On the 23rd of June 2016 the United Kingdom held a referendum asking its citizens to vote on whether they would like to remain as a member of the European Union or leave. Fifty two percent of the voters decided that the United Kingdom should leave the European Union. The decision to leave the European Union has been labelled as BREXIT by the media and commentators. Although the United Kingdom has not formally begun the steps to leave the European Union (BREXIT) the referendum's decision has had a major impact on the marketing strategy of many firms that operate within the UK. There are winners and losers in the BREXIT decision. This article will analyse the current impact of BREXIT on the marketing mix of some firms.
The diagram below highlights the impact of BREXIT on the components of Marketing Mix; Product, Price, Place and Promotion
Pricing And BREXIT
Today (24th January 2017) the pound is trading against the dollar at 1.20 which is around twenty percent lower than the same date in 2016 and on the 22nd of June 2016. Although the drop isn't as low as the pound's record low (against the dollar) of 1.05 in February of 1985 the strength of the pound has affected the pricing element of the marketing mix.
Manufacturing firms who pay for their raw materials in foreign currencies such as dollars or euros state that their costs have increased anywhere from 10 - 20% since the BREXIT vote. Firms facing increased purchasing costs need to decide how to absorb the price increases: do they accept reduced profit levels? or do they increase the prices they charge customers?
Tesco And "The Marmite Wars"
In October 2016 Tesco the number 1 food retailer in the UK went "into battle" with Unilever who wanted to increase wholesale prices by around ten percent. Tesco resisted this by halting orders for Unilever products so that many Unilever products such as Marmite, PG Tips, Hellman's Mayonnaise and Comfort Fabric Conditioner were unavailable in Tesco Stores for a little while. Although the situation was resolved very quickly it is an example of the impact that the BREXIT decision is having on the marketing mix of suppliers and buyers and the conflicts that can arise between the two parties. Our LearnMarketing article about Porter's Five Forces Model explains the power of buyers, sellers and other things that affect a particular industry.
Apple's Pricing Decision
Apple have increased the price of their products, their computers, depending on what range you purchase has on average gone up between £100 - £200.
Other Examples Of BREXIT And Its Effect On Price
Other companies that have also announced a change in their pricing strategies include Microsoft, Tesla, Lego, and British Airways.
Product And BREXIT
Price increases due to the weaker pound may inadvertently change the Position of a firm's products in the market; this could affect the brand's image especially if an organisation has marketed itself as a low to medium cost provider.
In 2008 price increases persuaded shoppers to switch to discounted supermarkets and non-branded generic products. In an effort to avoid a repeat of this, instead of increasing sale prices some firms have reduced the size of their products. Since the BREXIT referendum decision Channel 4's Dispatches reports that at least 10 food manufacturers have reduced the size or quantity of their products. For example Tropicana is now selling juice in bottles holding 1.6 Litres instead of 1.75 Litres and the number of Birds Eye fish fingers have been reduced from 12 per box to 10. A reduction in the size of a product is known as "Shrinkflation" because Inflation has motivated manufacturers into reducing the size of their product.
As a result of both the brand image and positioning strategy being effected the firms profitability may also be impacted as customers find alternatives.
Place And BREXIT
Through its membership of the European Union the United Kingdom currently participates in a number of trade agreements which reduce the cost and bureaucracy involved in trading with parties around the world. Nobody knows what will result from negotiations with the 27 countries that make up the European Union once Britain triggers Article 50 in March 2017. However some firms believe that international trading is likely to suffer from increases in costs and time; to avert this possibility some firms have proposed moving out of the United Kingdom. On the 23rd of February 2017 The Independent Newspaper reports that a third of manufacturing firms want to move some of their operations out of the United Kingdom. In December 2016 The Independent also reported that 40% of US Firms with UK offices are thinking about relocating to the EU.
BREXIT will impact on how and where firms choose to trade. For example oil is purchased in international markets in dollars, since the referendum the value of the pound has decreased and this has increased distribution costs whether that is by sea air or road. Retailers are contemplating whether the increase in costs will be passed onto customers through price increases.
Promotion And BREXIT
Commentators assert that BREXIT has split Britain into two groups; those that wanted to remain in the European Union (Remainers) and those that wanted to leave the European Union (BREXITeers). Firms may need to consider how this affects their Media Strategy and Target Markets. Did their target market vote to remain or leave? And how does the manner in which people voted reflect their views? Is it worth exploring the reasons behind the voting decision so that you can adjust your Promotional Strategy accordingly.
As some costs increase as a result of BREXIT there maybe an impact on promotional budgets. Firms may start picking their promotional spend more carefully in order to maximise the impact of their promotion. Advertisers may find their clients are reducing their spend. Firms may also reduce their research budgets as costs start to mount.
At the moment (14th of March 2017) the biggest impact of last year's BREXIT vote seems to be a reduction in the value of the pound and the subsequent increase in costs. It is difficult to predict what will happen once Britain has triggered Article 50; the formal process to leave. In the meantime firms will need marketing mix strategies that are flexible enough to respond to the BREXIT process and resulting consequences. A prudent firm will have contingency plans that support challenging trading periods whilst simultaneously providing the ability to rapidly capitalise on opportunities created by BREXIT.
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