5. Certain policies of the government that might affect the economy and hence, the market or industry under consideration.
One reason why it becomes very important to consider GDP in case of UK is that UK is a developed country. The infrastructure and the high end technology available in UK come at a higher cost than that in the developing countries. The expenditure increases due to non-availability of cheap labor. Thus, to support the ‘relatively’ high manufacturing costs, the GDP should be ‘relatively’ higher so that the profit is not affected. The GDP of UK was severely affected by recession. Though a lot of newspapers reported the rise in GDP by more than 0.4% in the fourth quarter last year, the GDP had dipped by 6% during recession (The Herald 2010). Does that mean that the spending has declined? Not much. The savings ratio has been declining along with the decline in GDP (guardian.co.uk 2010). Hence, the spending of citizens of UK has not been affected much.
But another factor to worry about is the increase in VAT (Value Added Tax). To reduce the fiscal deficit, which went up during recession, the UK government has increased Value Added Tax from 15% to 17.5% (Dalong 2009). All confectionery items are VAT-able items. The cost of chocolates will increase. But how much will this affect the consumption of chocolates? To gain popularity in the UK confectionery market, it would be sensible to sell chocolates at a lower profit margin rather than increasing the prices because of the increase in VAT. ‘Cadbury’s’, which enjoyed a share of more than 30% of the UK confectionery market until last year, made the mistake of increasing the price of its ‘Dairy Milk’ bars. This led to a drop in the consumption of Cadbury’s products and their market shares dropped. Thus, it would be sensible to sell chocolates at lower price until the brand gains popularity and recognition and until UK completely recovers from recession (tutor2u 2009).