The ‘Brexit Effect’ on Technology Prices – What does this mean for UK Businesses and Organisations?
Although, we still have to wait for the Brexit plans and our negotiations to be debated and clarified in Parliament, it can’t have escaped you that the summer’s referendum ‘Brexit’ vote is already having an upward effect on many prices.
Whether it’s Unilever’s uplift in the price of Marmite or Nestle considering the price of KitKats, it’s certainly affecting the UK Tech market too. Stories are not only dominating the IT press but also mainstream channels as so many well-known Tech companies have now announced significant price hikes ahead!
As a result of the heavy drop in value of UK sterling versus the euro and the dollar since the referendum vote, some big name vendors such as Dell and HP were first to make those “upward adjustments”. In the short term, other US vendors who trade in dollars had perhaps waited to see if the level of the pound would revive or because they had protected their level of pricing through forward currency hedging. Yet even they have now run out of options and are passing on the effects of these currency differences to us all.
Is this just jumping on a band-wagon or are there strategic and necessary reasons for it?
Well, currency hedges could only last for so long. Those vendors such as Apple that opted not to hike prices are having to follow Dell and HP and have lifted prices by around 20%. The currency drop for sterling was certainly one big part of it but the overall effect would also mean that in other markets in Europe, partners and end customers could be paying effectively 20% more for the same products than their counterparts in the UK. Great for the UK you might think but this sort of imbalance between European countries and their near neighbour in the UK could well have opened up a grey market as European customers sought to exploit the ‘savings’ available via the UK’s near 20% beneficial pricing.
If these vendors tried to stop European customers from purchasing their products and services from the UK, the Europeans would demand a hefty reduction in European prices to match UK price levels – or an increase in UK pricing to re-balance with the rest of Europe. A tough choice? Take a hit against prices across all European markets or impose a sharp increase in one? Generous they are not. Cynical the UK market is.
As well as Apple, one of the later high profile companies to announce substantial UK price rises was Microsoft. Until now. Microsoft has just announced price hikes of up to 22% in the UK to take account of the pound’s slump against the euro (and dollar) since the Brexit vote. This was not only covered by the UK IT Press but also hit most of the mainstream press and news channels especially as so many businesses have turned to cloud services such as Microsoft Office 365.
So from a business perspective, any users who pay for subscription services for Office 365, for system protection software or for other monthly services can expect price rises to take effect from January 2017. We’ll certainly have to pass on these direct costs and will be contacting clients to alert them to adjust relevant parts of their budgets.
For those looking to refresh their hardware or systems, some of those sizeable price hikes have already taken effect so the likes of new servers, PCs and Laptops will already cost more. Even after one hike back in the summer, some Technology manufacturers are already warning of additional rises as the pound falls further and uncertainty sets in. Given that so many Tech vendors are US-based or dollar-based, we can only expect the whole market to follow suit. Some customers may be able to fix in current prices by bringing forward purchasing decisions prior to the end of 2016 for applications and software licensing that offers a 12-month or longer licence term. Those businesses and organisations who have been holding cash for a rainy day may well be advised to invest it sooner rather than later before products they need are moved on to a higher pricing rate. And for those less cash-rich who need to invest, the option of leasing equipment, software and services over 3 years or more perhaps becomes much more attractive.
Unless of course, you believe those prices will come back down again. So the final question is perhaps, if the pound’s value rises again, will these vendors pass on the savings back to the UK market or will they instead enjoy the extra profits? Not sure that needs an answer!
If you have any questions or comments on these events in the UK technology market and its effect on your business or organisation, then don’t hesitate to get in touch on 0131 603 7910.
Image source: Freerange Stock