The PEST analysis - used for all external activities that could affect the business

University Degree Business and Administrative studies

The PEST analysis is used for all external activities that could affect the business. External activities are things that the business can have no control over. PEST stands for Political, Economic, Social and Technological. The PEST analysis examines the impact of each of these factors on the business. The results can then be used to take advantage of opportunities and to make contingency plans for threats

Political Factors
The political factors have a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. A business must look at issues such as how stable is the political environment, will government policy influence laws that regulate or tax your business, what is the government's position on marketing ethics, what global changes are occurring, data protection, health & safety and environmental policy.

Economic Factors
Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. A business needs to look at the Interest rates, the level of inflation, income growth, debt & saving levels (which impact available money) and consumer & business confidence.

Social Factors
The social and cultural influences are the elements that build society. Social factors influence people's choices and include the beliefs, values and attitudes of society. So understanding changes in this area can be crucial. It is very important that such factors as changes can impact purchasing behaviour consumer attitudes to your product & industry - environmental issues, the role of women in Society, attitudes to health, attitudes to wealth, attitudes to age (children, the elderly, etc.) Added complications when looking at social and cultural factors are differences in ethnic and social groups.

Technological Factors
Advances in technology can have a major impact on business success as technology is vital for competitive advantage for example, think about the potential impact that video-conferencing could have on the business travel market. Why spend hours and much money travelling some distance for a meeting, when you can join in - face-to-face - through a video-conference. Things involved would be does technology allow for products and services to be made more cheaply and to a better standard of quality does the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc.

A SWOT analysis builds on the results of the PEST analysis, which looks at the company's external environment. Its purpose is to identify company strengths and weaknesses so that strengths can be maintained or increased and weaknesses corrected. A further purpose is to identify opportunities and threats resulting from external factors - especially those that have an impact on the company's strengths and weaknesses. Company strengths and weaknesses need to be identified in all aspects of the business such as is it relative to the rest of the market (i.e. compared to competitors), relative to previous performance or expected performance, relative to customer demand (for example all companies in an industry may fail to satisfy a particular customer need).

SWOT analysis is a tool for auditing an organization and its environment. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. A preliminary approach for carrying out a SWOT analysis is to list perceived company strengths, weaknesses, opportunities and threats under each of these headings. Ensure that no weaknesses cancel out company strengths and potential threats to the company strengths or opportunities that could arise out of correcting weaknesses.

The following list is of some of the things that should be considered as this allows the company to identify where it is strongest against competitors and against previous and expected performance.

Marketing Aspects
Market share and market segments seen to Competitive Structure, Customer base (quality, size, loyalty, etc), Demand forecasts, Product range and quality, Services provided, Distribution capabilities and costs, Sales effectiveness, Promotional effectiveness, Image and reputation, Pricing options, Speed to market, Customer service, R&D and Innovations / new products, Marketing skills and experience and International / export market capabilities.

Operational / Manufacturing Aspects
Production / Manufacturing facilities (age, quality, ...

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The following list is of some of the things that should be considered as this allows the company to identify where it is strongest against competitors and against previous and expected performance.

Operational / Manufacturing Aspects
Production / Manufacturing facilities (age, quality, speed...), Economies of scale, Skills (Employee, technical, etc.), Product failure rate, Flexibility, Costs and Supply / raw material availability.

Human Resource Aspects
·Employee skills, motivation, dedication and experience, Employee satisfaction, Employee costs, Work environment, Staff turnover rate, Management and Organisational Aspects, Management skills and experience, Leadership and team skills, Ability to respond to market change and Flexibility and adaptability.

Financial Aspects
Cost of capital, Profitability / Return on investment, Financial Stability, Sales / Employee and Cash availability

It is important to consider both direct and indirect competition in order to develop your competitive strategy. To complete an analysis of competition, determine the strengths and weakness of the competitors as well as examining the specific aspects of their operations. Questions like: Do they have a good service and Are they financially stable will help in the analysis of the competition. SWOT analysis can be applied on you or your competitor. Strengths and Weaknesses are internal factors while Opportunities and Threats are external factors. For instance, an opportunity could be a developing market such as the Internet where as a threat could be a new competitor in your home market.

