From what I have gathered, EU's strategy with Brexit has been pretty straightforward: do not even try to impose any further "penalties" on UK on top of what is already taking place without assistance. Just stay put.
The EU can't be seen to dictate internal UK matters - that would only create further animosity (if such a thing is possible, given the rabid UK press). Instead, let the UK repeatedly shoot themselves in the head while going through their cooked-up contortions.
There will be no better deterrent for others in the EU27 than observing Brexit from a relatively safe distance. "Leave, and that will be you. We don't even need to do anything."
And as for watching Brexit unfold at a close distance? It's like looking at a sword swallower trying out a new trick. With a chainsaw.
For me, watching Brexit from a distance is more akin to seeing people not wanting to leave the Titanic pushed into the lifeboats, dropping from the main deck: sure it's ugly, but wait for the iceberg, and see who are the smart guys afterwards.
That's why "Brexit" is taking almost 3 years now and still there is no ultimate progress. Other countries will surely be interested in how this experiment turns out before doing the same..