Introduction
The Brompton Bicycle Company was founded in Greenford, London. Foldable bicycles and accessories have been the company’s bread and butter since its inception in 1976. (Pedago, 2021). For decades, this brand’s bicycles have stood out due to their unique design, which allows them to be stored upright. Given the tremendous increase in demand for Brompton bicycles since the company’s inception, it is only natural that production would rise in tandem. The company manufactures about 50,000 bicycles annually, making it the largest bicycle manufacturer in the United Kingdom (McKenzie, 2020). This presentation analysis will assess and advocate a price increase for Brompton’s bicycles in light of Brexit using the concept of price elasticity of demand, case study materials, and research.
Background
In 1975, Andrew Ritchie, a visionary engineer, set out to improve bicycles to alleviate traffic congestion caused by the city’s increased car population. His first idea was a bike that could be folded into three pieces and transported easily. He dedicated his entire life to innovation, learning to build bicycles in a workshop borrowed from a nearby engineering firm. His team could initially only produce 60 bicycles per month, but as demand increased, production gradually increased (Pedago, 2021). Several factors have contributed to the company’s success over the last few decades, including increased brand recognition, pricing, demand, and the development of bikes that the competition cannot match. The company’s bikes distinguish themselves from the competition, and competitive pricing has increased bike sales.
Brompton Bicycle Brand
The Brompton foldable bicycle is a British cultural icon. One of the nation’s oldest foldable bicycle manufacturers. Its success is due to its style, appearance, size, weight, and adaptability and its consistent 20% annual growth rate since 2008. (Pedago, 2021). The Brompton brand is national pride despite being more expensive than its competitors. It also grew during the 2000 credit crisis and the 2008 recession (Pedago, 2021). Most British people ride bikes for recreation and exercise, but a small percentage, especially adults, use them for transportation or work. Brompton’s demand depends on consumers’ disposable income, alternative costs, and bike model preference.
The Impact of Brexit
The pandemic and other events, such as the disruption of the Suez Canal, create serious problems, which are even worse by Brexit. Production costs are going up, which include the cost of transportation, the cost of paperwork, and the possibility of tariffs. One of the primary reasons for material shortages is disruptions in the supply chain, including insufficient supplies of aluminum and steel. As a direct consequence of steadily rising production costs, potential supply issues for Brompton could arise in response to rising customer demand.
Brexit has not impacted the overall demand for bicycles, and the most recent COVID-19 pandemic has led to an increase in the usage of bicycles as a means of maintaining individual isolation. In the United Kingdom and across Europe, demand for bicycles is maintaining a level of relative stability. Since 2016, the pound’s value has dropped significantly, coinciding with increased demand for goods and services that the United Kingdom exports. In addition, it is becoming increasingly common for customers to place orders for Brompton bicycles through the respective companies’ websites. As tariffs and the price of imported raw materials rise, Brompton and many other companies will look to increase supply and production by sourcing from within their communities.
Since Brexit, transporting goods has become more complex and time-consuming. Because of the depreciation of the US dollar, imported goods are more expensive. Brompton purchases imported rubber, steel, and titanium, which are more expensive (The Manufacturer, 2021). Costs of border infrastructure, such as warehouses and parking garages, have pushed shipping prices. The pandemic significantly impacted Brompton’s production schedule. Border losses occur in Brompton. Because British goods are still duty-free in the European Union, they cannot recoup their losses. Many EU-based companies, including Brompton, have relocated their production facilities to avoid delays and costs. It assists the company in meeting demand and increasing revenue by making it easier for its product to be supplied to its existing market.
Brompton’s Pricing Strategy
A well-planned pricing strategy determines the best-selling price of a product. As a result, Brompton employs premium pricing to increase buyer satisfaction based solely on price. It satisfies market demands while increasing profits and shareholder value (Ali & Anwar, 2021). Brompton is well-known for meticulously developing its core, existing, and improved product lines (The Manufacturer, 2021). The primary goal is to assist customers. According to the company, it is the fastest, lightest, and most technologically advanced folding bike on the market. The Brompton bicycle is pricey in order to promote quality. The company provides free replacements for products that have manufacturing flaws. Price differences divide Brompton’s customers into value groups. The price of a Brompton starts at £770. Pedago (2021). The Brompton is a luxury item, despite not being the most expensive bike.
Brompton prices have been steadily rising due to inflation, and the current Brexit situation has not helped matters. If prices continue to rise beyond 2021, consumers will begin looking for cheaper alternatives, causing demand to become slightly elastic from its current inelastic state. Due to the high cost of a Brompton foldable bicycle, once the economy recovers from the COVID pandemic, consumers may opt for a less expensive alternative, such as a bicycle that does not fold. Furthermore, if the UK government decides to remove the EU’s 48.5% tariff on Chinese-made bicycles, the industries in both countries will benefit (Pedago, 2021). It would result in an oversupply of low-cost bicycles on the UK market.
The increased price of Brompton will increase demand for Chinese-made bicycles. Brompton plans to hire 200 more people and revamp its product to meet rising demand (Pedago, 2021). Given the current high cost of production, lowering prices may be counterproductive. Despite the UK market’s relatively inelastic nature, rising bicycle prices are likely to be accepted by British consumers as the pound slowly recovers in value following Brexit. Although there are less expensive alternatives, the Brompton has become a symbol of British elegance and design. Its many loyal customers take great pride in their status as brand owners.