Advertising Standards Authority (ASA)

The advertising standards authority (ASA) has to control and regulate all forms of marketing, advertising, and promotion. The ASA regulates all of the above through the rules of the broadcasting act. ASA is responsible to make sure the public are not offended or mislead by any form of advertising, marketing or company promotions.

Corporate Social Responsibility (CSR)

CSR is the expression of a company’s commitment to accept its role in society. CSR is an important issue for companies because it makes them more aware of: -Employee, Involvement, Education And Training, Regeneration, Equal Opportunities, Ethical Principles, Ethical Investment and Cause Related Marketing.

Organisations should undertake both SWOT and PEST analysis because it is an important way of monitoring how the organisation is doing, what areas need to be improved or looked after to make sure the standard does not decrease.

It is also important so that they can be wary of their competitors. The competitors can be direct or indirect.

Direct competitors

Direct competitors would be other businesses that offer the same service or product as you for example computers retailers sell very similar products.

Indirect Competitors

Indirect competitors would be other businesses that sell a non-identical product or service that would effect whether a person would purchase your product or service for example

Analysis of Cadbury’s

PEST is split into four categories, political, economic, social and technological influences, which are all external factors. A PEST analysis identifies what external factors are going to effect Cadbury’s in the coming months and years.

POLITICAL - business decisions which are influenced by political and legal decisions.

Political decisions can affect the new bar for Cadbury’s for the good and the bad for example if taxes were to increase this would mean consumer’s decrease and sales of stock decrease. However if taxes decrease the price of chocolate will be lower and consumers will buy more. Laws can also change Cadbury’s income because if a law was brought out to act on chocolate companies exploiting third world countries workers the new bar for Cadburys would have to pay more for workers and this would decrease their profit margin.

ECONOMIC – influenced by domestic economic policies and world economic trends.

The interest rates can affect the new bar for Cadbury’s because if the interest rates were high then the new bar for Cadbury’s would not want to borrow as much money for expansion. Also if consumers had loans they would again have less disposable income to buy luxury items. If the minimum wage was brought down, this would mean more money for the new bar for Cadbury’s as they wont have to pay their workers as much money but would also result in low sales from the consumers as their wages could go down and they might not be able to spend money on chocolate. Also if the unemployment rate was high or the disposable income rate was low the potential customers may be forced to buy different products that are cheaper and that they need rather than desire.

SOCIAL – close analysis of society

If the new bar for Cadbury’s factories do not control their pollution levels or have big buildings destroying the landscape with noise and traffic congestion, then the local residents would complain to their local council resulting in a bad reputation for the new bar for Cadburys. On the other hand local residents with small businesses near to Cadbury’s world would benefit due to the money being brought in by tourists. Attitudes to health could help the new bar for Cadburys to gain more customers for example if they brought out a health bar or a bar with less fat in this would increase customers as they would be targeting a different range of customers.

TECHNOLOGICAL – developments in manufacturing and business processes.

The new bar for Cadburys could be affected by the cost of machinery, upgrading old machines to improve the company or new machinery that is better and they need to get it to keep up with competitors or gain an advantage, the new machinery could be more efficient in the making of the chocolate. This could be a machine that makes more chocolate bars in the same time or one that makes fewer mistakes. Also maintenance on machinery, the new bar for Cadburys may also need training for advancing IT skill in the business. Cadburys has made a website which advertises their product and gives lots of useful information this is good because they have stayed up to date and shows they are doing well in the technological factor.

To develop an appropriate marketing strategy would involve creating a link between the external environment and the internal strengths of Cadbury’s.

SWOT analysis is the focus upon the strengths, weaknesses, opportunities and threats facing a business internally and externally. To enable a SWOT analysis to be carried out, research into Cadbury’s current and future positions need to completed. This would result in building upon its strengths, minimise its weaknesses, seized its opportunities and cancel out the threats.

Relative Market share – Cadburys have a very good market share. They dominate the market and this is an important strength. This will help with the new product launch because everyone knows Cadburys and will be interested in a new product.

Reputation – Businesses that have a good reputation are likely to get repeat sales. Cadbury’s has got a good brand name that everyone knows and an excellent reputation for chocolate products. People feel that they can trust Cadbury’s products so when they come out people will try them so this is strength. As Cadburys have a good reputation this will help with the product launch.

Customer base – Business that have a large customer base have lots of customers that buy their product or service. Cadbury’s does have a large customer base so there are lots of different customers this is strength for the business and the new product because they have a lot of customers who would like to try the new product.

