QuestionIn the wake of ‘Brexit’, the price of the latest Apple iPhone model in the UK rose by £60. What strategies might other businesses use to maintain their position in the UK market?
AnswerPredictions post-Brexit indicate that British consumers will face price squeezes which they are likely to be unprepared for, and given that the sterling has recently dropped to 31 year lows on the exchange market, it is likely that other retailers may follow the example of Apple in raising their prices (Milliken, 2016). However, should the said retailers hold a distinct position of competitive advantage, increasing the price for consumers may not be an option if they aim to maintain their position in the market. Organisations that compete on a cost leadership basis, offering their products to a broad audience at a low cost will likely be reluctant to increase prices. Thus, one strategy to contend with higher costs will be through the absorption of such in the profit margins, as fashion cost leader Primark intend to, stating that this strategy will be used for the higher costs of imports (Milliken, 2016). However, it should be noted that this strategy will only be successful if the company has substantial profit margins to cover this price without negatively impacting the liquidity of the company. If this is not the case, and such retailers have to raise their prices, they may run the risk of alienating customers, and lose their share in the market to organisations that can withstand the costs of exchange. On the other hand, organisations that compete on a differentiation basis, offering specialised or widely valued products may fare better given the need for a price increase. Consumers expect premium prices for such products, given the perceived importance, quality and luxury of such products in the consumers mind; when making the purchasing decision to buy such luxury and differentiated goods, it is likely the consumer is already aware (Nwankwo, Hamelin and Khaled, 2014). It is therefore unlikely that businesses that compete on differentiation will see a substantial need for strategy change; and will likely even see increased sales in the UK from luxury brand ‘tourists’, coming from outside of the UK to exploit the low-pound exchange rate.
ReferencesMilliken, D. (2016) ‘Unprepared British consumers face Brexit-driven price squeeze.’ Reuters. [Online] 4th October [Accessed on 9 October 2016] http://uk.reuters.com/article/uk-britain-eu-consumers-analysis-idUKKCN1240XI?il=0&utm_medium=referral&utm_source=morefromreuters Nwankwo, S., Hamelin, N. and Khaled, M. (2014) ‘Consumer values, motivation and purchase intention for luxury goods.’ Journal of retailing and consumer services, 21(5), pp. 735-744.
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