Continental Shift

From January, 11 European countries, the founder members of EMU, will share a new common currency – the euro.

The UK has decided to stand on the sideline which means that while much of the debate in the UK has focused on economic issues, little has been written about the profound impact EMU and the euro will have on the way companies in the UK market themselves and their products.

What is emerging is a sense that companies are ignoring the possible impact, or at best, trying to ensure that they do not make mistakes, rather than grasping the opportunities.

The President of the Board of Trade, Margaret Beckett, last week warned businesses not to be complacent: “Many companies believe that because the UK is not joining in this first wave, they do not need to take any action. They are wrong. The euro zone will account for nearly half of British exports and over 40 per cent of British overseas direct investment. So even though we are not in the first wave, our businesses will be affected and must be prepared to address the changes which EMU will bring.”

As the euro will have different effects on different companies, confusion surrounds its full impact but it is possible to identify some areas where it will bring change. For one, the euro will increase price transparency, but this is not an issue for every company – consumers are unlikely to cross borders to get a cheaper ice cream. Even so price points will have to be re-assessed (a 29.99 toaster becomes a not very round 44 euros 21 cents) and marketers will have to decide whether to adjust up or down.

More worryingly new research claims that companies are focusing on the short-term mechanics of how to introduce the euro rather than identifying strategic opportunities.

Graeme Leach, associate director at The Henley Centre, says: “Some companies are thinking that EMU is a bit like decimalisation, it’s a one-off thing and once you’re there there’s a bit of adjustment to be made. Actually, there is much more than this. The underlying aim is to bring about political union and this has huge implications for national identities and, as a result, corporate identities.”

This view is echoed in a survey, commissioned by Cap Gemini through RS Consulting, called EMU: Threat or Opportunity? It suggests that companies are more concerned about avoiding errors than gaining any competitive advantage the euro might bring.

“People are more concerned about not screwing up and are not seeing the euro as a positive marketing opportunity,” says Nick Gill, international retail director at Cap Gemini. “They stand at the sharp end of customers’ potential annoyance and confusion about the euro, but they are looking in the main merely at matching existing competitors rather than achieving a safe passage without any mishaps.”

In theory, the creation of a single currency should make prices across Europe more competitive. After January 1 1999, while there will be no euro coins in people’s pockets – they won’t arrive until 2002 – the euro itself will offer a more straightforward price comparison for UK consumers. Eleven different currencies locked into one will be more easily comparable and the euro is more likely to replace the US dollar as a point of reference on prices.

This will be most obvious in places like Bureau de Changes but the consumer’s ability to pick and choose between widely varying markets is not as practical as it seems. Transparency of pricing for low-cost, high volume items produced, for example, by packaged goods companies are unlikely to have much of an impact because customers are unlikely to move across borders for small ticket items.

However, for big ticket products such as white and brown goods, price transparency is more likely to be a factor. Paul Smith , euro project manager at Marks & Spencer, says: “Price differentials are likely to remain because employment costs and tax rates are different.

“Larger items such as brown and white goods and possibly furniture may be affected but if you are a retailer in food shopping it is very local and usually we are talking about ten minute travel time. On larger items there are other things to consider than just the price – for example, whether the servicing and replacement will be as good in the home market,” says Smith.

With the easier point of reference that the euro will bring, companies such as car makers are likely to come under greater scrutiny. Analyst David Cryer, EMU consultant at management consultant KPMG, warns that consumers may become cynical about companies blurring the issue. “Car manufacturers may use the local tailoring of products to the market to justify price differentials.”

Car maker Toyota, which questioned the last Government’s euro scepticism, maintains that the arrival of more transparent pricing is not relevant to its business. “In general it is not an issue because you are not comparing like with like,” says Toyota spokesman Scott Brownlee. “In Britain there may be a requirement for a sunroof, whereas elsewhere this is not terribly important. What it is about is an education process – people are saying that here are cars that appear to be the same but they are not.”

Observers are predicting an increase in Internet or mail order selling as a consequence of the arrival of the euro. The theory being that it will be much easier for mail order companies to send a single catalogue to capitalise on new markets once the currency is set.

The Cap Gemini research also identifies the emergence of a new consumer – young individuals with substantial disposable income who are well used to travelling in Europe, and who are expected to actively seek companies with euro-friendly systems and policies.

Colin Stringer, director of Cap Gemini’s training and consultancy unit euroTransformation, says: “Individuals may like to be seen to be using the euro or having a euro bank account because its trendy. While this is a niche market, it’s an important niche because this group is both a heavy spending and a trend-setting one.”

It is a view supported by The Henley Centre’s Leach. “There is a lot of focus on what I call level one marketing issues such as price transparency, price points and the operational issues. However, what companies should really be looking at is the impact of the euro on brand identity. The question is do companies have to Europeanise what they offer in terms of a corporate brand idea? This is where companies could be missing out.”

This highlights the broader issue of whether the advent of a single currency will accelerate a trend toward a closer European identity.

It is a view disputed by Bernard Barnett, director of corporate affairs at international ad agency Young & Rubicam Europe.

He says: “Any advertising for any product has to be relevant to a Europe-wide idea and as far as consumers are concerned they couldn’t give a stuff (about a European identity). They are more concerned with what is going on in their own back yard. People buy Swiss watches because they are made in Switzerland not because they are made in Europe.”

Even the euro may not be enough to convince people to buy “European”, as opposed to Swiss or German, watches but its impact in mainstream markets could be more direct.