The Economic forces relate to factors that affect consumer purchasing power and spending patterns.

Technology changes rapidly, and organizations are required to change their technology or update their technology to keep up with the changing technological environment. There are various economic laws such as labor laws, competition laws, factory act, commercial act; industrial laws impact the economic environment. Thus, marketers must watch the technological environment closely and adapt in order to keep up. to banking institutions, but it might also affect companies whose strategies rely on taking out large loans. There are several internal as well as internal factors which affect the economy. The increase in the price of vegetables and fruits will reduce the profit margin of restaurants. In conclusion, economic factors are one of the many environmental, external factors which can affect businesses. Although plenty of other variations exist (like PESTLE analysis which includes Legal and Environmental variables) this is where economic factors come into play in business. Tariffs put an opposite impact on the sales of goods than taxes. How will the legislation affect the business? With increased prices, the buying ability of people gets affected. For example, a person with low income will prefer to spend money to pay the tuition fee for his children’s education rather than buying an expensive car. The income and lifestyle of people reduce and thus, there buying capacity, which impacts the economic environment. The nation becomes self-sufficient, and areas like agriculture, banking, trade, etc.

Environmental analysis is the term given to the process of looking at all of the different external factors that affect a business. For example, A well-known American subsidiary company of PepsiCo, Frito Lays sells products like lays, Fritos, Doritos, etc., and you find the difference in the flavor of their products from one country to another. Our website is made possible by displaying online advertisements to our visitors. What is Constructive Criticism and How to Accept it? It’s obvious that the status quo for interest rates is of great interest to banking institutions, but it might also affect companies whose strategies rely on taking out large loans. Branding Decisions – 4 Brand Strategy Decisions to Build strong Brands. Macroeconomic environment factors are those which impacts at a larger level and does not only impacts one company but impact the whole economy. The economic state will change a lot of times during the firm’s lifetime. Anthropologie targets a wealthy market, so they can afford to take a unique pricing approach which is tailored to that specific economy, The rise in global development and worldwide increase in GDP (Gross Domestic Product) means that their target market is gradually growing, On the other hand, this global development might increase labour and material costs in Less Economically Developed Countries where their products are manufactured (meaning lower profits), You can find an entire PESTLE analysis of Anthropologie, The UK boasts one of the highest GDPs in the world, trailing behind only Germany within Europe, The United Kingdom has a constantly increasing amount of Foreign Direct Investment, The area is still feeling the effects of the 2008/2009 economic recession, as well as the Brexit economic setback, A full PEST analysis of the UK is available. A full PEST analysis of the UK is available here. These four marketing mix elements form the core of all marketing efforts. In this section, you will learn about all the factors which affect the economic environment and will also learn how these factors affect an economic environment. Similarly, with the increase in the price of fuel, the cost of transportation will also increase. For instance, a company should never start exporting to a country before having examined how much people will be able to spend. © 2020 Marketing-Insider. The PESTLE investigation revealed that the current economic recession, together with increasing consumerisation and international markets were the principal economic factors affecting the educational sector. One of the most prominent tools in environmental analysis is PEST analysis, or its derivatives (such as PESTLE analysis!). Hofstede’s cultural dimensions can be used: Power Distance, Individualism versus Collectivism, Masculinity versus Femininity, Uncertainty Avoidance etc. People start buying less, and they spend their money on the necessary goods and services only. For example, a society with conventional beliefs and superstitions resists the adoption of modern ways of living. Cost of labor also impacts the economic environment of the business. The tension between two countries or the increased tariff rates increases the import cost as a result of which the cost of production also increases.

However, this begins with understanding the role of environmental and external factors, and how they come into place in business. These influence and restrict organisations and individuals in a society. For example, people mostly buy houses and cars on loans. A technological force everybody can think of nowadays is the development of wireless communication techniques, smartphones, tablets and so further. Economic factors are connected with goods, services, and money. Because, on the whole, their needs is the reason for businesses to exist. High population results in tough competition and people get ready to even at low wages which is good for the business as they can hire more people to increase their production. Companies might be required to change the production process of a product according to the change in government policies.

The buying habits of consumers and the commercial behavior of organizations id interdependent. This may mean the emerge of opportunities for a business, but watch out: every new technology replaces an older one. To understand these forces, Hofstede’s cultural dimensions can be used: Power Distance, Individualism versus Collectivism, Masculinity versus Femininity, Uncertainty Avoidance etc. The production process will suffer if there is a scarcity of supplies. PESTLE Analysis: Economic Factors Affecting Business. October 18, 2019 By Hitesh Bhasin Tagged With: Management articles. For example, the vegetation of vegetables and fruits is the main elements which are used in restaurants. High labor cost means the high cost of production and high cost of production forces businesses to increase the price of the products. As a result of which, people start buying less, and thus, the economic environment gets impacted. Your email address will not be published.

People will import more goods from foreign countries if there are low tariff rates, and the local markets will be flooded with cheap foreign products and will impact the sells of local products. For example, people with low income tend to buy only goods and services which are necessary for living and don’t spend much money on entertainment and luxurious items. There is a direct relationship between the buying habits of an individual and his income. Like most other parts of business analysis, this is particularly useful for executives in any company who are looking to beat competitors, increase revenue streams, and grow their organization.

This changes requirements for effective marketing strategies and should be kept in mind. This may include all kinds of characteristics of the population, such as size, growth, density, age- and gender structure, and so on. People will have low disposable income. PESTEL or PESTLE analysis, also known as PEST analysis, is a tool for business analysis of political, economic, social, and technological factors. Thomas Bush is an English-born writer, entrepreneur, and fitness enthusiast.

For instance, a company should never start exporting to a country before having examined how much people will be able to spend. Similarly, the production cost will also increase with the increase in the price of supplies by the supplier. This requires them to update their machinery and hire new employees with new skills or to train existing employees to use new technology. The Macro Environment consists of a large variety of different forces. For example, new household formats start emerging in many countries.