On 23rd June 2016, 17.4 million people in the UK voted to leave the European Union, igniting the Brexit debate and speculation on what happens next. With this in mind, what are the potential implications for tech brands?
With the immediate weakening of the pound to US dollar exchange rate, it has and will continue to have an impact on components that comprise end products, at the detriment of all consumers. Brands including Dell, HP, Cisco and Lenovo have informed their channel partners to expect blanket price increases, including 10 per cent for Dell and HP, and a rumoured 14 per cent from Cisco.
Price increases will impact on what is an increasingly tough market, but to what extent? This is perhaps only the beginning. However, irrespective of the speculation, one thing for certain is that any price increases will certainly not be absorbed by resellers, and will instead be passed onto end users.
Since the Consumer Price Index recorded pre Brexit at -1 to a post Brexit drop of -9, it is clear that Brexit will make trading not only difficult in bricks and mortar retailers, but also a challenge for the entire channel.
The outlook for brands means that it will become harder to sell products at a price which consumers are accustomed to. The harsh reality of Brexit is that consumers will begin to feel the impact on the pound in their pockets.
Compared to other markets where it is likely tech products will be considerably less expensive in relative terms, Brexit will make the UK a challenging market to manage for brands. When John Lewis boss Andy Street states that although changes in Sterling won’t impact prices for this financial year, but that it may next year, it’s pretty much a certainty that it will happen. This is a move that many others retailers will follow in an acceptable, stealth-like manner.
It’s not just about the exchange rate affecting components either – as fuel costs increase, so does the cost of transportation, which in any event will impact pricing further. This could, in particular, affect retailers with an Omnichannel approach and online resellers which will look to recoup delivery charges. As such, the outlook for the channel and consumers is tough.
One thing is definite, the average price index for Tech and CE products will increase, creating a new challenge for sales and marketing teams. Maintaining market share, encouraging end users to refresh products in line with trends and not extending the product lifecycle delaying possible upgrades, will all be a priority.
With margins so tight and the fight for market share getting fierce, the focus on marketing teams to deliver clear strategies which explain these blanket increases and seek to assure end users that there will be no impact on build quality and more importantly innovation, is essential.
It’s inevitable that when you ask consumers to pay more money for your products, the balancing act is meeting the expectations of end users demanding value for money from these same products and ultimately your brand.
Effective use of existing marketing budgets at the point of purchase could be the tool that bridges the price gap to maintain consumer confidence, profitability and market share.