PEST analysis can be describe as part of statistical data collection which organization consider when carrying out environmental scanning or monitoring regarding a company's external macro-environment (which are outside their control) during a market research.
PEST analysis simply means; Political, Economic, Social and Technological analysis. These factors could have a positive or negative effect on a business (Bell, et al., 1994) as the level of competition in most organisations is quite high, so an accurate feasibility study of the environment will provide adequate information on the nature of competition in understanding market growth or decline, potential and direction for operations.
Political analysis:
As the role of business grows in our society, the reactions of the populace, politicians and government become more important to the individual business manager and marketing manager. Political factors could come in form of government involvement to business, regulations, price ceiling, monetary policy, stability in government etc. Individual governments have an ideal way to run its economy which might not be favourable to foreign investment, local business people due to religious, power tussles, dictatorship ruling etc. For instance, excessive monetary policy for a firm, might contribute additional costs in running a business in terms of increased cost of generating finance to fund investment decisions, increased cost to marketing activities as these could sometimes be expensive. In terms of political stability of a country, companies access this key factor in making foreign investment decisions.
Economic Environment:
The fluctuations or potential fluctuations in the level of economic activity in a segregated and target country or countries selected by a firm for business activities should be considered carefully as extremely good marketing strategy may still fail if a country is experiencing a depression or a rapid decline in business. (ONS, PwC main scenario for 2008-9). The rate and level at which a given economy develop could affect foreign investment decisions, plans of the business community to invest and of the government sector to spend, the willingness of consumers to buy and the probable reaction to proposed
Social analysis:
Different groups of people living in a clusters of communities, their nature of business, way of life, believes, forms the social norms, group (in terms of age, sex, income level etc), and attitudes in buying goods and services rendered by foreign investors. This factors determines what kind of business activities are ethical, what product and advertisement is socially and culturally acceptable, which foreign investors to be considered in their community etc. Company marketing cow-meat would experience fewer sales in Indian where cows are sacred animals to them, than it would in Nigerian (where fewer people are vegetarian or completely vegetarians).
Technology analysis:
The rate of technological advancement and obsolete technology could be expensive and create an entry barrier, stiff competition and technology hype (which cannot be justified immediately) for new and existing company researching to invest in other countries. Diffusion of innovations theory, pioneered by Everett Rogers, posits that there are different levels and classification of people with different level of readiness to adopt new technological changes as it affect their mode of business operation, life style, work pattern, product and services etc. These classifications are: the innovators, the early adopters, early majority, late majority, and the laggards which clearly are the uncontrollable external environment factors that affect continuous existence of any business, with rate of competing technology, levels of expenditure on research and development, adoption and integration of such technology.
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Tesco being the most popular store in UK, having overtook Sainsbury in 1995 as the largest supermarket occupied 15.6% grocery sales in 2001 (Corporate watch, 2004) with increasing rate of diversification and growth rate having reached saturation point in its core grocery business and taking opportunity in general merchandise business (Financial Times, 2010) such as; non-food, financial services and telecommunications, and new markets abroad, initially in Central Europe and Asia (advfn online, 2008), and more recently in the United States with their core business and increasing store-presence in United Kingdom (Tesco, 2010).
Tesco strategy;
It involves creating a well-established, sustainable and consistent strategy for long-term growth with strategy objectives: to be a successful international retailer, to grow the core UK business, to be as strong in non-food as in food, to develop retailing services (such as Tesco Personal Finance, Telecoms and Tesco.com) and to put community at the heart of what we do (Tesco Online, 2010). This revolves around analysing its external environment beyond their control.
2(a)
Saturation Point;
Tesco's business strategy responded to its "saturation point in its core grocery business" by taking opportunity in general merchandise business (Financial Times, 2010) of financial services, non-food, telecommunications, and new markets abroad, initially in Central Europe and Asia, and more recently in the United States with their core business and increasing store-presence in United Kingdom (Tesco Online, 2010). The manager's business strategy will have to be consider in relation to their; Strength, Weakness, Opportunities and Threats (SWOT analysis) and choose carefully their region of expansion and product for diversification as their macro-external environment are uncontrollable which in US, its Fresh and Easy convenience chain has underperformed raising issues on its expansionary strategy requiring explanation to its investors (Financial Times, 2010).
2(b)
Tesco's struggle in the 70's and 80's;
The marketing strategy approach by Tesco's senior management to their struggling business is "know your customers and improve the store". As marketing is a generic term for a whole group of business activities (carried out by each employee), techniques and skill used in creating new customer and keeping existing one profitably. There desired to get result was not limited to product design, branding and a talent for being ahead of market trend alone, but to produce the desire product perception in the mind of its target customer with differentiation of products, service, channel of distributions, people and image from other offering and their product and marketing positioning to create a product and market perception in the customer's mind relative to competing products. They "pile it high, sell it cheap", utilizes technology to gather information from the customer shopping habit that gave feedback to the gap in its product and services Financial Times, 2010), by analysis their controllable and the uncontrollable environments.
2(c)
Tesco reaction to criticism
Tesco reaction to criticism (from rivals, communities, farmers, local shopkeepers and small suppliers complain), is to improve on it corporate responsibility and be more socially responsible to their environment by reducing its carbon foot print, knowing more about their customers and getting them physically involved in local volunteering. Tesco social and environmental responsibility also extends to health and local neighbourhoods activities.
Their social contributions to their external environment had helped it concentrate more on fulfilling it corporate strategy with less friction from its environment which cannot be controlled but put in a favourable situation by careful analysis of its environment and its customers that makes up the part of the environment.
