- What is a PEST analysis?
A PEST analysis is a checklist that has been developed to catalogue the vast number of possible issues that might have an effect on businesses. In analyzing the macro – environment, it is important to identify the factors that might in turn affect a number of vital variables that are likely to influence the organisations supply and demand. A PET report does this. It categorizes environmental influences as political, economic, social and technological forces.
A PEST analysis fits into an overall environmental scan as shown in the following diagram.
www.provenmodels.com/.../PEST_analysis.gif
To be successful every Organisation needs to be fully informed about its external environment. It will need to know:
- how the demand for its products/services is influenced by PEST factors
- the marketing opportunities that may exist
- the impact which it has on the environment.
‘In order to develop a marketing strategy a business must use the primary and secondary market information that it collects to analyse the competitiveness of its product or service and to gain an understanding of the external environment in which it is operating. This requires continuous scanning of the market to spot market opportunities; it requires the business to carry out a PEST analysis.’ Business 3rd edition, Roger Lewis & Roger Trevitt (pg 335).
As mentioned above a PEST analysis is made up of four factors:
- P is for political factors
- E is for economic
-S is for social factors
-T is for techololgical
Political Factors include government regulations and legal issues. They also define both formal and informal rules under which the firm must operate. Some examples include:
- Tax Policy
- Employment Laws
- Environmental Regulations
- Trade restrictions and tariffs
- Political stability
Economic factors affect the purchasing power of potential customers and the firms cost of capital. The following are examples of factors in the macro economy:
- Economic Growth
- Interest Rates
- Exchange Rates
- Inflation Rate
Social factors include the demographic and cultural aspects of the external macro environment. These factors affect customer needs and the size of potential markets. Some social factors include:
- Lifestyle Trends
- Consumer Attitudes
- Consumer Opinions
- Media Views
- Ethnic / religious views
Technological Factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing factors include:
- Competing technology development
- Information and communications
- Innovation potential
- Global communications
Kotler (1998) Marketing Management: Analysis, Planning, Implementation, and Control claims that is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. The headings of PEST are a framework for reviewing a situation, and can in addition to and models, be applied by companies to review a strategic directions, including marketing proposition.
- Importance for organisations
Marks and Spencer would need to carry out a PEST analysis because ‘In a dynamic environment where the external situation is continually changing this analysis would need to be carried out regularly, particularly by a business which aims to launch new products.’ Business 3rd edition, Roger Lewis & Roger Trevitt (pg 335).
As I found from my research I know that Marks and Spencer are always aiming to launch new products. For example in ‘2003 Marks and Spencer launched four different products and are currently aiming to launch more fair trade products.’
Marks and Spencer should carry out a PEST analysis, because using the PEST technique can help the business manage there opportunities, challenges and risks that are presented by changes in the external environment.
By doing this Marks and Spencer can improve there organisational performance and effectiveness, a recent example of this within Marks and Spencer is that they have opened ‘Simply Food’ stores. These are Marks and Spencer stores that just sell food. They have improved there performance because they are making more profit and reducing overheads. E.g. there won’t need extra space for textiles.
Mullins said that ‘the PEST analysis is one tool for both analysing the current situation of an organisation and planning its development. Political, economical, social and other influential areas are clearly of great importance to the planning process.’ So from carrying out a PEST analysis Marks and Spencer can plan the development of the company for the future.
Management and Organisational Behaviour, Laurie J. Mullins.
While I was brainstorming I came up with a few statements of why it is useful for a business to carry out a PEST analysis. Two points that stood out form the rest are that a PEST analysis is helpful for a company to change there business environment and that a PEST analysis is a good tool to help businesses survive.
From my research I came across the history of Marks and Spencer. Listed in the history was the date that the original founders Michael Marks and Tom Spencer formed partnership. The date was 1894, so this means Marks and Spencer as a company has been going strong for 114 years. Thus meaning that the use of a PEST analysis could be one of the reasons why Mark and Spencer have survived so long.
The use of PEST analysis can be seen effective for business and strategic planning, marketing planning, business and product development and research reports. PEST also ensures that company’s performance is aligned positively with the powerful forces of change that are affecting business environment. (Porter, 1985) Porter, M. (1985) Competitive Advantage, Free Press, New York, 1985
PEST is useful when a company decides to enter its business operations into new markets and new countries. The use of PEST, in this case, helps to break free of unconscious assumptions, and help to effectively adapt to the realities of the new environment.
