Social Factors in your PESTEL Analysis

Part 4 of 7

Introduction

You will recall from the earlier posts in this series that a PESTEL analysis highlights the external macro-economic factors that can affect a business’s growth prospects or even its financial health. We have been taking a close look at each of the letters that make up the acronym. The “S” stands for Social factors. While social factors are arguably most important for marketers, these factors will affect every type of business, so everyone should track them regularly. Social factors include topics such as demographic characteristics and trends, norms, customs, and even the values of the people in the country or countries in which you operate or intend to operate.

For example, an international liquor distributor will focus his sales of ultra-premium vodka in the U.S., China, and Germany and not in the Muslim-dominated GCC countries where most people do not consume alcoholic beverages because drinking alcohol is haram (forbidden).

Another interesting social factor would be working hours. In many countries, the standard workweek extends from Monday to Friday with employees working an 8-hour day with a break for lunch. In other countries, the workweek might be 5 ½ days with Thursday afternoon and Friday being the “weekend.” In the Middle East, the weekend falls on Friday and Saturday. For business leaders doing business in countries with different workweeks and working hours, these differences can be important.

What are Social Factors in your PESTEL analysis?

The table below lists just some of the topics that might be considered when evaluating social factors:

Examples of the Impact of Social Factors

• Many “third-world” countries are essentially cash societies. Why are these countries not as “banked” as European countries? There are many reasons, and most of them relate to social factors. For instance, lack of access to education means a lack of understanding of technology. In many third-world countries, there is a lack of trust in banks because, in these countries, there is no deposit insurance provided by central banks. Another reason is that per capita income and median household income is so low that people live from day to day and do not require the services of a bank.
• Societies that have a positive attitude toward the formation of families, high birth rates, and disposable income are the kinds of attributes that would be attractive for makers of baby products.
• According to Smart Cities.com, ethnic restaurants make cities in the U.S. more vibrant. Urban customers enjoy and patronize restaurants that are inexpensive, unusual, ethnically diverse, fast, and have great food. These are all social factors that are important to foreigners who want to migrate to the U.S. to open restaurants that feature foods from their home countries.
• A country’s birth rate can be a very important statistic when contemplating an investment in a new country. Birth rates vary country by country. Most countries in Africa have very high birth rates in the 33 to 47 per 1,000 inhabitants range. Alternately, Hungary’s birth rate is only 8.7 per 1,000 inhabitants and Germany’s is only 9.3 per 1,000 inhabitants. Now, here is where this gets interesting. Germany does not have enough workers to drive its economy so it welcomes immigrants. In addition, Germany’s population is aging. Hungary, on the other hand, has one of the strictest anti-immigration policies in the European Union. According to One World, Hungary “has built a 109 mile long fence on its southern border to curb crossings from Serbia and Croatia.” If you are thinking about investing in Europe and your choice comes down to Germany or Hungary, which will you choose? Social factors such as education levels, trust in technology, and cultural preferences greatly influence the market for software consulting services. Understanding these factors helps a company tailor its offerings and strategies to meet the specific needs and expectations of different societies and demographics.

Conclusion

The social factors section of your PESTEL analysis is perhaps the most important aspect in deciding if there is a compelling market opportunity for your new business or for your existing business considering a new location, whether that location is in a new neighborhood or 5,000 miles away.

This is Part 4 of our series on PESTEL analyses. Go to Part 3 here. Our next post in this series will be on the Technological factors to be considered in a PESTEL analysis.

Other Articles in the PESTEL Analysis Series

• Put Your PESTEL to the Mettle (Part 1 of 7)
• Political Factors in your PESTEL Analysis (Part 2 of 7)
• Economic Factors in your PESTEL Analysis (Part 3 of 7)
• Social Factors in your PESTEL Analysis (Part 4 of 7)
• Technological Factors in your PESTEL Analysis (Part 5 of 7)
• Environmental Factors in Your PESTEL Analysis (Part 6 of 7)
• Legal Factors in Your PESTEL Analysis (Part 7 of 7)