help to better understand consumer needs and wants in a social environment. That is, they represent the demographic characteristics of the population including demographic trends such as population growth rate, age and income distribution, occupational attitudes, emphasis on safety, health, lifestyle, education levels or socio-cultural elements.

All of them are fundamental factors, since they contribute to the creation of marketing strategies focused on specific consumers and which prove to be highly effective.

Technological factors:

The PESTEL factors in this area refer to the degree of development and technological innovations that may affect industry and market operations. They consist, therefore, of technological advances, the level of innovation, new materials, automation, research and development (R&D) activity, new distribution, manufacturing or logistics methods and, in short, the technological awareness of a market. All these agents influence product design, manufacturing and launch decisions.

Environmental factors:

Environmental factors are those that have to do with the environment and the impact of ecological aspects. Like climate, they are recycling procedures, carbon footprint, waste disposal and sustainability. These are elements that are becoming decisive drivers in the operation of all types of businesses, which has led many companies to become increasingly involved in practices such as upcycling, waste recycling, eco-design and the development of sustainable products.

Legal factors:

A company needs to know what is and is not legal in order to successfully and ethically market a new product. In addition, it must keep abreast of any changes in legislation and the impact it may have on the business. This includes labor legislation, consumer law, health and safety laws, intellectual property protection, product labeling regulations, as well as European and international trade regulations, among others.

How to perform a PESTEL analysis?

To carry out a PESTEL analysis and study the feasibility of a project, it is necessary to follow several steps.

  1. First of all, it is important to bring together a multidisciplinary group with specialists in different areas to brainstorm about the specific elements that may affect the product. In this sense, it is best to request an expert analysis that guarantees a reliable result before the launch of our product.
  2. Next, all relevant evidence will be researched and gathered to efficiently analyze each of the factors that may affect the product. Once all the data has been collected and the results obtained, each of the elements must be evaluated and scored in terms of their likelihood and impact. That is, the likelihood of occurrence and the magnitude of the impact it could cause.
  3. The last step consists of redefining the ideas and repeating the tests until an appropriate number of points is obtained in each of the six categories.

At Inifinita we are experts in innovation, strategy and development. Ask for a PESTEL analysis to our team of professionals in strategic design before launching your product. We will offer you the best solution.