Customer loyalty – Business that has good customer loyalty will get repeat customers who buy regularly from them. Customer loyalty will be a big strength for Cadburys and the new product.

Product range – For a business that has a large product range there is more choice for the customer therefore sales should increase. This is something Cadburys have as they have lots of different products so this will be a strength for the business but not for the new product as it has a lot to compete against.

Product quality – When the quality of the product is better more people are likely to buy the product therefore if the quality is poor less people will buy the product. Cadbury’s products are quality and they have a good reputation for good quality chocolate and the new chocolate bar will need to be good quality to keep Cadburys reputation.

Retail relations – Businesses want to have a good relationship with the retailers, as they are the places that will be selling their product. If the relationship with the retailers were a strength they would stock your product and help advertise it. This would be good, as it should increase sales. If the relationship was bad the retailers may choose not to stock the product or refuse to advertise new products, which could severely lower sales of the product. But this is a strength for Cadburys and the new product as Cadburys can get the product out to the retailers quickly and get them to advertise for the product.

Supplier relations – A businesses can have a good relationship with the suppliers and may be able to get discounts for buying in bulk. They may also prioritise your business for loyalty and regular business. This is a distinct strength however if they had a bad reputation with the supplier this would affect the business greatly. This is a strength for Cadburys and the new product.

After sales service – With good customer relations people will come back for more. This increases sales and therefore profit. Cadbury’s have a good after sales service as customers can use their website that has lots of information which is a good aspect of after sales service.

Manufacturing costs – If the production costs are low then the product may stay competitive and the business will have more money to spend on more important things however if the costs are high the price of the product will have to be raised therefore the product may not be so competitive. This is a strength for Cadburys as their business is big they can benefit from economies of scale.

Manufacturing flexibility – This is the flexibility of the company changing the manufacturing depending on varying factors by adapting to the new product range. This is a strength for Cadburys as they are a well-organised company that can deal with changes.

Pricing – If businesses overprice their product less people will buy however they may have to have a high price because the costs were high. This would be a weakness in the business. If the price of their product was low more people are likely to buy it and they should increase their sales. As most chocolate bars have the same price this could be a weakness for Cadburys, as they have to make sure their bar is better than competitors so people will buy their product may be the new product could be cheaper to see if it will benefit Cadburys.

Advertising – By having a good reputation your advertising can appeal to a large audience. Advertising can be a big strength or a big weakness as a bad advertising campaign could put a lot of people off buying the product but a good advertising campaign could encourage lots of people to buy your product. This is a strength for Cadburys and the new product as they have lots of money to advertise their products.

Financial stability of company – When the financial stability of a is strong they will have a lot of money that could be put into a new product launch; advertising or creating a new product this is a strength for Cadburys as they are a profitable business.

Workforce – The workforce can be a big strength if they are motivated and willing to work hard however if they are not motivated they may not work hard and the productivity of the company could go down. This probably is a strength for Cadburys as they are producing good products so their work force must be good.

Culture – There may be a niche for a diabetic chocolate bar or something similar it should be up to the company to see what areas in culture their product can be used to good affect. This probably is a strength for Cadburys as their staff is good and should be able to successfully find a gap in the market this could be a strength for the new product as it could fill the niche.

Opportunities -There are many opportunities in business for improvement. This could be expansion or maximising profit. In Cadburys opportunities could be for extra sponsorship. With the Olympics coming up soon there could be a niche for a sponsor of the event. This would be a huge publicity stunt and increase sales maybe the new product can be advertised. They could also try expanding out to more countries where the new product can be sold. They already sell in most of the countries in the world but there could still be room for improvement an example could be in China no chocolate brand has really made an impression in China and with such a large population if looked at carefully there could be a huge boost in their customer base. This will be good for the new bar as if its successful it can be released in to other countries easily.

Threats-Threats can destroy businesses these can be internal or external and can severely affect the profit of a business. A threat that Cadburys could encounter is the competitors mainly being Mars and Nestle overtaking them in market share however at the moment Cadburys dominates the market. Other threats could be the government and whether they decide to act on chocolate companies exploiting third world countries workers. This could be bad for the new bar as there is a lot of competition to go up against which could mean that the new bar wont get recognised.