The macro environment consists of market and non-market forces that can disrupt entire industries and organizations (microenvironment) operating in them. Because markets make up people, they are of interest to companies. Changes in macro environments can present serious threats as well as lucrative opportunities to businesses, hence why managers pay attention to them. PESTEL is a framework used to study the broader forces that affect the macroenvironment. The acronym stands for political, economic, social, technological, environmental and legal macro factors (Johnson et al., 2017).
The relevance of the PESTEL framework in marketing
As a framework that identifies present and future opportunities and threats arising from the external business environment, PESTEL is very relevant to marketers because it helps them identify macro trends, and changes especially in consumer needs, that can often be turning points for entire industries (Johnson et al., 2017). To marketers, social demographic changes such as the ageing population in Japan or the UK (Hurst 2018), for instance, are of interest because of marketing opportunities they present to segment and serve such ageing markets with particular products and services.
Changes in demographics often translate into market changes. Likewise, technological breakthroughs are of interest and relevance to marketers because they can represent new avenues to serve new or existing markets (Kotler and Armstrong 2012). Chinas economic emergency and the subsequent high demand for luxury products among newly affluent Chinese is an example of a huge demographic change that saw western marketers of luxury brands clamouring to serve the China market. Similarly, environmental concerns arising out of climate change/global warming/pollution fears in major markets like the US and UK is seeing marketers introduce sustainable/organic products to serve customer needs.
PESTEL hence becomes critical and relevant to marketing because it helps marketers identify such macro changes in the external environment, which can either present opportunities to serve new markets or threats potentially leading to market erosion and loss of customers.
Below is a summary of the Pestel factors;
Political factors refer to external macro influences that are of a political nature, which can have either a negative or positive impact on the business activities of organizations. Examples of political factors include political instability, foreign trade regulation, and other forms of state intervention that can put pressure on marketing strategy e.g. Trump's tariffs on China or Brexit.
Economic factors refer to macro forces that are in economic in nature, which can positively or negatively influence consumer markets e.g. currency exchange rates, employment, inflation, interest rates or adverse economic cycles such as a recession. Marketers pay attention to economic forces due to their power to affect consumer spending and purchasing power for company products (Kotler and Armstrong 2012).
Social factors include demographic trends such as population or lifestyle changes, changing attitudes and other influences of a sociocultural origin that can influence the nature of supply and demand as well as shape organizational effectiveness, power and innovativeness (Johnson et al., 2012).
The PESTEL framework can help to identify technological changes from the external business environment which can fundamentally alter the marketing strategies of many businesses creating new markets as well as making obsolete others. When businesses such as Blockbuster and HMV ignored digital movie and music streaming technology, they were replaced by digital entrants Netflix and Spotify.
As concerns over the environment and the impact of wasteful resource usage has increased, marketers have been able to identify changing consumer attitudes and tailor their marketing strategies to satisfy the high demand for sustainably and ethically produced products that address environmental concerns. Those that don’t are often punished by consumers or environmental regulators (Kotler and Armstrong 2012).
The final element in a PESTEL framework is legal factors, referring to legal influences such as labour laws, environmental regulations, competition regulation or taxation, that can open up opportunities across markets or constrain them (Johnson et al., 2012).
Application of the Pestel framework in marketing
There are many situations in which PESTEL is applicable to marketing. In marketing strategy, it can be used to study the external environment in order to come up with contingency plans and adapt to what are often uncontrollable forces. An example of such application, where marketers adapt a marketing strategy based on a changing macro environment is Nestlé. In order to circumvent the introduction of a ‘sugar levy” by the UK government as well as meet changing customer preferences, Nestlé reformulated its chocolate bars, and other snacks, in ways that reduced sugars by 25-30% (Askew 2019).
In this example, Nestlé marketers studied the external environment and identified two negative macro influences, a new anti-sugar regulation (legal) and changing consumer preferences away from sugar (social) and adapted accordingly by innovating new ways of reducing sugar in their foods. These are now marketed as ‘reduced sugar’ healthier versions.
Askew, Katy. (2019) “Nestlé on the future of food: Healthy, sustainable and personalised” Food Navigator [Online] at https://www.foodnavigator.com/Article/2019/02/06/Nestle-on-the-future-of-food-Healthy-sustainable-and-personalised?utm_source=copyright&utm_medium=OnSite&utm_campaign=copyright [Accessed 10 July 2020]
Hurst, Daniel. (2018) “Record three in ten Japanese are over 65 as population crisis grows” The Times [Online] at https://www.thetimes.co.uk/article/japans-ageing-population-reaches-new-world-record-bs9cr8mjx [Accessed 10 July 2020]
Johnson, G., Scholes, K., Regner, P., Angwin, D., and Whittington, R. (2017) “Exploring strategy: Text and cases” 11th ed., Pearson Education.
Kotler, P., & Armstrong, G. (2012) “Principles of Marketing” 14th ed., Pearson Education
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