PESTLE analysis is a strategic business management tool. It allows you to assess the opportunities as well as the threats that could impact your business.
This analysis tool is particularly used before launching a project, or even a company or product, to name but a few. So, if you are launching your own e-commerce website, it is important that you keep your PESTLE analysis and update it regularly as your business develops.
E-commerce is a constantly evolving industry and is sensitive to changes and shocks. Regularly updating your PESTLE analysis allows you to anticipate various elements and prepare your company to face potential threats.
The PESTLE is one of the components of the external strategic analysis of a company. This means that its findings can be integrated into an overall analysis, taking into account the elements of SWOT:
In this article, we will explain and detail the different elements of the PESTLE analysis
What does PESTLE mean?
This acronym represents the first letters of the six categories that make up this analysis. Thus :
These categories have been chosen so that the PESTLE analysis covers as many potential shocks as possible, which could influence your business. They will be detailed in the rest of this article.
However, the PESTLE analysis does not correspond to a universal and static format, even though most studies are organised around the six designated categories. Some entrepreneurs and analysts choose to create an additional differentiation between positive and negative shocks, in order to get a better understanding of their potential influence.
Why do a PESTLE?
As mentioned, the PESTLE analysis is part of the range of strategic analysis tools that allow you to study the competition as well as the market in which you evolve or wish to evolve. This allows you to obtain a certain understanding of the sector in which your e-commerce site is engaged and developing.
The PESTLE allows you to carry out an external analysis of your E-commerce site, by obtaining an idea of the potential impact of elements having an external impact on your company. In a way, it allows you to anticipate shocks.
What is a shock? In economics, it is a situation in which a triggering element can increase or decrease supply or demand, influencing the market as a whole. In concrete terms, a shock is a change, which can be slow or fast, that will influence the attractiveness of your offer (positively or negatively), making your targets more or less likely to consume your products/services. Thus :
- A positive shock will increase the attractiveness of your product/service offer, or make your target more likely to consume from you;
- A negative shock will decrease the attractiveness of your product/service offer, or make your target less inclined to consume from you.
Within a SWOT analysis, these shocks will be classified into different categories in order to understand their origins. This understanding allows you to anticipate them so that you can protect yourself from them (in the case of a negative shock) or take advantage of them (in the case of a positive shock).
In the PESTLE analysis, the “Political” category includes elements that relate to the political stability of the market in which your e-commerce site operates. This may include changes in taxation or general regulation, as well as potential changes in economic policy at various scales.
Potential positive impacts of institutions
Several aspects of the PESTLE “Policy” category are emerging as opportunities for online retailers. Among them, here is a non-exhaustive list of elements that you could integrate into your analysis:
- A change in taxation towards more favourable regulations for companies;
- An increase in the public budget, thanks in particular to investments made in the sector in which you operate;
- An announcement of subsidies;
- The creation of a trade treaty in your market;
- The creation of a common economic market (like the European Union) to which you can move, without having to pay customs duties, for example;
Potential negative impacts of the policy
Threats in this PESTLE category are to be taken very seriously. They can jeopardise your entire business in a short space of time. The following could be included in this category
- Political instability in a market in which you operate, or the potential corruption of institutions directly affecting your online shop;
- A tax system that turns to your disadvantage;
- The end of a trade treaty, or the implementation of trade sanctions (as between France and Russia in 2014, for example);
- An end to subsidies;
- A social crisis leading to demonstrations that constrain logistics and supply chains;
- Lobbying or boycott actions against you or your products;
This category of the PESTLE, more focused on the commercial market, makes a more accurate analysis of consumer demand. Indeed, as an e-commerce seller, you are not directly impacted by changes in exchange rates, inflation, or annual growth. However, you have to take into account different aspects such as the income or purchasing power of your target consumers, the evolution of prices or credits, …
The potential virtuous circle to boost your sales
Positive shocks within the “Economy” category will benefit you in the short, medium and long term. This means that it is very important for you not to miss these opportunities and to seize them, especially thanks to this PESTLE analysis which can take into account
- The increase in your target’s income, leading to a positive evolution in their consumption patterns;
- The decrease in the price of your raw materials or other elements influencing your production;
- Lower borrowing rates allowing you to invest more heavily;
- The exchange rate evolves and turns to your advantage, allowing you to import raw materials or to offer your products on new markets, limiting financial investments;
- Confidence in the economy improves consumption prospects;
Economic threats influencing your profitability
In a PESTLE, among the first elements you need to think about are detrimental economic changes. Indeed, an economic crisis or similar upheaval will represent a negative, long-term shock to your online shop. Among these shocks, you can find :
- An economic or financial crisis, leading to an economic slump;
- A drop in the income or purchasing power of your target consumers, who buy less;
- A rise in the price of your raw materials;
- A rise in interest rates on loans;
The “Social” category of PESTLE takes into account the socio-demographic data of your target consumers. The most important element of this category is the analysis of trends (especially on social networks), lifestyles, purchasing habits, etc.
