Euro Marketing
All under Control
Or is it? Most marketers are blasé about the launch of the euro on January 1 – but there are still some issues which need attention reports Carol Kennedy
Small earthquake in Chile – not many dead," runs the famously non-eventful headline that generations of trainee journalists have chuckled over.
Within the last two years we have had a striking example of an event which was much-hyped yet passed almost without incident – the Y2K ‘Millennium Bug’. Was it the same for the impact of the single currency, introduced across Euroland in January? Many marketing experts think so.
"It’s a total non-issue and is seen as such by businesses on the continent of Europe," says Tim Ambler, teaching fellow at the London Business School, experienced marketer in industry and author of a book called The Theory of Price. "They fail to understand all the ballyhoo in Britain over the euro."
Even pricing transparency, the single biggest effect likely to emerge from the euro-linked zone, is thought by Ambler and other commentators to have relatively little impact apart, perhaps, from cars and a few other sectors that inspire tabloid campaigns from time to time. Many UK companies are already prepared for doing business in euros: even some retail chains have announced willingness to accept payment in euros within Britain, especially near the Channel ports. As Alec Nacamuli, global payments executive with IBM, observes, pricing your exports in euros within the zone simply means "managing one foreign exchange risk" against sterling as opposed to doing so in several different currencies.
Market segmentation
"Ninety percent of customers are absolutely blind to price differences in other countries, even with the web," says Ambler. "The web is used for information more than for buying and even where it is used for buying, it tends not to be cross-border buying. For example, people in the UK buying books online will buy them from amazon.co.uk rather than the US parent amazon.com."
But he thinks the advent of the euro is going to make market segmentation more challenging. "By and large, marketers don’t particularly like transparency because they like to segment the market." A mature unsophisticated market in Spain, say, is going to be a low-price market, but higher prices might apply to a new entry market in Belgium. "There is nothing immoral in doing that, but the euro is going to make it more difficult." Marketers would, however, appreciate the stability of a single currency. "A lot of the differences between countries have come about because of the occasional devaluations of currencies."
Andrew Ehrenberg, professor of marketing at South Bank University, takes a similar view on price transparency. "People are not terribly price sensitive. There are a lot of other factors such as quality that matter more, and this applies to companies as well as individual customers. It’s well established, although the evidence is not well organised, that the cheapest brand in any business is never the biggest seller.”.
Consumers, he thinks, find it difficult to compare prices when they aren’t spelled out. People in the UK are still hazy about the euro’s value against the pound sterling. But on the whole, he believes that "nothing would change except the labels. There is no need for companies to change their marketing strategy. This event has been known for a long time and companies must have discounted the effect."
Minimal impact
Rory Morgan, global marketing sciences director of Research International, thinks the impact on consumers will be ‘minimal’. His company conducted a survey across several Eurozone countries into the theory that those with large-denomination currencies, such as the Italian lira, would prove price-sensitive when the switch came. They found no evidence at all.
In any case, Morgan notes, with dual pricing having been a feature of Eurozone countries for some time, it is unlikely that there would be consumer resistance on the scale of the switch to decimal currency in Britain in 1971, when retailers and manufacturers were widely suspected of rounding up prices under the cloak of the new system.
Professor Robert Shaw, who runs a marketing research programme at Cranfield School of Management, questions whether marketing has that much impact on pricing decisions, which are often set by financial parameters. Some sectors will be more affected than others, but the impact will be more on distribution and supply chains than end customers, he suggests. "If the price isn’t right, the distribution chain won’t swallow the goods, so they are not on display to the consumer anyway."
Shaw recently addressed 250 car dealers and was made sharply aware that their strategies are "hugely driven" by price; if it wasn’t right they would withdraw their affiliation.
Price also had a "tremendous effect" on the beer market, he adds - something that governments both in the UK and the Eurozone may have to address directly because of the disparate level of duties.
Car industry viewpoint
The Society of Motor Manufacturers and Traders (SMMT), which speaks for the car industry but not for individual manufacturers, has always taken a dug-in view on the furores over high car prices in the UK. "If the pound is strong one can buy anything cheaper abroad," says a spokesman, after citing the usual SMMT arguments about tax and specification differentials. "The internet is a fantastic research tool, but UK consumers are not stupid. People still want to go to a dealer, sit in the car, test-drive it and have a specialist advise them." In 2001, he added, 2.3 million people bought cars through the UK dealership system and there had been no claims from online traders to suggest they had bettered this figure. One internet site, carbusters.com, had gone out of business, he noted with some satisfaction.
