What is Pest analysis?

The definition of Pest analysis can be expressed as a tool used when conducting market research to analyze the external environment of the business. This analysis aims to identify how the business or product may be affected by certain factors and how these factors can be considered as opportunities or threats. Understanding these factors prepares you to take advantage of opportunities and protect against threats. With Pest analysis, you can summarize and plan your business and the factors that can support it. Thanks to this method of analyzing external influences, we will talk about how you should follow a path to make your business a success.

Since the 1980s, after going through several variations, PEST, as we still use it today, is a business analytics technique used to identify the Political, Economic, Socio-Cultural and technological factors that can affect the success of your business.

Let's analyze the Key Factors of PEST analysis.

PEST stands for Political, Economic, Social and Technological.

P (Political) Factors

Political factors look at how the political climate, apart from legal regulations, can affect your organization's freedom to operate and profitability. Political factors refer to the extent to which the government in a country has influence over a particular industry.

An example of such a factor is when a government raises taxes on a product or a group of products, which may change the structure of the income items of the organizations in an industry.  These factors include regulatory, policy, trade policies, war, corruption, corruption, tax system, organized crime, international relations, etc.

E (Economic Factors)

The economy has a big impact on business. Economic factors that will affect business activities should be considered. Economic factors are the determinants of an economy's performance that directly affect companies and have long-term repercussions. For example, an increase in inflation in any economy affects the purchasing power of consumers through pricing changes within companies and changes supply and demand patterns. Economic factors include the inflation rate, interest rates, exchange rate levels and economic growth patterns.

These factors include current economic stability, growth, business cycles, inflation, interest rates, unemployment, labor availability, fiscal policies.

S (Social) Factors

 Social Factors arise from the social environment of a market and have determinants such as cultural trends, demographics and population statistics. Social factors include factors such as population structure, lifestyle, consumption habits, new needs and wants, migration rates, birth increase rates, lifestyle and life expectancy.

T (Technological) Factors

Technological factors include innovations in technology that affect operations in an industry. This covers the level of automation in a market, research and development activities and technological awareness. This factor takes into account the role of technology in an organization and sector, its development and broader technological trends affecting society as a whole. Technological factors include factors such as technological innovations, ecological factors, energy resources and availability, new technological developments, infrastructure development.

So, how to use PEST analysis?

You can do Pest analysis by following the steps given below;

1. First of all, you must identify the factors. What are the factors to be analyzed? Determining these factors depends on the area in which the business operates. What economic factors will affect us in the future or What role do cultural trends and human behavior play in our business? Are there new technologies on the horizon that could radically affect your business or industry?
2. You should research the factors. Research and take note of how each factor will affect your business. It is time to brainstorm about the opportunities this could open up for your organization.
3. It is very important to think about how these changes might affect your business. If you understand early, you can avoid these problems or minimize their impact. Are these factors an opportunity or a threat to your business? You need to identify these.
4. Establish the steps you will take to capitalize on the key opportunities in your business plan and you should take appropriate steps to identify, manage and eliminate significant risks. When you analyze your results, you will be able to better understand the external environment of your business. You will be able to discern what is right for your business, the factors that you can be injured or harmed by. PEST analysis provides a comprehensive overview of your business' opportunities and threats now and in the future.

So, what is the advantage of this PEST analysis?

Here are a few advantages;

• It helps you see business opportunities and alerts you to significant threats.
• It allows you to have a broader knowledge about your business and to see what you need to do in a broader perspective.
• It helps you stay one step ahead of the competition. You can see, recognize and seize opportunities.
• Supports more decisive and informed decision-making.
• Guides you in your product and business development.
• Enables you to evaluate and review your risks and profits before making major changes.
• Allows you to reduce your risks.

If we want to give an example of a Technological PEST analysis;

Technologically, given Coca-Cola's rapid sourcing of raw materials and rapid distribution of its products, logistical issues and the state of the world's transmission network pose a significant challenge. In order to move smoothly through the production chain, intensive use of technology is required. In this case, it cannot be denied that an innovative approach must be introduced and an approach to continuously reduce operational costs must be adopted.

Coca-Cola's raw material supply system and the "cold" storage and "cold" distribution of its products are cost products.

For the raw material supply system, local producers and the use of local water resources have been adopted. In this case, apart from technology, there is always a risk of price increase for business partners. On the other hand, the effective solution of the coldness of the products is seen as a major problem. Considering Coca Cola's "drink it cold" recommendation, it can be said that Coca Cola needs to improve its production process, even to the point of redesigning the entire production process in terms of coldness.

PEST analysis is ideal for any organization looking to understand and measure current and future markets. It is important to note that an organization's approach to each factor in a PEST analysis depends on the industry it focuses on.