Definition: A PEST analysis is a four-point review of potential problems for a business, covering the Political, Economic, Social and Technological areas. Understanding what problems might arise, now or in the future, can help a company circumvent them and avoid a potentially crippling issue. Reviews of this type should be done on a regular basis (both by new and existing businesses), since the specific problems in each area can change over time.
The political analysis asks questions such as:
The answers to these questions are decided by the government (and, indirectly, by public opinion), so businesses need to understand both what effects current political policies will have on the store and what policy shifts are likely in the short, mid and long terms.
The next part of the PEST analysis focuses on economic factors. Many businesses focus on issues like inflation, minimum wage, and exchange rates (if selling items overseas), since these tend to have the most immediate impact on their bottom line. However, it's also important to consider the following:
The third part of the analysis covers social factors, including questions like:
Effective social analysis allows online stores to cater their entire business to the current state of society — which, at the moment, has a profound emphasis on value and companies that do good in the world instead of being purely focused on profit. Millennials in particular did not enjoy the Great Recession, and companies selling to them need to take their social views into account when developing a business strategy.
Finally, online companies need to consider the technological aspects of their operation. This means asking questions like:
Effective technological analysis also allows the company to plan a way to scale its growth, ensure cost-effective production levels and understand when major shifts in technology are likely to occur.