Or PEST, PESTEL, STEEPLE, SLEPT or DEEPLIST if you prefer...
PESTLE is one of a well known series of acronyms used in business and marketing planning which summarises how to review the broader forces sometimes known as 'macro-environment' which shape a business:
Environment Factors affecting a business - Source: Chaffey and Ellis-Chadwick - Digital Marketing, Strategy, Implementation and Practice
We rate PEST or PESTLE analysis as one of the top 20 marketing models which we feature in our digital marketing models guide.
In this article we will explain how to complete a PESTLE analysis covering each of the parts using an example of applying the analysis.
PESTLE stands for:
PEST analysis is used when conducting an environment scan; to review competitors, markets and the situation in which an organisation finds itself.
PESTLE is also know by a confusing number of similar acronyms; PEST, PESTEL, STEEPLE, SLEPT, PEST, DEEPLIST. The difference between these meanings is simply based on the additional factors that are added from the basic "PEST analysis" which is best known. The longer forms stress the importance of Legal and Environmental factors. Within digital marketing Legal factors governing Data Privacy and Promotional laws are particularly important, so we prefer PESTLE to emphasise these factors.
The background to PEST analysis
It is difficult to see where the PEST concept originated (let us know if you have an earlier reference!), but one of the first references, which I will base this template on is the concept of Environmental Scanning from Terry (1977) who considers these factors:
The macro environment envelops the micro and internal environment. If ignored, it alters all environments and this can happen relatively quickly. In this article I'll look at different how to apply each element of PESTEL to marketing and digital marketing with an example in each.
How to use PESTLE - an example analysis
The key technique with PESTLE is to dig deep. Many managers simply work through or tick off one element after another. There is real value in PESTLE, but only if you adopt a deeper approach and subsequently act on the information.
One company which ignored broader PESTLE factors for years was HMV, a UK retailer of music with a long heritage. Originally selling ‘vinyl records’, it failed to address the sociological impact of the internet, especially online retailing. Its sales continued to drop as fewer people walked into a physical store on main street to buy music. Emerging competitors such as Napster and later Spotify, offered music streaming and download services, effectively making the HMV model redundant. The downfall of HMV has been in part explained by Philip Beeching who was part of the ad agency team that had worked for HMV for some time. He said that when re-pitching for the HMV work, after a new MD had been appointed, they pulled out all the stops, clearly they had done some research – possibly even a PESTLE analysis and told the MD and new team of directors "The three greatest threats to HMV are, online retailers, downloadable music and supermarkets discounting loss leader product". The tragedy was that the MD had perhaps not had the same research and reacted badly to this information. As Beeching commented “Suddenly I realised the MD had stopped the meeting and was visibly angry”.
Getting directors to listen to good advice can be a challenge and I remember conducting an in-depth PESTLE as part of a future planning session, with a leading manufacturer of ladies garments for a well-known department store. At the time I identified an economic factor as being the pressure on prices decreasing rather than increasing. As a result, my team predicted that their competitors would seek offshore production of clothing. At the time, the Finance Director made it clear and told me I had no idea how their business worked; “that sort of thing would never happen here”. Actually it did. And three months later, the MD contacted me and said my predictions had become reality and they needed to adapt quickly.
This is a classic example of having the information available, but ignoring the results.
Using PESTLE in a digital situation presents additional challenges as the implications can be less obvious. Let's look at each of the factors in turn, with examples:
We often think that all political issues become laws and that this is a duplication of 'legal', however, governments can ban or block activities, but this is not always enshrined in law. For example, Facebook has been blocked in Iran, Vietnam and North Korea. Twitter is currently banned in several other countries. This social media map from Mother Jones, shows what's banned where.
This means if you're a business using Facebook in these areas, you cannot use these advertising options and it is less likely that your target audience can see your updates. It also means you need to consider local alternatives, for example, Sina Weibo in China and Facenama in Iran and Afghanistan.
The arrival of the Internet created many pricing options that would have previously been impossible to imagine. For example:
- 24 hour sales are easier to accommodate with a code to enter at checkout, "only available until midnight"
- Dynamic pricing based on availability and quantity is now used by most airlines and by many hotel groups and hotel chains
- Auction pricing focused on highest and lowest offers (reverse auctions) is used by eBay, Priceline and many others
- Software being sold as a service, with monthly payments rather than an upfront fee for a box of disks!
- Free, freemium and premium services have evolved with some services such as games, being free, but showing ads and premium options available for ad-free services
A major challenge to many businesses are price comparison websites, where the prices are compared in a situation that isn't always accurate as delivery charge may be excluded.
In the future, most delivery charges will be removed as free delivery becomes the norm. The difference may be the speed of delivery with options for premium charges for super-fast delivery.
