PESTEL (Political Economical Social Technology Environment Legal) analysis is one of the macro strategic analysis techniques to critically examine the business strategy, evaluate the product, etc. This technique is used to analyse the all round macro-environment factors which impact the decisions being taken by the management of any organisation. New Laws, government policies, demographic changes, tax changes and trade barriers are few examples of macro changes (De wit, 2004).
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Political factors refer to the Government policies which result in the level of economic intervention. Economic factors include taxation charges, inflation, interest rates, exchange rates and inflation. The Social factors are determined by cultural issues and the generic people approach towards the product and strategies. Technology plays important role in the life of people in today’s era as a rapidly changing needs of people results in the new technologies coming into fore on a regular basis. Environmental factors have gained importance in the recent times where the impact of the new strategy is analysed on the basis of how it is impacting the environment. Legal factors are related to the legal surrounding of the firms. As the world becomes a domain for the operations of the firms, the different legal environment across the geographies makes it a challenging factor for strategic analysis (Porter, 2008).
PESTEL Analysis of Water as business product
Edmund S Muskie (Muskie, 2008) quotes –
“High quality water is more than the dream of the conservationists, more than a political slogan; high quality water, in the right quantity at the right place at the right time, is essential to health, recreation, and economic growth.”
The government of the land has an important role to play within the operation of manufacturing bottled water in terms of regulations. Potential fines are set by the government for the manufacturers in case they fail to meet the standard of laws. Some of the political factors which cause the results of the Bottled water manufacturing Companies to differ materially from the expected objectives in their annual statement (Grundy, 2002):
Mercurial nature of the non-alcoholic business Environment due to the Government laws benefiting the new entrants in the market. These factors include the pricing pressures, new competitive products, the strategy and the ability of competitors to gain the market share in the local and global markets, their branding efforts. These competitive efforts squeeze away the customer’s mind share from the existing operators hence making the business environment change frequently.
As it may affect any other business, the modifications in the rules and regulations by the Government in various functions affects the way business would operate. For example, change in taxation requirements like new tax laws, tax rates, or revised interpretations of the tax laws, modification of accounting standards, and new or modified environmental laws in global and local regulations (Grundy, 2006).
The capability edge of the existing companies as well as the new entrants depends on the political conditions of the business environment. How the Government of the land supports the foreign investments and in which sectors as well as the support provided by them to forge strategic alliance has a strong potential to make a difference in the success and failure of any firm including the Bottling water company.
The up and down swinging economy is one of the factors, which can make an organization successful or a big failure. When the economy is strong, any well managed industry grows with the economy. However, with the recent recessionary trend, the business environment is becoming a difficult place to survive for any firm which is not cash rich and does not have the necessity appeal. The premium appeal of the high quality bottled water may not be as high as compared to the necessity appeal. Still, the negative growth and nose-diving GDP of the country can drastically affect the growth of the company.
One of the advantages of the current negative growth rate is that the borrowing interest rate is also low. Hence, Bottled Water Company can borrow money to research on the new technology and products. As the cost of conducting the research would be less, the company would be able to bring new products in the market with low cost. This would make people spend money on buying the bottled water as the cost would be less with a high quality of bottled water. Thus, even though the business environment is not as conducive, there are few advantages which can be made use of.
The recent recessionary trend seems to have subdued as the recovery of the economy is being predicted by the economists. It is just a matter of time when the economy achieves the high levels. It is expected that the consumers would soon reassume their usual spending habits by visiting high streets, eating out at restaurants, car shopping etc. This is not to discount the fact that some are still cautious in terms of spending money but as the lower inflation rate continues, the consumer’s confidence would return to their normal level. Thus, the endeavor of the firm should be to borrow now to invest in R&D and then spend on marketing the products in the growing economy.
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Now-a-days, every one wants to remain healthy. The damaging effects of the alcoholic drink are not hidden from anyone. More and more people are switching their lifestyle to enable them to remain healthy. This change of thought process has contributed to the higher selling on the bottled water, and diet colas. The market share of the non-alcoholic drinks has increased at the cost of alcoholic drinks. Never before an average person needed the Bottled water and healthy products as much as they need now. Frequent health capsules from respected medical professionals advice against alcoholic drinks and urge people to shift to less sugar and bottled water in their diet to remain healthy.
The age group of consumers in 37 to 55 is highly sensitive about their eating habits. As they are reaching their old age, the concern for longevity comes to fore. As can be summed up, this factor would continue to increase the demand for the bottled water and healthy drinks over the time to come (Slack, 2009).
The synergy achieved through the right mix of advertising, marketing and promotional programs can not be ignored. The interplay of these three activities results in efficient marketing of the products. Internet and television are the new marketing channels opened up as a result of the new technology. These channels have made it possible to have a focused marketing for the consumers which is a big achievement compared to mass marketing. The special effects possible through these channels make a product look attractive.
Few technological advances in the area of packaging like plastic bottles and cans have made it convenient for the consumers to buy these products. This makes it easier to carry and dispose off.
The automation technology in the area of producing bottled water has increased the productivity of the bottling plant. The state of the art technology adopted by the bottling company results in the same level of quality and less dependence on the man power in production means an effective utilization of the resources. The man power can be used in other functions instead of manual bottling (Driver, 2001).
The concern for the environment is growing as several countries across the globe have introduced fines for following environment un-friendly manufacturing practices. The Bottling companies would need to review their manufacturing and packaging strategies by developing new technologies in these areas. Only after that, they would be able to remain in the business (blowfield, 2008).
There have been recent changes in the law which mentions the level of chemicals allowed in the bottled water. The impact of this legislation is higher as the non-compliant organization would be forced to shut shop. The deadline of compliance is 3 years by EU countries and the companies would be required to take their product off the shelf if they are unable to comply with the norms (Hill, 2009).
As the PESTEL macro environment analysis confirms, there is a huge opportunity in terms of packaging and marketing the bottled water. The rate of few brands (Davis, 2010) like Bling h2o – selling at $40+ per 750 ml bottle, Hawaiian deep seawater selling at $33.50 per 2 oz bottle is a living testimony to it. The business case of Bottled water industry is strong with a favourable macro environment and hence proves the statement made by Muskie.
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