Molto Delizioso: Pricing and Profits Following Brexit Devaluation
(3 pages of text)
When the June 2016 referendum on the United Kingdom’s withdrawal from the European Union, or Brexit, resulted in a vote to leave, the managing director of the U.K. subsidiary of Italian coffee-machine maker Molto Delizioso, SRL, faced a scenario that affected many international firms and their subsidiaries. The U.K. subsidiary imported and paid for coffee machines in euros, but when it sold these items in the United Kingdom, the revenue earned was in pounds. The devaluation of the pound after the Brexit vote affected both the company’s revenues and costs and, therefore, its profits.
Molto Delizioso’s managing director had to decide what to do about pricing after the devaluation of the pound caused an increase in the cost of importing his gourmet coffee machines. If he kept prices the same, profits would go down significantly. Should he raise the prices he charged to the customer? And if so, by how much?
The concepts and calculations in this case are accessible to MBA and undergraduate students. This case is suitable for use in any international business, global strategy, corporate finance, marketing, or supply chain course.
The effect of currency shifts on international firms and the world economy is profound. A devaluation or revaluation triggers decisions where managers need to integrate some basic business concepts from marketing (pricing), finance, economics, and sourcing. After working through the case and assignment questions, students will be able to do the following:
- Understand the effects of an exchange rate shift on the income statement and bottom-line profits.
- Decide whether or not to change the price per unit following an exchange rate shift.
- Understand the concept of price elasticity.
- Outline the problem facing importers if their currency is devalued.
, pricing of imports
, income statement
, economic exposure
, price elasticity of demand
, global strategy
, marketing and supply chain
, European referendum 2016
Italy; United Kingdom, Medium, 2016
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