Quantic Brompton Bicycle Case Study

Brompton Bicycles
Following Brexit, in 2021 and beyond, should Brompton reduce the price of its core product
in the U.K. market? Discuss the possible price elasticity of demand for a Brompton bike,
and support your answer using theory, the case study materials, and your own research.
Brompton Bicycles
To determine whether Brompton should reduce

their prices, we need to look at 4 key factors:
Price Elasticity of Demand

Income Elasticity of Demand
Market Predictions
Customer Profile
Brompton's Market
While the bicycle industry is in perfect competition, folding bikes operate in monopolistic competition with
key competitors of Brompton being Montague, Citizen Bike, Compass and Viking.
Brompton is a price maker not taker.
The company experiences an average annual growth of 20%.

Through recession, 'credit crunch', and the pandemic, demand for the folding bike is growing.
Demand is coming from an average age group of 40. Demand is growing among younger people who care
about the environment, their health, and also just want to have fun.
Brompton caters to a global audience and is present in 47 markets across the world. Vast majority of their
sales are outside the UK and the rest of the world.
Brompton plans on producing 100,000 bikes (doubling output in just over five years). They plan on hiring
200 members of staff to push sales.
Price Elasticity of Demand (PED)
PED is a measure of how demand for a good changes in relation
to a change in price. It can help us determine the potential loss of
customers if prices are raised.
We'll look at 3 kinds of PEDs to determine where Brompton falls:
1. Elastic: Demand changes greatly in response to a price change

2. Unit Elastic: Percentage change in quantity demanded is
equal to change in price.
3. Inelastic: Demand changes slightly in response to price
change.
What we know about Brompton's Demand:
Brompton's bikes are considered a luxury item associated with

status.
It can be considered a conspicuous necessity.
If there are cheaper substitutes, a rational consumers would
choose the substitute. But even with Viking selling at £200,
demand for Brompton at £770 has not changed.
To some extent, Brompton is in a league of its own where the law

of demand doesn't apply. However, we can conclude that the
Price Elasticity of Brompton's bikes is relatively inelastic. This Source link:
means even if there's an increase in prices, the chances of an https://sites.google.com/a/ehschools.org/economics/home/chapter-
4-demand/4-3-elasticity-of-demand
equal or higher loss of customers is very low.
Income Elasticity of Demand (IED)
IED is a measure of how a change in consumer's income leads to a
change in the demand for a certain good.
We'll look at 3 kinds of IEDs to determine where Brompton falls:
1. Positive: Demand rises in response to an increase in income

and vice versa. These are called Normal goods.
2. Negative: Demand falls in response to an increase in income.
These are called Inferior goods.
3. Zero: There is no impact to rise or fall of income on the
demand for a commodity.
What we know about Brompton's Demand:
Despite the recession, 'credit crunch', and the pandemic, which

reduces income, demand for Brompton bikes is growing.
Brompton is in a niche market where customers see value and
high status.
When it comes to a fall in income, the IED comes closest to zero.

This means the demand for the bike seems to remain the same
regardless of a reduction/uncertainty of income. However, we must
Source link:
also take into consideration that with an increase in income, IED of https://corporatefinanceinstitute.com/resources/knowledge/econo
mics/income-elasticity-of-demand/
Brompton's bikes is likely positive as demand is growing.

