Why The Toy Industry Needs The €uro
The ongoing financial crisis in Greece has highlighted rather painfully the challenge of trying to have monetary union without full political union. More qualified macro financial commentators than me can inform you more about that, but this ongoing Greek drama has the potential to cause serious financial shockwaves.
However, I thought it worth remembering what it was like for toy companies before we had the €uro. Because it was frankly a real pain! I remember the grinding tedium and stress of trying to align list prices on a pan-European basis. There is after all no single factor more likely to kill a great product or even an average one than pricing which is out of kilter with the market. If you’re considerably more expensive than a directly comparable competitor product then forget it!
Back in the day (prior to the introduction of the €uro we had to use a complicated spreadsheet to work through translation variations in order to get pricing which worked for the £GBP, the Deutschmark, the Franc, Peseta and Lira…The phrase ‘herding cats’ seems to best describe the process of trying to get the right answer out of the spreadsheet for each major market in Europe, because no sooner had you set the list pricing for two or three markets, then you found one had slipped out of acceptable variance…aaargh! And god help you if you didn’t find the right formula, because the implications were very serious for the market you got wrong, with huge potential for ruinous cross border shipping.
And by the way, if that wasn’t stressful/contentious enough, don’t forget exchange rate variations, because all of those separate currencies had their own comparative value drivers i.e. different interest rates, inflation rates etc. So you could set pricing and think you had done it for the year, but several months later the exchange rates could be very different, and customers who thought they were set to buy at acceptable pricing might suddenly find that not to be the case.
Finally, the additional complication was that I only mentioned 5 European currencies above, but the €uro replaced 22 national currencies, so while the only way to sanely manage list pricing on a pan European basis was to focus on the major markets, and leave the rest to worry about later, there was an inherent stress point in doing this, because you still had those other currencies many of which were bound to end up wrong.
To put this in a modern context, those companies trying to sell into Europe on a $USD FOB basis in 2015 will most probably have encountered some challenges as the €uro has plummeted against the $USD (primarily due to the Greek crisis and threat of further issues from heavily debt laden €urozone countries). So pricing which looked good last year looks horrible for European companies buying in $USD in 2015. While this is a serious challenge for most (and a considerable opportunity for anyone manufacturing in Europe and selling in €uros), imagine if that was an ongoing problem, multiplied by many currencies – pure chaos!
So I for one am very much looking forward to seeing this crisis resolved in the best interests of all so that the €uro can move forward and continue to simplify things for the toy industry, because the alternative really doesn’t bear thinking about!
P.S. On a separate point, entry to The Toy Verdict Awards 2015 is now open, for more details or to enter, just go to http://www.thetoyverdict.com/the-toy-verdict-awards/
by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com, a leading Consultancy to toy, game and kids entertainment companies around the world, which helps companies find the right toy & game factories, consumer research test their products with kids and parents and secure export distribution/market entry around the world.