Factors of Demand Affecting Brompton Bicycle
Cyclists consider the various options available on each potential model when shopping for a new bicycle. Even though bicycles are typically used for recreational purposes, customers’ tastes and preferences vary. Brompton has prioritized increasing bicycle popularity while releasing popular new models. Due to the brand’s unwavering popularity, demand for the company’s bicycles has steadily increased since its inception. Popular data strengthens current sales patterns by encouraging customers to flock to mainstream products. Over 45,000 bicycles were sold in 2015, with a goal of 100,000 bicycles sold by the end of 2021. (Pedago, 2021). A commodity’s popularity influences demand decisions in two ways: when it is popular, demand rises, and the demand curve shifts to the right; when it is unpopular, demand falls, and the demand curve shifts to the left.
Factors of Supply Affecting Brompton Bicycle
Increased output due to lower production costs raises supply, which boosts the producers’ marginal profit. As the supply volume at each price rises, the supply curve moves to the right. Brexit raises production costs; it has a detrimental effect on the availability of Brompton products. In addition, Brexit has hurt the economy and raised labor costs. Imports decreased by 25% after the United Kingdom left the European Union (EU), and trade barriers increased significantly (Kingston, 2021). It has increased Brompton’s expenses when importing bicycle raw materials, driving up the cost of production. Due to Brexit, businesses have required help bringing goods from the EU into the UK. The business might decide to carry out its procurement outside of the European Union. It helps the business maintain or grow revenue to counteract the negative effects of Brexit.
Factors of Price Elasticity of Demand Affecting Brompton Bicycle
The market determines everything, and there needs to be more dependability; public infrastructure in the United Kingdom (UK), as in many other large and prosperous cities, is overcrowded. Biking has recently gained popularity by taking advantage of the UK’s extensive public transportation system. Products that consume a more significant portion of a consumer’s discretionary income are typically more price sensitive than products that do not consume a substantial amount of a consumer’s income. A Brompton bike costs £770, with the lower price point being the more common option (Pedago, 2021). Brompton’s target market, therefore, is wealthy city dwellers who are less concerned with price. The market exhibits some elastic price demand because most Brompton purchasers are well-off white-collar professionals who are not as price sensitive as the average consumer.
Product customization options influence customer demand. Brompton bicycles stand out from competitors due to the company’s products and market position (Kingston, 2021). The Brompton is popular among city dwellers because it allows riders to move freely in congested areas. Foldable bikes, such as the Brompton, are unique in terms of price and consumer demand. Price changes do not affect customer demand (Lee et al., 2022). Since the percentage increase in quantity demanded inelastic products is less than the percentage fall in price, if the product’s price rises, the company must raise the price to compensate for the loss in sales of a single unit. Customers’ willingness to pay more or less determines a company’s ability to raise or lower prices.
Pricing Recommendation and Justification
Due to their high price, folding bicycles have yet to impact the bicycle market significantly. Brompton bicycle sales increased during the 2008 credit crunch and the Great Recession (Lee et al., 2022). Reid (2021) suggests raising product prices because exports account for 75% of Brompton’s revenue. Brompton can still profit despite its high prices due to its brand and international sales. Since customer demand and price are not highly correlated, Brompton must raise prices. Consumer demand remains stable despite price changes, which is a promising sign. If the price of a product rises, the company must increase the unit price to compensate for lost sales due to high production costs because the increase in demand is less than the decrease in price for inelastic products. Price elasticity is low for inelastic goods. The willingness to pay off a customer can influence a company’s decision to raise or lower prices.
Price changes are unlikely to affect demand for Brompton bicycles in the UK. When the price of a product or service is adjusted, consumers can adjust their demand for that product. Brompton’s production costs have increased due to Brexit, reducing the company’s profit (Reid, 2021). Therefore, Brompton should refrain from lowering the prices of its primary products sold in the United Kingdom. Instead, the company should consider raising the price of its Brompton bicycles soon, taking advantage of the fact that its customers are loyal. It should maintain its premium pricing while capitalizing on the fact that customers in the United Kingdom are becoming wealthier. For the time being, this advice will be helpful. As a result, Brompton will be less affected by increases in manufacturing costs, which will benefit the company’s bottom line.
The theory of price elasticity of demand demonstrates that the quantity demanded is predictable whenever there is a shift in the selling price. A change in a product’s price results in a corresponding change in the quantity demanded, which means that the demand is elastic (Lee et al., 2022). Demand is unitary elastic if and only if the price elasticity of demand equals one, and it is elastic. If the relative price elasticity of demand for a product is greater than 1, then that good’s demand is inelastic concerning the price of that product.
Conclusion
In conclusion, it has been determined through analysis that Brexit has not negatively impacted the demand and supply of Brompton’s products. Following Brexit, there was a significant reduction in the value of bicycles exported from the UK to the EU. Demand for bicycles is inelastic, and the prices of bicycles have increased in the UK, and the sales have remained the same. Despite the increase in price because the demand is inelastic, the prices of bicycles in the UK should be increased by a small margin to counter the adverse effects of Brexit and inflation.
References
Ali, B. J., & Anwar, G. (2021). Marketing strategy: Pricing strategies and its influence on consumer purchasing decision. International Journal of Rural Development, Environment and Health Research, 5(2), 26–39. Web.
Kingston, R. (2021). What Brexit means for bicycles. Cycling UK. Web.
Lee, S., Farmer, D., Kim, J., & Kim, H. (2022). Shared Autonomous Vehicles competing with shared electric bicycles: A stated-preference analysis. Sustainability, 14(21), 14319. Web.
The Manufacturer. (2021). How Brompton is steering the future of electric bicycles. Web.
McKenzie, J. (2020). The E-bike revolution. Physics World, 33(7), 21–21. Web.
Pedago. (2021). Brompton Bicycle – case study – Brompton bicycles: Pedaling into the future Quantic case studies: Quantic
Reid, C. (2021). £1 billion in additional bicycle sales generated in U.K. during pandemic bike boom, reveals report. Forbes. Web.