What is PESTEL analysis?

The PESTEL analysis takes into account six factors (political, economic, sociological, technological, environmental and legal), which themselves consist of many elements. The entrepreneur must identify and give meaning to each of these elements in order to better understand the functioning of the target market.

The six components of the Restell analysis are as follows:

1. Policy.

These are the consequences of state and institutional decisions.

The political stability of a county, region, or state can have more or less influence on a company's operations. Decisions made by international organizations can also affect the market, as can laws at the European level.

The tax burden imposed by the state is also an element to be considered for a company, as it can play a decisive role in its choice of legal status.

2. Economics.

The financial elements that drive the market.

Inflation and currency stability must be considered, especially for a company operating internationally. The growth rate of the market must also be monitored; by referring to the statistics provided by INSEE, the entrepreneur can evaluate the "health" of the market.

The interest rates charged by banks are one of the economic elements that deserve the closest attention, especially for a company that regularly borrows.

3. Sociology

The behavior of the population in relation to the market.

Identify the characteristics that make up the population (age, profession, gender, etc.) and understand their consumer habits. Consumer expectations are constantly changing, often changing how the market functions.

To identify populations, an entrepreneur must first segment his or her market. To understand their buying habits, it is practical to use qualitative market research.

4. Тechnology.

The impact of innovation on market functioning.

Automation, big data and the evolution of communication channels are just a few of the elements that are changing the way the market is approached. The availability of patents is also a factor that can change a company's business.

By understanding the evolution of technology well, a company can act rather than react, allowing it to drive innovation rather than submit to it.

5. Environment.

The evolution of environmental principles.

Laws that promote sustainability and respect for the environment have a more or less pronounced impact on a company's operations. For example, for a company that produces a lot of industrial waste, recycling may not be so trivial.

However, environmental constraints and threats can be countered. The entrepreneur may decide to focus some effort on this factor and thus use environmental constraints as an opportunity to demonstrate its environmental sensitivity.

6. Legal.

The impact of laws.

Labor law, commercial law, and safety standards are all elements that shape the operations and development of a company from the beginning. These laws, such as competition law, regulate the operation of the marketplace by determining which actions are legal or illegal.

Note:

The elements described in each component are not exhaustive. Other elements may be specified depending on the activity, for example, a store may take into account new payment methods (over the phone) as a technological factor.

Note:

The PESTEL analysis should not just be presented as a list. The entrepreneur should use it to construct a table (or graphs) in which he assigns a weight to each item. This will give him a synthetic and global view of the functioning of the market, its opportunities and threats.