Market Predictions
On home ground, the prospects of country’s economic future

The global market for bicycles was with Brexit + Covid 19 are bleak.
estimated to be worth US$29.2 billion in There is the threat of abolishment of anti-dumping tariff of
the year 2020, and is projected to grow by 48.5% which would lead to the import of cheap Chinese
2.4% CAGR to 2027. bicycles making it hard to compete.
The value of Pound Sterling is falling
Hybrid bicycles are expected to grow by The market volatile as there is uncertainty.
3.1% CAGR over the same period.
Aggregate demand is lower as people have lower incomes
Growth projections differ depending on and less purchasing power, shifting the AD curve inward to
geographic region, with China forecast to the left.
grow by 4.7% CAGR to 2027, and lower
forecasts expected in Germany (1.1% CAGR), Aggregate supply is impacted by a decline in labor due to
Japan (0.5% CAGR) and Canada (1.8% reduce free movement across the EU, Increased
CAGR) (Global Industry Analysts 2020). transportation costs and labor wages. There's a loss of easy
trade with EU countries leading to higher import tariffs,
Even taking into account the economic transport costs, and more laws to comply with.
impact of the COVID-19 crisis, sales of road Higher costs of produciton + reduced demand shifts the AS
bikes are expected to grow by 1.7% curve inward to the left
annually.
BROMPTON CUSTOMER PROFILE
Brompton customer's love the brand because it's:
environment- constantly
foldable, friendly and a Classic British
lightweight, design, true to improving
healthy option with new
built with the culture of
titanium, and London technology
customizable
backed
solving the by UK
'Last Mile' manufacture
d in England engineering,
problem, years of R&D
saving on and lasts a
lifetime and
travel costs innovation
Things to consider:
Customer's consider the Brompton bike to be a high status symbol, a cult classic, with clubs that they
can be a part of it.
Customers are WILLING TO PAY a high price to own a Brompton.
If Brompton Reduces Prices in the UK
Brompton would be at a better price point to compete with Chinese makers

May not be able to keep up with the rising prices of raw materials and labour in a post
Brexit world. They would have to outsource production to reduce costs
Most likely have to reveal a large part of their production process
Would have to deviate from what the brand stands for and why it is loved
Would become price takers in a perfectively competitve market
Would make zero economic profit in the long run
If Brompton Prices Remain the Same in the UK
Brompton can continue to operate as is and retain control over production and trade
secrets
Barriers of entry will remain in place
Will remain a price maker not taker
May experience a small drop in sales which can be tackled with an increase in staff
to push sales
Can also focus on international markets
Verdict
Should Brompton Reduce the Price of Its Core Product in the UK?
No, Brompton should not reduce the price of its core product in the UK just yet.
A reduction in price to combat the impact of Brexit is not needed because:

PED is inelastic
IED is positive
For now, the government has retained the anti-dumping tariff so Brompton
continues to be protected.
The barrier of entry still exists
Decreased GDP in the UK doesn't impact Brompton demand.
A better way forward would be to continue to innovate to distinguish their product from the rest
available in the market.
With the pound sterling falling, they can offer their bikes at a cheaper rate in other parts of the
world. This will help them expand their market and grow.
The brand has garnered loyal customers on account of their innovation, excellent design, making
it a status symbol. It is unlikely that their market will shift drastically with the introduction of
cheap Chinese bikes.
References
https://www.ukessays.com/essays/marketing/marketing-analysis-of-dyson-marketing-essay.php
https://theconversation.com/dysons-move-may-not-be-about-brexit-but-the-timing-was-bound-to-fan-flames-
110461
https://sites.google.com/site/economicsbasics/unitary-elastic-demand
https://learnbusinessconcepts.com/wp-content/uploads/Unitary-Elastic-Demand-Diagram-Curve.png
https://slidetodoc.com/demand-analysis-samir-k-mahajan-m-sc-ph/
https://bikebiz.com/fake-folders-how-brompton-and-strida-tackle-the-copiers/amp/
https://scholar.valpo.edu/cgi/viewcontent.cgi?article=1104&context=gas
https://road.cc/content/news/brompton-reels-impact-brexit-and-covid-282435
https://abcnews.go.com/Business/wireStory/british-bike-maker-pedals-brexit-deal-air-74427834
https://www.grandviewresearch.com/industry-analysis/folding-bicycle-market
https://www.tutor2u.net/business/blog/market-in-focus-folding-bicycles
https://www.toptal.com/finance/pricing-consultants/price-elasticity-of-demand

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Brompton Bicycles

To determine whether Brompton should reduce

Price Elasticity of Demand

The company experiences an average annual growth of 20%.

1. Elastic: Demand changes greatly in response to a price change

What we know about Brompton's Demand:

Brompton's bikes are considered a luxury item associated with

To some extent, Brompton is in a league of its own where the law

1. Positive: Demand rises in response to an increase in income

What we know about Brompton's Demand:

Despite the recession, 'credit crunch', and the pandemic, which

When it comes to a fall in income, the IED comes closest to zero.

Brompton's bikes is likely positive as demand is growing.

On home ground, the prospects of country’s economic future

Brompton would be at a better price point to compete with Chinese makers

If Brompton Prices Remain the Same in the UK

A reduction in price to combat the impact of Brexit is not needed because:

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