1) 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.

Please provide me with the necessary graphs explaining the question above.

2) How do you think the weakening of the British pound in 2020 affected Brompton's production costs and revenues? What profit maximizing strategies would you recommend if sterling continues to weaken?

Please provide me with a presentation explaining the question 2.

Here below is the case study information:

A Wheelie Unique Company

Brompton Bicycles ("Brompton") is a quintessentially British firm. The firm's hero product

is the Bromptona light and durable bicycle that can be folded conveniently and neatly

into the size of a briefcase for easy storage and transportation. Engineer Andrew Ritchie

first developed the revolutionary design (Figure 1) in his South Kensington flat in 1975,

naming the bicycle after the Brompton Oratory which he could see from his window. Full

time production of the bike began under some railway arches in Bollo Lane, Brentford in

1988, and it soon became a cult classic. As demand grew, the company first expanded to

a 22,000 square foot factory in Brentford, and then in 2015, to an 86,000 square foot

facility a short pedal away in Greenford, West London.

It is the enduring popularity of the Brompton bike that has driven the firm's remarkable

growth. The firm even experienced strong growth during and following the late 2000s

"credit crunch" and recession: average annual growth in the period since 2008 has been

a remarkable 20 per cent. The company sold around 45,000 folding bikes in 2015,

generating revenues of some 21 million and a profit of 3.4 million (London StockExchange Group 2015). In 2021, the aim is to produce and sell 100,000 bikes

representing more than a doubling of output in just over five years (Rankin 2015). In

spite of these remarkable figures, the company is still relatively small, employing just 500

members of staff.

A Design Classic in an Expanding Market

The bicycle market is a mature one with a global presence, and of course, bicycles are

popular everywhere and among a wide demographic. The global market for bicycles was

estimated to be worth US$29.2 billion in the year 2020, and is projected to grow by 2.4%

CAGR to 2027. Growth projections differ depending on geographic region, with China

forecast to grow by 4.7% CAGR to 2027, and lower forecasts expected in Germany (1.1%

CAGR), Japan (0.5% CAGR) and Canada (1.8% CAGR) (Global Industry Analysts 2020).

Hybrid bicycles are expected to grow by 3.1% CAGR over the same period, and around

130 million electric bicycles are expected to be sold between 2020 and 2023 (Wagner

2020). Even taking into account the economic impact of the COVID-19 crisis, sales of

road bikes are expected to grow by 1.7% annually (Global Industry Analysts 2020). In

spite of the pandemic, demand for folding bicycles is increasing due to the growth in the

number of people that are opting to use cycling for commuting, including those that use

public transportation for part of the journey, looking to solve the Last Mile Problem.

Folding bikes are enjoying a surge in demand from younger people in some of the

worlds largest urban areas. Brompton's Chief Executive Officer (CEO) Will Butler Adams

remarks, "We've seen this explosion of younger users who care about the environment,

who care about their health, want to have fun, want to personalise...there's been a

tremendous surge in a great range of peoplearchitects, designerswho sort of get

what we want to achieve. So there's been a real shift." (Stolarz 2009). Over the past

decade, the average age of the rider of a folding bike has dropped from over 50 to under

40 (Technavio 2019). The growth in the younger population in many of the world's

regions, especially in the developing world, coupled with considerable traffic congestion

in such areas, is thus a source of globalization of the market.

The Brompton bike folds up to a third of its size, and weighs on average just 11kg (around

24 lbs). Brompton bikes are not just foldablethey are also customizable, and customers

can choose to personalize elements such as the riding position, height and inclusion ofeclectic-assist and mudguards. There are three core products: the popular Brompton, the

Brompton Electric, and the Brompton SuperLight, which is made with titanium and built

for speed. Each bike shares the same fundamental modular design, which has been

virtually unchanged since it was first developed by Andrew Ritchie in the late 1970s. The

core of the bike is a curved frame, which comprises a hinged handlebar stem, a hinged

tube and pivoting fork and rear triangle. The stem and the main tube are made of steel,

while in the SuperLight, the fork and the rear triangle are made of titanium. The

handlebars and auxiliary elements are made of aluminium. An innovative method, known

as brazing, is used to conjoin the key elements. In total, it takes 18 months for a

Brompton brazer to become sufficiently skilled to build the bike, and as a symbol of their

pride, they stamp their initials onto each completed bike. Brompton are so proud of their

production process that their regular factory tours are usually sold out.

In a personal communication, Will Butler Adams stated that the U.K. bicycle sector is

virtually a perfectly competitive market in which all manufacturers are price takers. This

results in retailers making a loss on every bike sold. The folding bike market is a

relatively small subset of that industry, and market forces are different. Key competitors

include Montague, Citizen Bike, Compass and Viking which manufacture folding bikes to

different specifications but also offer standard versions. Of these, the Brompton bike is probably priced the least competitively. The starting price for a custom Brompton bike is

currently 770; an off-the-peg equivalent from Viking is less than 200. However, the cult

appeal of the Brompton bike has enabled it to attract loyal customers and to stave off the

competition. Owners of a Brompton bicycle don't consider themselves as merely owning

a bike, but as having bought into a British design that's both innovative and classic. As a

profile in Bloomberg Businessweek noted, "It's the Brompton-as-religion that

distinguishes the bike from its competitors. There are Brompton clubs in at least 10 cities.

