PESTLE and Porter's 5 Forces Analysis: Two Crucial Concepts for Business Leaders & Sales People

PESTLE and Porter’s 5 Forces Analysis are two crucial concepts for business leaders and B2B sales professionals.

This is because they reveal important information about the external factors that affect a particular industry, which can be used by leaders and sales professionals to their advantage.

For business leaders, these concepts are critical for strategic planning and can be used to gain a greater understanding of their business and the opportunities available to their industry.

For B2B sales people, they’re crucial for preparing for meetings with senior clients as they can be used to gain a greater understanding of the external pressures, trends and events that affect their sales prospects’ buying decisions.

In this post we explain both concepts and describe how business leaders and sales people can apply them to enhance their organisation’s performance.

Click here to learn how you can take advantage of conducting a PESTLE Analysis.

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PESTLE Analysis

As a business leader, a PESTLE analysis will encourage you to consider a range of pressures, trends and events that will help you to make sense of your organisation’s external envrionment when conducting strategic planning and reviews.

By analysing changes to the external environment and ensuring that the firm’s objectives are positively aligned with these forces, you’ll be able to capitalise on opportunities and mitigate risk having broken free from existing assumptions and adapted to the realities of a dynamic operating environment.

As a B2B sales person, you can use PESTLE to gain a better understanding of your client’s external environment.

By structuring sales meetings and opening conversations around the external pressures, trends and events that are facing the buyer’s organisation, you will put yourself in a much better position to develop the client’s needs and create a compelling event that convinces them to make a purchase.

The factors to be considered when conducting a PESTLE analysis are as follows.

P - Political factors:

This includes the current and potential political influences that might impact buying decisions in your target organisation. Depending on the industry you work in (or sell into), this could include:

Import and export tariffs.
Grants and subsidies.
Regime changes and elections.
War and terrorism.

E - Economic factors:

Existing and future economic pressures and trends should also be considered when conducting a PESTLE analysis. Economic factors that might influence strategic planning and buying decisions include:

Current and expected levels of taxation.
Wage levels.
Comparative costs of materials at home and abroad.
Inflation.
Foreign exchange rates.
Levels of employment.
Volumes of money in circulation.

S - Social factors:

Social factors can have a significant impact on business decisions for both business leaders and sales prospects. For example:

Changes in consumer buying trends.
Changes in consumer lifestyles and fashion.
Public expectations regarding organisational ethics and governance.
Trends in crime.

T - Technological factors:

The following technological factors might be considered as part of a PESTLE analysis:

Advancements in telecommunications and computer networking.
The discovery of new chemicals and resources.
New methods and techniques for collecting and storing energy.
Other technological innovations and inventions.

L - Legal factors:

Legal influences, such as existing or upcoming changes in legislation, should be considered as part of a PESTLE analysis. For example:

Health and safety.
Working directives.
Human rights.
Corporate governance.
Environmental responsibilities.

E - Environmental factors:

Environmental factors can be used when conducting strategic planning or trying to influence buying decisions. Environmental factors might include:

The impact of global warming and climate change.
Initiatives to reduce waste.
Water shortages.
Pollution.
Natural disasters.

These overlapping political, economic, social, technological, legal and environmental factors can provide strategic decision makers with a useful framework for identifying key opportunities and threats which are likely to affect their organisation in the short, medium and long term.

These factors can also provide sales people with a framework to tap into their prospects’ pains and desires, which can then be used to create compelling events that will drive buying decisions.

It’s important to remember that above factors will be of limited value to you, as a business leader or sales person, if they are merely seen as a list of external influences on the firm. It is crucial that the implications of these factors are fully understood to take real advantage of them.

It’s also important to consider that a combined effect of several external factors are likely to be the most useful for business leaders and sals people alike, rather than considering each factor separately.

To get an even deeper understanding of the external environment, click here to learn how you can apply Porter’s 5 Forces Analysis.

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Porter’s 5 Forces Analysis

Leadership teams often combine a PESTLE analysis with Michael Porter’s 5 Forces Analysis to get a more rounded view of the immediate business operating environment before setting out the firm’s strategy.

As with a PESTLE analysis, B2B sales people can also apply Porter’s 5 Forces Analysis to gain a greater understanding of their client’s world and put themselves in a better position to influence buying decisions.

The following five forces combine to form the market environment that the firm must respond to and create unique and sustainable value within if it is to succeed:

The bargaining power of customers.
The bargaining power of suppliers.
The threat of new entrants.
The threat of substitute products.
Competition within the industry.

Each of these forces have several determinants which you should consider when conducting Porter’s 5 Forces Analysis. Here are some examples:

Bargaining power of buyers

Bargaining leverage.
Expectations.
Location and geographical distribution.
Price sensitivity.
Complexity and cost to service.

Bargaining power of suppliers

Importance of volume to supplier.
Location and geographical distribution.
Bargaining leverage.
Expectations.
Number of suppliers and alternatives.
Relationship with firm’s competitors.

Threat of new entrants

Barriers to entry.
Power of the brand.
Switching costs.
Capital requirements.
Access to distribution.
Cost advantages.
Learning curve advantages.
EExpected retaliation from existing competition.
Government policies.

Threat of substitute products

New technical alternatives.
Buyer propensity to substitutes.
Relative price performance of substitutes.
Buyer switching costs.
Perceptions of product differentiation.

Competition within the industry

Number of competitors
Rate of industry growth
Exit barriers
Diversity of competitors
Brand value and positioning
Level of advertising expense

5 Forces Analysis can reveal significant insights about the potential future attractiveness of an industry and form an excellent basis for a strategic review by a firm’s leadership team. However, it’s important to consider that expected political, economic, social, technological, legal and environmental (PESTLE) changes can influence the five competitive forces.

Sales people can also incorporate these two concepts to better understand the external pressures, trends and events that cause buying organisations internal pain. The pain caused by these external pressures, trends and events can then be used to create a compelling event, which should then be aligned to the features and benefits of your solution(s) to influence the buying decision.

This is how to be successful at consultative selling, which forms the basis of our award winning sales methodology Selling from the Left®. With a bit of preparation and research into the target organisation, you can dramatically increase your sales by applying these concepts.

Written by: Steve Eungblut, Managing Director of Sterling Chase