Advantages of a digital environment mean that companies can adapt to local economic conditions and offer
- Flash or 24 hour sales to move older stock
- Email customers with advance access to sales
- Stock sales via other outlets, such as Amazon and ebay, perhaps not under the main brand name
Sociological or socio-cultural
Understanding what’s acceptable socially or within a culture as well as greater appreciation of different societies and beliefs is more available online than ever before.
This knowledge has created opportunities and has opened new markets. One of my favourite examples of a company adapting to opportunities is Moonpig. There may have been a time where they offered cards for birthdays, weddings and events like Christmas. Today they offer a wide range of cards for all occasions and religions.
Other issues on a socio cultural level include
- Access to internet – surprising as it may seem, not everyone has access to the internet. This is especially true of the 80+ demographic, as well as those on lower incomes.
- Acceptance of the technology – as the age profile in Facebook grows with more parents and grandparents adopting the platform, younger users are finding it less socially acceptable and are moving towards What’s App.
Does your business know its target audience? What level of access to the internet do they have? If they’re in that group without access, how can you make contact?
Interestingly this question led to the development of Babajob. India has one of the world’s lowest levels of internet penetration, so these entrepreneurs started a job service, accessible via SMS. All you need is a mobile phone.
This issue is an easier element to understand within the PESTLE mix when it comes to digital marketing. It's all about the technology being used, whether that's desktop or mobile, tablets or wearables.
Issues for your business include:
- Screen size and where the internet is accessed
- How you can make your user journeys easier
- Whether new technology makes elements of your marketing mix redundant
Screen size and where the internet is accessed
Within most organisations, this concerns whether their website is usable across all channels.
How you can make your user journeys easier
You may discover, as British Airways did, that their customers used Twitter as a self-serve customer service platform. Eventually BA decided to play the role given to them by their customers.
Whether new technology makes elements of your marketing mix redundant
Thinking about your marketing mix, which of the 7Ps are likely to change within a digital environment? Do read another article where we’ve looked at using the 7Ps.
Spotify, the music streaming service, has been available in the USA since it started in 2013, but was not available in Canada until October 2014. It seems that this may have, in part, been due to legal reasons. There was no clarity about the royalty rate that companies like Spotify, would have to pay. It would be difficult to set up a business in a location where the pricing was a mystery!
In May 2014, the Copyright Board of Canada issued a decision on the royalty rate that music streaming services should pay for the use of recordings. Under the ruling, the payment will be about 10.2 cents in royalties for every 1,000 plays. It is interesting to note that this rate is substantially lower than the one required by some members of the Canadian music industry, who were aiming for between $1 and $2.30.
Legal issues online are a major consideration. Here are some issues that you may need to consider within your local laws:
- Bloggers being paid, but not disclosing that they are promoting a business (misleading practices)
- Product placement including verbal mentions during ‘editorial content’
- Stealing images from other websites (copyright infringement)
- Using well-known brand names on your own website (passing off – common tort)
- Paying commissions direct to staff (Bribery Act)
- Selling customer data (Data Protection)
Plus, when setting up social media pages, you may need to adapt to meet different laws in different places. For example, if you’re setting up a Facebook page to promote alcoholic drinks, it’s essential to age-gate and country-gate; ensuring your page is only available to those aged over 18 and those in the UK. If you ignore this, you could be breaking laws in other jurisdictions and this could have a negative impact on your business.
Environmental can be interpreted as ecological (that's the extra 'e' in STEEPLE) and this is a fast growing consideration in marketing. The biggest impact has been in packaging and waste. Companies are needing to re-think packaging in some countries, for example in Ireland, where carrier bags are a chargeable item at the point of sale. This in itself has created a business opportunity for companies like Envirosax, selling fold-up bags that fit into hand-bags and pockets.
And don’t forget that environmental issues are often led by legislation such as carrier bag tax or local waste taxes!
Whatever your size of business, PESTLE can identify threats, and more importantly, it can also highlight opportunities. Successful companies in a digital age see these opportunities and adapt or create new product ranges and boldly move into new markets.
What to watch for in PESTLE analysis?
Note that not everyone considers PEST type analysis vital in comparison with the more direct influences of the macro environment. As Dave Chaffey has commented “PESTLE/PEST/DEEPLIST make me groan – to me they’re a text book approach which is far removed from practical actions to improve results in digital marketing. In assignments, I find students tend to review these in-depth at the expense of creating innovative, differentiating strategies. The focus should be on the customer”
So, I suggest you use it as much more than a check list and without the text book approach - I hope my post will help here.
Terry, P.T.(1977) Mechanisms for Environmental Scanning. Long Range Planning. Jun77, Vol. 10 Issue 3, p2-9.