How To Conduct a PEST Analysis

Whether you’re launching your first business or expanding into new markets, success depends on understanding the world around you. Political shifts, economic changes, social trends, and technological advances can make or break your venture—and a PEST analysis helps you navigate these forces strategically.

Every successful entrepreneur knows that great products aren’t enough. You need to understand the political, economic, social, and technological context of your market to make informed decisions about pricing, marketing, and expansion. This includes gaining an understanding of the demand in the market, a unique value proposition in the competitive landscape, and other crucial knowledge.

Performing a PEST analysis can help you learn more about your current or proposed market and inform your decisions about how to navigate potential challenges within that context. Here’s how a PEST analysis works and how to conduct one for your business.

What is a PEST analysis?

A PEST analysis is a strategic framework that helps businesses evaluate the political, economic, social, and technological context of a market. You might be an ecommerce merchant who wants to sell products or services in a new territory or a market facing unstable conditions. In such situations, a PEST analysis can help you gain a better understanding of the external factors that could impact your business.

Imagine a US-based electric toothbrush brand looking to enter the UK market. This framework could help the company analyze external forces like its target customers’ disposable income or social norms around dental hygiene habits in the UK market. Gaining information about disposable income can inform the merchant’s pricing strategy, while an understanding of social norms can guide content creation for marketing materials.

PEST and SWOT

Another strategic framework that businesses can use is a SWOT analysis—a graphical representation of the internal and external factors that can impact your business, broken down into four quadrants: strengths, weaknesses, opportunities, and threats.

SWOT analysis and PEST analysis both help businesses better understand their place in a market, but they serve different purposes. SWOT analysis examines a company’s unique situation, whereas PEST analysis focuses on the larger external influences in a market that affect businesses.

How a PEST analysis and SWOT analysis can work together

You can use both frameworks together for a comprehensive market assessment. Start with a PEST analysis to evaluate macro external factors that influence your business environment. Then use the SWOT analysis framework to dive deeper into the specific opportunities or threats your specific business could face in that environment.

Here’s how this works in practice: Let’s say you’re a pet supply manufacturer looking to launch an online pet supplies store. You’d first perform a PEST analysis to understand the societal factors that impact consumer behavior around buying products like leashes, dog toys, and treats in your target market. Your PEST analysis might reveal that animal rights groups in the area have called for a ban on shock collars, and consumers want to buy ethical pet training tools. This social factor influences what products you decide to sell and how to market them to reach customers who prioritize animal rights.

Next, you would conduct a SWOT analysis to identify how your business can capitalize on its unique strengths, address weaknesses, and prepare for specific opportunities and threats in the dog supplies market. Through this analysis, you might discover that one of your strengths is a user-friendly website that delivers highly personalized product recommendations—something your competitors don’t focus on. This could inspire you to launch a personalized product subscription service, which bundles the best accessories, toys, and treats for a customer’s specific pet each month.

How to conduct a PEST analysis 

• Political factors
• Economic factors
• Social factors
• Technological factors

A PEST analysis examines four sets of external forces that could influence your business. Here’s a closer look at each: 

Political factors

Political factors range from macro political stability issues like civil unrest to standard tax regulations and trade restrictions. Research government policy and international business rules related to your specific industry.

For example, if you’re exporting products to foreign markets, research the protective tariff laws that apply to your products and industry. Key political questions to ask about a market include:

• How stable is the current political government? 

• What rules and regulations apply to your industry in this territory?

• How could government policy negatively affect your product sales in this market?

• What duties or taxes impact your products or services?

• Are there laws or regulations that apply to marketing?

Economic factors

Economic factors have a huge impact on how well your business can operate, sell, and market to customers in a specific country or territory. From employment patterns and labor costs to interest rates and disposable income, numerous economic considerations can affect businesses.

For example, a company selling cosmetics could learn more about a market’s economic environment by reading industry reports. These reports should cover the market size, competitive landscape, and growth potential for the beauty industry in that market.

Here are some questions to answer at this stage of a PEST analysis:

• What kind of economic growth or stagnation are experts anticipating in the market?

• What is the inflation rate?

• How much disposable income does an average household allocate to your specific industry?

• What are the major economic trends that could impact your business?

• How volatile is the local, national, or global economy?

Social factors

Social factors include customer behaviors, demographics, and overall habits. For example, if you want to start dropshipping supplements, you’ll need to conduct market research about the level of health consciousness in your target market.

This aspect of PEST analysis focuses on socio-cultural factors like the career attitudes and spending habits of your potential customers, rather than purely economic or political factors. If you’re establishing or expanding an online business, here are key questions to ask about the social climate of your potential market:

• What is the age distribution of your target market?

• What is the population growth rate for the target market?

• What communication and social media platforms do your target customers use most?

• How much time do your target customers spend online?

Technological factors

Finally, a technological analysis involves researching how technology impacts your particular market. For example, a company selling electric vehicles could research the accessibility of charging stations and the EV infrastructure available for its target customers.

Technological factors affect marketing in a significant way, too. Knowing what communication technologies potential customers use in a specific market helps you prioritize your marketing efforts more effectively. Key questions to answer at this stage include:

• What technologies directly impact my industry or business?

• How open is this market to new technologies?

• What technologies do potential customers use when purchasing products?

• How does technology impact production and distribution in this market?

• How prevalent are automation and AI-powered tools in this market?

When to do a PEST analysis 

Use a PEST analysis when you want to better understand the external factors that could impact your business. This analysis can help you make smarter decisions about how to operate your company in a larger context. Consider conducting a PEST analysis in these situations:

• Starting a new business. If you want to start a business, a PEST analysis provides essential information about the larger political, economic, social, and technological factors that could impact your production, distribution, or marketing efforts. 

• Encountering an unexpected problem. If you face issues like declining sales or long shipping times, a PEST analysis might help you uncover the root cause of those issues—such as political or economic factors causing inflation or supply chain issues.

• Expanding into a new market. A PEST analysis can inform your strategic planning for expansion by providing context around specific political, economic, social, and technological factors that could impact your business.

• Facing unstable market conditions. If your business operates or plans to operate in an unstable market where demand, access, and prices are fluctuating, a PEST analysis can help you understand underlying causes and plan accordingly.

Example of a PEST analysis

Let’s say you sell home gym equipment in the United States and are considering expanding to foreign markets. You decide to use the PEST analysis framework for four potential markets to evaluate which ones to prioritize.

• Political factors. Some markets may levy import taxes on gym equipment, especially if the goods involve materials subject to tariffs, like steel and aluminum.

• Economic factors. Economic factors that influence home gym equipment sales likely include the average disposable income that consumers allocate to health and fitness.

• Social factors. Social factors such as the popularity of home gyms and the number of gyms per square mile in major cities may influence the demand for your products. 

• Technological factors. Whether or not customers use workout apps for self-guided exercise may also influence the popularity of your equipment and how it’s used.

Once you determine which markets you want to enter, tools like Shopify Markets can help facilitate the process, letting you expand your sales directly from a single dashboard.

PEST analysis variants

A PEST analysis is one method for evaluating the external conditions of a market, but businesses can consider other types of analysis as well, including: 

• PESTLE. A PESTLE analysis focuses on the political, economic, social, technological, legal, and environmental factors that impact a specific market. Building off the initial four factors of PEST, PESTLE also covers legal and environmental factors like data privacy laws and environmental regulations. 

• STEEPLE. This type of analysis includes social, technological, economic, environmental, political, legal, and ethical factors—like fair wages, safe working conditions, and eco-friendly product sourcing. 

• LoNGPESTLE. This method involves local, national, and global geographic factors to add location-based information to the PESTLE framework.