PESTLE analysis is the term used in the context of marketing. It is that framework or tool with the help of which a company analyze the external forces which can have an impact on the company which in turn will help a company to be prepared for any shock as well as an opportunity which these 6 factors provide. The full form of PESTLE is Political, Economic, Social, Technological, Legal and Environmental. In order to understand PESTLE analysis better, one should look at the advantages and disadvantages of PESTLE analysis.
Advantages of PESTLE Analysis
Easy to Understand
The biggest advantage of this analysis is that it is very easy to understand and things that are easy to understand are likely to be implemented effectively. Hence in case of this analysis if one wants to look at political factor one will have to watch government policies with regard to various sectors of the economy and see that whether it has a positive or negative impact on the company, similarly economic factors include things like exchange rate, the interest rate in the economy. Social factors include things like demographics of the country, population growth, while technological factors include things like new innovation and changes in technology in the industry in which company is operating. Similarly, environmental and legal factors include things like the impact of the company on environment and changes in laws and its impact on the company.
Make Use of Opportunities
This analysis helps the company in making use of profitable opportunities which arises time to time due to changes in external factors. Hence for example for a real estate company, a decline in the interest rate which is an economic factor is an opportunity because lower interest rates imply higher demand for housing as housing loan will cheap due to lower interest rates. Similarly, for an artificial jewelry company, a higher gold price in international markets implies scope for higher sales as people will use artificial jewelry more as they will be looking for cheaper alternative to gold.
Preparedness for Threat
Another benefit of PESTLE analysis is that it helps the company in preparing for possible threats which arises time to time due to external factors. Hence for example for a mobile manufacturing company, any change in technology like the advent of bezel-less mobiles is a threat and if the company does not prepare and start making bezel-less mobiles than it will lose market share to its competitors.
Disadvantages of PESTLE Analysis
The biggest disadvantage of PESTLE analysis is that the 6 factors do not remain same rather they keep changing rapidly and any action by the company on the basis of this analysis may not profit the company if the factor due to which company has taken the decision changes and the whole exercise of doing PESTLE analysis will be futile. Hence in other words rapidly changing factors make PESTLE analysis difficult task.
Every person has a different opinion and that is the reason why PESTLE analysis can be subjective in nature implying that different people will view external factor differently. Hence, for example, there are two automobile manufactures A and B and suppose central bank reduces rate of interest while one person in charge of PESTLE analysis of automobile manufacturer A will take reduction in interest rate as positive sign and tell the company to increase the production in anticipation of higher demand while another person in charge of PESTLE analysis of automobile manufacturer B will think that it is a sign of weakness in economy and expect more interest rate reduction and will tell the company to decrease the production or keep the production at same level.
Valuable Resources of Company
Another disadvantage of this analysis is that it involves manpower, time and money of the company for doing PESTLE analysis and if the costs of doing this analysis are higher than the perceived benefits than this analysis is of no use to the company. In simple words, this analysis is majorly done by big companies due to use valuable resources of the company.
As one can see from the above that PESTLE analysis has pros, as well as cons and any company thinking of doing this analysis, should carefully analyze above points and then take the decision of going ahead with PESTLE analysis.