From my research I found that Marks and Spencer have entered there business into new countries. They actually have 210 outlets in 30 countries worldwide not including UK or Republic of Ireland, and Greece has the biggest number of outlets.
- The impact of the external macro environment on Marks and Spencer
In this section I will discuss how all four parts of the PEST analysis can/do impact Marks and Spencer. I will discuss how the company is impacted by Political, Economic, Social and Technology Factors.
- The impact of the Political external environment on Marks and Spencer
It is important for companies to follow government policies and global organisation systems, such as World Health Organization, while they make marketing plans. Governments, especially in the developed countries, consider ecological environment and human’s life. Governments set up policies and organisations to monitor firms and their products, such as energy saving policy and genetically modified food control.
Since 1999 Marks and Spencer has had a strict policy of selling only non- genetically modified products. They are the only major UK food retailer that has been able to guarantee that no genetically modified ingredients are used in the manufacture of any of there foods.
The UK government has introduced energy saving organizations, such as ‘Climate Change Levy’ and ‘Green Tax’ on energy use to reduce CO2 by 2010 by 20% against 1990 levels. Marks and Spencer have introduced a plan help reduce climate change. They have introduced a plan called Plan A. They say ‘ Plan A is our five year, 100-point ‘eco’ plan to tackle some of the biggest challenges facing our business and our world.’
Marks and Spencer say that they will work with both customers and suppliers to combat climate change, reduce waste, safeguard natural resources, trade ethically and build a healthier nation. From working with the company I know that they do there fair bit to reduce waste. First they sell all ‘display until date’ foods to staff at cheap prices then with the leftovers they give what they can to charities.
Plan A is made up of Five pillars, the five pillars represent the five key areas where Marks and Spencer believe they can make there business both more sustainable and kinder to the environment. The five pillars are climate change, waste, sustainable raw materials, fair partner and health. As shown below.
http://plana.marksandspencer.com/?action=PublicPillarDisplay
In recent years, gene technologies have increased substantially. Some of these technologies have used to produce food. However, some of these technologies may cause natural environment pollution and endanger human’s health. M&S have removed 200 tonnes of slat form there food in the last 12 months.
By doing this they have met the salt reduction targets agreed by the British Retail Consortium. They are now also working towards reaching more demanding targets set by the Foods Standards Industry. Marks and Spencer have also removed all hydrogenated fats from there food ranges. They have also removed all food colouring Tartrazine and Mono Sodium Glutamate, which they have been awarded for by the Hyperactive Children’s Support Group.
Another political factor that could affect Marks and Spencer is wars and conflict. I know at this minute in time its not a huge concern for the business but in 1941 ‘M&S staff raised funds in order to present a Spitfire to the country, to aid the was effort.’
- The impact of the Economic external environment on Marks and Spencer
Economic factors have affected companies to extend their business or retrench its business, such as close loss-making operations, and sale their non-core business. For example, the 11th September 2001 accident in USA has caused many companies to face the recessions in North America and European countries.
The 11th September accident in USA caused economical crisis in North America and other countries. It caused consumers to change their purchasing habits, and retailers were seeing sales decreases (BBC News, 2001). In fact, M&S lost its around 8.6 million pounds between 2001 and 2002 from its international retailers. As result of this M&S has closed its loss-making operations in Continental Europea and sold its non-core business in North America.
Economic conditions affect how easy or how difficult it is to be successful and profitable at any time because they affect both capital availability and cost, and demand (Business plan, Rogoff, Edward. Pub Thomson Texere October 2003).
Another economic factor that could effect Marks and Spencer’s as a company is the interest and exchange rates. In the UK we have a fixed exchange rate system. The government keeps the exchange rate fixed by manipulating the interest rates. If the exchange is in danger of falling the government needs to increase interest rates to increase demand for the currency. The government does this because otherwise this would have a deflationary effect on the economy the demand for products might decrease and unemployment might increase.
Fixing the exchange rate is not easy as there are many variables which are changing over time if the exchange rate is set wrong it might be hard for export companies to be competitive in foreign countries. International disagreement might be created when a country sets its exchange rate on a too low level. This would make a countries export more competitive which might lead to a disagreement between countries as they might see it as an unfair trade advantage.
This would then create a bad image for Marks and Spencer in there international franchises, because the foreign countries would look at M&S as a UK based business and if there’s disagreement between countries, they will stop buying for Marks and Spencer which could cause serious damages for the company. They would make losses instead of profits and could be even forced to close down some stores.
