If you live in Rotherham, the euro will be nothing new to you. For unfathomable reasons, this is the town chosen by the UK Government to test acceptance of the new single European currency. While this is a worthy exercise in helping to learn how consumers will deal with parallel currencies, one key element is missing.
Marketers have not been involved in offering euro versus sterling pricing strategies. That means commercial interests will still not know if there are any obstacles to selling their products and services in the new currency.
On the continent, of course, consumers have been dealing in both their domestic and the trans-national cash for the past two weeks. In the UK, it is still not clear how long it will be before we adopt the euro. This may well be good news for many companies – according to one survey, just 11 per cent were aware of the euro’s introduction and only five per cent have made preparations.
For some companies, however, preparing marketing campaigns in multiple currencies is nothing new, and all the euro will add is another tick box to the order form.
Simon Burrell, marketing manager at Newsweek International, says: “On the subscriptions side, we will still offer it in the local currency, but there will be a box people can tick if they wish to pay in euros. We are giving them the provision to pay that way if they want to.”
This has required the company to put in place the mechanisms to bank euro payments and convert them into dollars, in which its internal accounts are conducted. The cover price will continue to be printed in both sterling and local currencies. Burrell says that, “it will be interesting to see how many markets want to pay in euros”.
If the new currency is having such a low impact on highly active trans-national direct marketing, it is not surprising that many direct marketers are getting agitated.
“The problem is most UK businesses, including those in the DM sector, probably feel that because we are not joining, it will have no impact,” agrees Richard Marshall, business development director at TMW, and chairman of InterDirect, the European network of independent DM agencies.
However, he points to three key areas in which the euro will affect marketing.
Firstly, countries in the euro zone will not have to worry about exchanging currencies when trading with each other, so reducing their business costs.
Secondly, the removal of exchange rates means companies outside the zone buying services from inside it will be forced to take a risk on currency fluctuations. Marketing agencies have extensive supply bases within the European Union – many DM agencies buy print from EU countries. This may give rise to a triple exchange swap – from the local European currency into the euro then into sterling.
But for DM agencies, there is a third major impact. “The single currency will make price differences in different countries in the euro zone more obvious. On the other hand, companies buying from the euro zone will be able to compare prices more easily. The bottom line is that, whether we are buying or selling direct marketing services, in the UK we will need to be ready to deal in euros,” says Marshall.
This is most likely to be the case with multinational clients, which will have switched internally to accounting in euros. The potential effect of price differences between local currencies and euros could be significant, especially with the rise of electronic information services. When The Gap entered the UK, it simply put pound signs in front of its dollar prices and rubbed its hands at the margin. The Internet has allowed consumers to find out for themselves if they are being overcharged, whether it is for Levi’s jeans, Ford cars or Sony CDs.
Despite this pressure, marketers will not find it easy to devise strategies to take the euro into account. “I don’t think anybody should attempt a price promotion across Europe until the euro is fully established,” says Simon Mahoney, managing director of SMP and president of the Institute of Sales Promotion. “Those are very rare anyway, but I wouldn’t want to attempt to try one because you wouldn’t be able to budget for it.”
His own agency buys print work in Germany and expects to be billed in euros during the next year. For consumers, the growth of digital TV and the Internet will expand the opportunities to use the euro. Mahoney believes this benefit will not be apparent until two years’ time.
Despite the ability to use euro cash in the 11 countries which joined up in January, an important barrier to the wider adoption of the currency is payment mechanisms. As Burrell notes: “For cheque payments, you will need to have a euro cheque account. Many consumers may not have that.”
Even before the euro’s introduction, many direct marketing campaigns used credit card payments as a way of getting round such problems. But having taken payment in a local currency, they had to consolidate all of those bills with a local bank, then have the funds converted into their home currency. That meant putting agreements in place with separate banks in every country in which the client has been trading.
Another important change took place on January 1 which addressed these problems – the relaxation of MasterCard (Europay) and Visa regulations. This meant that a client could work with a single, pan-European card acquirer (technically, a company which processes credit card payments on behalf of clients). NatWest has been quick to spot the benefits this offers to direct marketers and is actively offering tailor-made solutions to centralise and manage multi-currency credit card payment through a single, standardised procedure.
The system had originally been developed to meet the needs of the corporate travel and entertainment market. Hertz calculates that it will save a seven-figure sum by centralising credit card processing into NatWest and will remove another barrier to pan-European direct marketing.
National Geographic Society has already adopted the system, which now allows it to offer membership in local currencies or the euro, while still receiving settlement in sterling.
“In the past, we would offer membership in US dollars only, using our US acquirer. This proved to be a labour-intensive and expensive process,” says Myra McLellan, director of international fulfilment.
It is obviously international companies which have the most to gain from the ability to work with a single currency. Many have already made the switch into euros as a result. Lifestyle data owner Claritas UK has begun reporting in both euros and sterling this year, to stay in line with its parent company VNU, which now reports solely in euros.
VNU is also quoted on the Dutch stock market which, like the one in France, now quotes share prices in euros first.
“That is one of the things we believe will accelerate implementation of the euro,” says Mark Patron, managing director of Claritas. However, he adds that, “at this stage, we are not trying to offer UK clients payment in euros as there is no real demand”.
Patron’s major concern is about the commercial implications of the UK not entering the euro zone, as opposed to the marketing issues. In particular, he sees UK businesses suffering an unequal burden.
“The biggest economic effect is interest rates. The gap between UK and German long-term interest rates is three per cent. That means UK businesses are paying more for access to money than their European colleagues,” he says.
Claritas UK has not raised any capital in the British market for the past four years in consequence, preferring to borrow in Europe through VNU.
Unlike most of the micro factors which marketers have power over, such as price, promotion, or advertising support, the euro is beyond their control. Yet its impact on their business is pervasive, as there are few companies which do not buy some products or services abroad.
“I believe that transparency of pricing will be the most influential effect of the euro,” says Sue Whitmore, international director of the Mailcom Group. “At present the marketer needs to calculate whether the postage cost in deutschmarks is cheaper than in francs when expressed in British pence. Once the euro is here, there will be a single comparable table, and there will be no hiding place, especially for high-volume, small value products such as stamps.”
At the moment, predicting the postage cost of an international direct mail campaign is difficult. Not just because of currency differences. A new cost-based structure for postal charges between countries, called the Reims agreement, also came into force on January 1.
This ensures the internal cost of delivering mail relates to what is charged externally. But the Netherlands and Sweden have not signed up to it.
Progressively, many of the former barriers to pan-European DM are falling. There is even the promise of harmonisation of sales promotion regulations, which are a major thorn in the marketing industry’s side.
Certainly there will be important benefits when undertaking cross-border activity in being able to offer a single currency price and payment method. Increasingly, one of the questions which multinational clients will be asking their DM agencies is, “do you euro?”