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Who can hold out against price rises?

Moves announced by Microsoft to increase prices are perhaps inevitable concludes Billy MacInnes as he casts his eye over the post Brexit landscape

The consequences of the heavy fall in value of UK sterling against the dollar and the euro since the vote for Brexit are starting to become clear. In the short term, a number of US vendors that trade in dollars had opted to leave their UK pricing unchanged, possibly cushioned by the effects of currency hedging.

 

But that could only last for so long. We have now reached the point where those vendors that chose not to impose rises are having to follow the likes of Dell Technologies and HP and hike their prices.

 

The Brexit vote left US vendors with a difficult choice: raise their UK prices and dent sales in one of their biggest markets on this side of the Atlantic or leave them unchanged and cause problems with other European markets where partners and customers would, effectively, be paying around 20% more for products than their UK counterparts.

 

The most high profile refuseniks in terms of UK price rises were Apple and Microsoft. Until now.

 

Microsoft has just announced price hikes of up to 22% in the UK to take account of sterling’s slump against the euro (and dollar) since the Brexit vote. Apple is widely tipped to follow suit imminently.

 

It’s quite possible some vendors were holding back on price increases to see if there was any prospect of sterling reviving, perhaps on the back of the UK government signalling a level of compromise over its plans to leave the EU that would lead to a ‘soft’ Brexit. If so, they have been sorely disappointed. The strident rhetoric from the UK government in recent weeks has increased fears of a “hard” Brexit (or “stupid” Brexit as Lord Hill dubbed it), reinforcing expectations that sterling can expect a concerted period of turmoil.

 

This put companies like Apple and Microsoft in an invidious position. If they chose to sustain their UK pricing levels, it opened up the prospect of a grey market between the UK and European countries as businesses sought to exploit the generosity of US vendors to UK customers. They would end up significantly out of pocket because European customers would be buying product at close to 20% less than if they purchased it in their home countries.

 

As an example, an entry-level Apple iMac which costs £899 in the UK, retails for €1299 in Ireland. With sterling at around €1.12 or so, the euro price for the UK iMac is 20% cheaper than it is in Ireland. Similarly, an entry-level MacBook costs £1049 in the UK, compared to €1499 in Ireland. Again, that’s a difference of almost 20%.

 

If the likes of Apple and Microsoft tried to prevent European partners and customers from purchasing product from the UK, the clamour would grow to reduce European pricing to comparative levels or increase UK pricing to match those in the rest of Europe. No prizes for guessing which path they would be forced to take.

 

Also, if they had decided to keep UK prices unchanged, they would be taking a 17% hit on each UK sale compared to the start of 2016 in sterling v dollar terms.

 

From a channel perspective, UK partners have enjoyed a short period of low prices and, in the case of Microsoft, they have until January to handle the rush as customers seek to seal deals before the higher prices take effect. Customers with existing licensing deals that include price protection will also be spurred to try and take advantage of the lower prices before they are moved on to the higher pricing rate.

 

The hangover will hit after. But with the government set to invoke Article 50 by the end of March next year and trigger the UK’s exit negotiations, the next question will be: how long will it last?

This was last published in October 2016

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