What Is a Market Environment Analysis?

Esther Ejim

A market environment analysis is an analysis of both the external and internal environments related to an organization. An economical tool for conducting a market environment analysis is the Political, Economic, Socio-cultural and Technological (PEST) tool. This yardstick for measuring a market environment looks at the various listed factors in a selected market with a view to finding out how they relate to the business.

A thorough market environment analysis includes an assessment of competitors and developments that could threaten the viability of a company's products.
A thorough market environment analysis includes an assessment of competitors and developments that could threaten the viability of a company's products.

The first step in applying PEST to a market environment analysis is to conduct a study of the political factors that may either have a positive or negative effect on the company. An example is the various codes and regulations imposed on different industrial sectors. This may be seen in the construction industrial sector where obligatory administrative rules specify the means of operations. For example, in the United States the Occupational Safety and Health Administration (OSHA) makes the rules regarding the way various occupational sectors operates.

They make rules regarding workers' safety, required training, safety equipment, safety procedure and even the number of hours in shifts. The Environmental Protection Agency (EPA) makes rules that mainly curtail the practices and activities of those in the industrial, manufacturing, construction, medical and agricultural sectors. Such rules may prove to be too restrictive or costly for the manufacturers and other participants in the various markets. Other political environmental factors include taxes, market regulations and the political stability in the country.

Economic factors in the market environmental analysis are made up of an evaluation of both international and national economic policies that may affect the market. Such economic considerations include business cycles, recessions, and both national and global fiscal policies. Socio-cultural considerations include the culture in place in a market and its effect on the market. For instance, markets with highly restrictive cultures may affect a company in a negative way, while cultures that are more open may offer more benefits.

Examples of ways in which cultures can affect markets are numerous. For instance, in western cultures that encourage people to maintain a lean physique, the market for diet products, fitness equipment and fitness services may boom. On the other hand, such a market might not experience much success in a place where the people are not as passionate about losing weight. Technology is another environmental factor that may be considered when conducting a market environment analysis. The growth of technology has made it imperative for organizations to keep up with new advances as they come out, in order to remain relevant in a competitive market.

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Discussion Comments


@feruze-- You should analyze every factor-- political, economic, socio-cultural and technological. But when it comes to the tobacco industry, I think political and socio-cultural factors dominate some of the other factors.

For example, there are specific regulations that apply to cigarettes. Cigarette companies have powerful lobbies that garner political support, but at the same time, the government imposes certain regulations on cigarettes due to health risks.

You should discuss all of these and how it impacts the function of a cigarette manufacturing company and its success.


I have to write a PEST analysis for class, I'm not sure how to go about it. I decided to do it on a company making cigarettes, which factors should I concentrate on?


This reminds me of a company that started selling flour overseas. They opened up to new markets in foreign countries and while they did well in some, they completely failed in a few. The reason was because in those countries that they failed, the main starch in the diet was rice. They weren't eating bread and so no one bought flour.

It seems like such a small thing but it made a huge difference for this company who lost a lot of money because of this mistake. Analyzing the cultural environment is more important than we realize.

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