PEST analysis for marketers: Economic factors

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Have you ever heard of a PEST analysis? It’s not something you do with annoying people on Facebook or around the house. It’s a basic form of business analysis that looks at four key “big picture” factors that might influence your business, factors in the environment around you and your company. These factors are political, economic, social, and technological. Let’s take a look this week at what these might mean for your business and marketing efforts.

Today, we’re going to look at what I think is arguably the largest of the factors in PEST, the Economic factors. Why do economic factors matter so much? Fundamentally, if your customers (and their customers) have less money to spend, your business will have less potential growth. If your customers have more money to spend, your business will have more potential growth. We’ve seen this to be painfully true over the past 10 years as the economy has jumped from boom to bust and entire sectors thought to be “sure bets” turned out to be anything but.

The way to make economic factors work for you as a marketer is to see the warning signs ahead on the road before they become crises. Pay attention to leading economic indicators that have meaning to your business. If you’re a B2C company, you should be very tuned into indicators like consumer confidence or consumer credit, as these tell you in advance how your customers are feeling. Low consumer confidence may mean having to change your pricing strategy or product offering – no matter how loyal consumers are, if they don’t feel safe spending money on you, they won’t.

If you’re a B2B company, be looking at things like the ISM indices, which tell you the state of companies and demand for their services. Businesses that serve small businesses should be paying attention to measures like the NFIB business sentiment index.

No matter what business you’re in, there’s a good chance that there is a leading economic indicator that serves your industry. You can even construct your own economic indicators out of publicly available data. For example, let’s say you were a B2B company. If any of your customers are publicly traded on the various stock exchanges of the world, then you could assemble a portfolio of those stocks and watch them as an aggregate index. When the portfolio drops in value, you know that it won’t be long before you start hearing from those customers.

How often you need to look at your indicators of choice is highly dependent on your business cycle and your customers’ business cycle. Some businesses need only to look at the trends on a quarterly basis. Some businesses need to watch sales receipts daily. It all depends on how agile you need to be in order to keep pace with change in your industry.

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