Economics Case Study
Scenario: You have been hired as a pricing consultant to Brompton Bicycles and are
presenting to members of Brompton's management. Following Brexit, in 2021 and
beyond, what should Brompton's pricing strategy be for its core products?
Analyze the factors of demand and supply and the factors of price elasticity of demand,
and conclude whether Brompton should increase, decrease or leave price unchanged.
Support your pricing recommendation using theory, case study materials, and research.
You can use the theory of elasticity to determine if demand is elastic or inelastic—focus
on the factors of elasticity and how they apply to Brompton. You are NOT expected to
calculate PED or use data in your analysis.
Referencing. If you use specific information you must provide a link that can be
accessed.
Criteria
● Provides thorough, well-reasoned, and highly persuasive answers to
the case study questions.
● Organizes response within a clear, logical, and compelling structure.
● Supports answers with numerous pieces of evidence and specific
examples from the case study materials.
● Skillfully applies relevant economic theory and concepts to the
analysis of case study materials.
● The presentation is between 5–10 minutes.
● The reference list is comprehensive and includes high-quality sources.
Page 1
Background Information
Brompton Bicycles
Brompton Bicycles (“Brompton”) is a
quintessentially British firm. The firm’s
hero product is the Brompton—a 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%. The
company sold around 45,000 folding bikes in 2015, generating revenues of £21 million and a
profit of £3.4 million (London Stock Exchange 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). Despite 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 in 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
Page 2
Analysts 2020). Despite 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 world's 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
people—architects, designers—who 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 foldable—they are also customizable, and customers can choose to
personalize elements such as the riding position, height and inclusion of electric-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 aluminum. 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 is so proud of its production process
that its 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 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
Page 3
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
LondonEye—all 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 its 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 better2” (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 several
European markets. A resulting litigation case brought by Brompton resulted in the decision by the
courts that Neobike had indeed infringed Brompton’s intellectual property rights. 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 2010.3 Although
the company operates 14 overseas retail stores (“Brompton Junction”) in commuter cities such as
Page 4
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, allowing them to access the
London-based company in their towns. Today, Brompton bicycles are sold in 47 markets across
the world.
Pedalling into 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. government's 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 the 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 regulations on
bicycles from China and elsewhere, but that at some point in the future, the measures would be
reviewed, and potentially dropped (MacMichael 2021).
Page 5
Figure 1: The Brompton Bike
Source: Brompton Bicycles. Retrieved from https://www.brompton.com/bikes/build-quality
Figure 2: The Patent for the Brompton Bike
Source: Patent EP0026800. Retrieved from https://patents.google.com/patent/EP0026800A1/tr
Page 6
Figure 3: Euro to British Pound, 2016-2020
Source:
Macrotrends. Retrieved from
https://www.macrotrends.net/2553/euro-british-pound-exchange-rate-historical-chart
References:
Brompton Bicycles. 2020. “How a Brompton is made.” Accessed March 20, 2021. https://www.brompton.com/bikes/build-quality.
DEA Global. 2011. “Case Study Brompton Bicycle – London. Automated inspection for the commuter’s choice in personal transport.”
Accessed March 20, 2021.
https://www.hexagonmi.com/-/media/Hexagon%20MI%20Legacy/hxmt/DEA/general/case%20studies/CS_Brompton_Bicycle_London_en.
ashx. Global Industry Analysts. 2020. “Global
Folding Bikes Industry.” Accessed March 20, 2021. https://www.reportlinker.com/p05900626/Global-Folding-Bikes-Industry.html.Greeley,
B. 2014. “The Cult of Brompton Folding Bikes.” Bloomberg Businessweek, April 3,
2014.http://www.bloomberg.com/news/articles/2014-04-03/the-cult-of-brompton-folding-bikes.
Lawless, J. 2020. “British bike maker pedals on, with Brexit deal up in the air.” The Associated Press, November 27
2020.https://apnews.com/article/brexit-global-trade-coronavirus-pandemic-london-china-25ab 08a597a834ca2bd395f0863b55a2.London
Stock Exchange Group. 2015. “Brompton.” 1000 Companies to Inspire 2015. Accessed March 20, 2020.
https://www.lseg.com/resources/1000-companies-inspire-britain/2015/manufacturing-engi neering/brompton.
MacMichael, S. 2021. “UK officially confirms it is keeping EU anti-dumping measures on bikes from China... for now at least”Accessed 1
April 2021.https://road.cc/content/news/uk-confirms-keeping-anti-dumping-rules-bikes-china-27982 9.
Macrotrends. 2021. “Euro British Pound Exchange Rate (EUR GBP) - Historical Chart.” Accessed March 20,
2021.https://www.macrotrends.net/2553/euro-british-pound-exchange-rate-historical-chart.Mintel. 2020. “Hold onto your saddle: UK bike
sales set to top £1 billion by 2023.” Mintel Blog, June 19,
2020.https://www.mintel.com/press-centre/leisure/hold-onto-your-saddle-uk-bike-sales-set-to-t op-1-billion-by-2023.Norman, J. 2010.
“Brompton Wins IP Case.” Bicycle Retailer, June 23, 2010.
https://www.bicycleretailer.com/north-america/2010/06/23/brompton-wins-ip-case.Rankin, J. 2015. “Brompton Bicycle gears up for growth
with bigger factory.” The Guardian, August 17, 2015.
https://www.theguardian.com/business/2015/aug/17/brompton-bicycle-factory-expansion.Stolarz, S. 2009. “Brompton Bicycles: No danger
of folding.” Deutsche Welle, December 25, 2009. https://www.dw.com/en/brompton-bicycles-no-danger-of-folding/a-5029879.Technavio.
2019. “Global Folding Electric Bicycle Market 2019-2023.” Accessed March 20,
2021.https://www.technavio.com/report/global-folding-electric-bicycle-market-industry-analysis. Wagner, I. 2020 “Size of the global market
for electric bicycles in 2019 and 2023.”Statista, September 10,
2020.https://www.statista.com/statistics/674381/size-global-market-electric-bicycles/.
Page 7