Trends to exploit
Among the positive shocks in the “Social” category of your analysis, it is possible to create a differentiation of short and long term impacts. Here are some examples of shocks that you can integrate into your PESTLE analysis:
- Changes in consumption patterns in favour of your product/service offering;
- Your products/services are at the heart of a social trend;
- Your persona is expanding due to immigration, increased birth rates or changes in life experience;
- Demographic changes driving consumers towards your products / services;
A potential detrimental shift in your target audience’s expectations
The negative shocks present in this category of the PESTLE are very similar to the positive shocks. They mainly concern consumption patterns. In this part of the analysis, fashion effects and passing trends are as much to be taken into account as the most profound changes in consumption habits.
Changes in the behaviour of your target consumers are not always positive. For example, if you offer exclusively new products and the general trend is towards upcycling or second-hand products, you will perceive a drop in interest among your target group, influencing your acquisition and conversion.
The “Technology” part is particularly important for the E-commerce industry. Indeed, this sector depends entirely on technology and the various trends linked to it. The digitisation of everyday life, changes in consumer habits (smartphones, computers, connected speakers, …)
Online retailers benefit greatly from positive technology shocks. Various investments in research and development can be considered positive for you and your e-commerce site, and are therefore included in the positive shocks in your PESTLE analysis.
On the contrary, technology can represent certain risks, such as a decline in IT infrastructure, a closure of a CMS or payment solution provider, for example. In short, all the technological elements that negatively influence your company.
The final part of your PESTLE analysis concerns the various legal aspects influencing your business. Broadly speaking, this category concerns the relaxation or tightening of regulations involving your web shop and the associated market.
Issues such as labour law, market controls and potential or actual monopolies can have both a positive and negative impact on your webshop. Recently, one of the issues that has most affected e-tailers has been the RGPD, concerning data protection for consumers and, more broadly, internet users.
The final part of your PESTLE analysis concerns “Environment”. It is playing an increasingly important role in the lives of consumers, but also of entrepreneurs in all sectors. Eco-responsibility is indeed at the centre of public concerns and debate, including for E-traders.
This category of the PESTLE analysis, specifically from an e-tailer’s point of view, represents the environmental policy issues that matter most. Pollution, recycling as well as the various actions of the relevant NGOs thus enter the analysis. It is indeed acknowledged that e-commerce, with all its logistical circuits and infrastructures, is resource-intensive, involving in particular the use of plastic, the consumption of fossil fuels, etc.
Some positive influences
Despite the increasing restrictions on environmental issues, this category can still include some positive shocks for online retailers. Positive impacts can be found such as
- The promotion of local consumption, if this fits with your product/service offering or values;
- The development of green logistics on the part of e-commerce players;
The majority of the influences in the “Environment” category represent negative shocks, within this PESTLE analysis. The various environmental policies Name & Shame and carbon emission allowances, in particular, are particularly costly actions for online retailers. Regulatory changes, on top of that, require financial investments to adapt to the directives.
The PESTLE analysis therefore allows you to calmly approach the different processes and articulations of your online shop, helping you to anticipate external factors and shocks to your shop.
Crédit image : Zara Magumyan