Many car companies, of course, already manufacture and market in Eurozone countries and will be unaffected by the switch to the euro. This is also the case for multinationals such as Unilever, whose chairman, Niall Fitzgerald, is a vocal advocate of Britain joining the euro as soon as possible. Many of Unilever’s products are made in mainland Europe and marketed there.
Taking a positive view, IBM’s Nacamuli suggests the change will make the job of UK marketers easier. "The trend is to have ranges of products to sell across as wide a footprint as possible. So you will be able to sell a range of products across a much wider footprint at a uniform price, or by managing one foreign exchange risk instead of several."
He thinks most consumer interest in cheaper buying in Euroland will be in areas where people are accustomed to mail and internet order: non-perishable items for which they are prepared to wait for shipment. The marketing challenge for UK retailers – chains selling cameras and camcorders, for example, which might well be cheaper bought in Germany – would then be one of managing margins.
Practical experience
Ireland has been in the single-currency zone for around two years and its companies have a live, practical perspective on pan-European marketing. The paper and packaging group Jefferson Smurfit is one of Ireland’s biggest companies, with global group sales under management, including its US associate, running at US $20 billion. It operates in every Eurozone country except Greece and has a worldwide workforce of 70,000. Prior to the market’s revaluing of stocks in the global paper and packaging sector in 1995, when past high earnings became seen as unsustainable, it ranked number one in Ireland by market cap, and is now number eight.
Like most Irish businessmen, Dermot Smurfit, vice president with responsibility for the group’s marketing, hopes the UK will join the single currency, though unlike many Irish companies Jefferson Smurfit is not influenced by having the UK as its main customer base. France is its biggest European customer, followed by Germany, Spain, Italy and only then the UK.
Smurfit says the Eurozone is only just in its infancy and it is too early for the group to see any significant difference, but it is looking at two main scenarios for the future.
"First, from a marketing point of view we need significantly greater consistency of product offering across all the countries in which we deal, particularly as our customers become more pan-European. We have to learn how to become more consistent over time in terms of price, service, quality and all the various standards we offer.
Price factor
"Pricing will become more transparent but there are still significant differences in the base costs of doing business in each of the countries we are involved in. Some people tend to confuse price transparency with price equality. Those are two entirely different things. It’s much more complicated than thinking price will be the same everywhere. But one would want to be in a better position to explain any differences in pricing.
"We have different standards today in many of the countries. A corrugated box in Italy is entirely different from one in France, due to differences in the availability of raw materials, and those will continue to exist for a considerable time." Consistency of product, he explains, means boxes being able to perform alike throughout the single market, irrespective of the materials used.
Price is an extremely important factor in the paper and packaging industry, he adds, "But surveys show that price is only one-tenth of the cost of a package. There is much greater saving to be got from looking at the total cost of the value proposition rather than the price of the package. That’s how we tend to steer our clients and we have many successes in taking out cost from our customer base."
Interactive database
"The second marketing tool that we will be using in our Euro-customer offering is what we call the ‘inno-book’ – the world’s first interactive database, offering creative design access to all our 250 plus designers worldwide.
“That means the client can approach any one of our factories anywhere in Euroland and that designer is capable of going into a databank, drawing up the best designs that exist within Smurfit on a pan-European basis and offering the best possible. We are also in the process of developing a suite of design-related tools which will ensure our customers the most optimal packaging solution first time round, every time. All of these are designed to offer the best cost-optimised package rather than necessarily the lowest priced packages."
Web-enabled in the future
At present these tools are available only on the group’s intranet, but Smurfit expects them to be web-enabled within about 18 months. "Then we will be able to design boxes with our customers and their ad agencies wherever they are, without leaving their offices."
The group’s business both inside and outside the Eurozone is affected by currency fluctuations: the last eight months have seen a reduction of about 6% in its US sales of corrugated boxes, due to the strength of the dollar. Conversely sales in the Eurozone have grown by 3.5%, probably due to the euro’s continuing weakness. Dermot Smurfit is not in the least worried by the weak state of the single market currency.
"So long as it doesn’t lead to inflation – and it hasn’t – what’s wrong with a weak currency? It’s good for business. The worst country we deal in today is the UK, where we see manufacturing industry slowly but surely being strangled."