[For instance], in New York, a group of Brompton-owning foodies has organized a

bimonthly event called Brommie Yummie: Ride, fold, eat, unfold, ride." (Greeley 2014).

Going Global

The country-of-origin is an integral aspect of the company's marketing and branding

activities, and is a key driver of the company's success both in its domestic market and

overseas. As an article in Deutsche Welle (Stolarz 2009) notes, "The Brompton bicycle is

admired the world round as a feat of British engineering." According to the company's

marketing materials, "London is a city of icons and a Brompton bike is one of them. Its

unique profile sets it apart from other bikes. A Brompton is as London as a double decker

bus, the London Underground Big Ben and The LondonEyeall innovative, excellent and

enduring." For this reason, it is seen as vital to the company's culture and the reputation

of its products that the bicycle is made in London. This stands in stark contrast to the

strategies employed by many of it European competitors in both the small wheel

segment and the broader market, who import finished products from manufacturers in

China and elsewhere in Asia.

The standard Brompton bike contains 1200 different components, and while 75% of

those are designed and made in the Greenford facility, some of the primary inputs (such

as rubber, steel and titanium) required to build the folding bike must be imported from

overseas markets. Despite this, the CEO has long been clear that production will always

take place in London: "At the moment, people can buy our product, they can try and copy

it but they don't understand the processes, the methodology, the jigs and fixes that we

use to make it...if we would outsource it, we would be giving away our precious

knowledge and suddenly the copies that exist, which are currently terrible, would

become rather better" (Stolarz 2009).

Despite the CEO's assertions, the company has not always taken this strategic approach.

In 1992, Brompton established Neobike International, a joint venture enterprise with the

Taiwanese company Euro Tai SA (Norman 2010). The company's remit was to

manufacture licensed copies of the Brompton bike exclusively for sale in the Japanese

and Far East Asian markets. Brompton provided Neobike with specialist tooling and

design plans to facilitate production in exchange for royalties on sales (Norman 2010).

However, after the expiry of the agreement, Neobike refused to return the specialist tools

to Brompton and began to sell unlicensed copies of the bike in a number of European

markets. A resulting litigation case brought by Brompton resulted in the decision by the

courts that Neobike had indeed infringed copyright.

The consequence of the firm's British-centric attitudes and its negative experience with

the joint venture agreement is that only around 25% of Brompton Bicycles' componentry

is sourced from overseas.

At the other end of the value chain, the vast majority of Brompton's sales are outside of

the U.K., prompting the Queen to award the company an Award for International Trade in

2010. Although the company operates 14 overseas retail stores ("Brompton 3 Junction") in

commuter cities such as Milan, Melbourne, Singapore, Tokyo, and New York, it relies on

its vast network of licensed dealers to help reach its target sales. 1450 dealers are

supplied with a demonstration bike, and licensed to place customized orders on behalf of

customers through an online tool. Dealers also help customers with maintenance,

servicing and upgrades, giving them the opportunity to access the London-based

company in their own towns. Today, Brompton bicycles are sold in 47 markets across the

world.

Pedaling Towards the Future

On January 1st 2021, the United Kingdom officially left membership of the 27-nation bloc

of the European Union ("Brexit"). In June 2016, when the U.K. first voted to leave the

European Union, the pound plunged against the euro and the dollar, and it has been

volatile ever since (Figure 3). Bleak prospects for the country's economic future have

been compounded by the COVID-19 pandemic as well as uncertainty surrounding Brexit.

Nevertheless, Brompton has weathered many previous recessions, and is planning to

hire 200 additional members of staff in the coming months, and to push sales in

bicycle-loving Germany (Lawless 2020).

Nevertheless, Butler-Adams expressed concern that one of the U.K. governments first

post-Brexit policies will involve the abolishment of an E.U. anti-dumping tariff of 48.5%

imposed on Chinese imported bicycles. Brompton believes that removal of the tax will

lead to the U.K. market being flooded with cheap bikes subsidized by the Chinese

government. "We can't compete. That is not a level playing field," Butler-Adams told ABC

News. For their part, the British government said it had consulted with bike-makers like

Brompton, but believe removing the tariff is important to keep prices low for consumers.

"We recognize the challenges that the industry faces, however British consumers will

bear the brunt of higher prices if anti-dumping measures were retained or carried across

from the E.U.," it said in a statement in December.

Ultimately, in January 2021, the UK's Department for International Trade confirmed that it

would keep EU anti-dumping regulation on bicycles from China and elsewhere, but that

at some point in the future, the measures would be reviewed, and potentially dropped

(MacMichael 2021).