Are Luxury Watches Worth Their Prices?

[ridnwind]

Not when you can wake up, roll outa bed, click on and order your favorite watch of the day, and have it in your hands seven days later for $300!

Edited June 20, 2006 by ridnwind

[crystalcranium]

It seems that alot of the price paid is for the intangible. Much of these companies stock in trade is the name and what it has come to represent. If you look at what it takes to "manufacture" the image, which includes keeping prices high, then what looks like super inflated prices is more understandable.

While getting into the whole watch thing, I had to abandon some strongly held beliefs which included the idea that prices reflected the worth of the goods ( including all the econ 101 stuff like value added, economies of scale, etc.).

I've come to the conclusion that half of the price issue is keeping out the great unwashed. Even if the item isn't really great, it's percieved worth is greater if it's priced out of reach of 95% of the people. "Sure, it might be crap, but YOU can't afford it, can you" either really pisses people off or makes them go out of their minds aspiring for it because of what it represents.

Years ago, I read in Fourtune magazine that a guy bought a rundown fleabag hotel in New York, did very minor repairs, stocked the place with old rotting European furniture and art, then jacked up the room rates by 1000% and marketed it as "old world elegance". What was a losing property beame one of the hottest destinations virtually overnight.

Bottom line...it will cost you about 50,000usd to join the Patek or VC country club...or you can get the rep. I just love this place.

BTW, you can join the VC club and the PP club for about 10K for an entry level watch.

Are they worth their price? It depends on what price range we're playing in here. When I look at the perfect alignment of hands, perfect print, perfect hour markers, rugged dependability of my Omega SMP Chrono Diver I spent $2500 on, the answer is yes. I have no doubt I have a bulletproof timepiece I can wear for decades. If I look at a $20,000 Patek with Complications in 18K gold that is beautiful but is like wearing a piece of fine crystal on my wrist, I'd have to say no. Personally, I'd be scared to death to wear a collector timepiece even occasionally. That Patek ad where they say "You never really own a Patek Philippe, you just take care of it for the next generation" showing a father and son WORKING ON A MOTORCYCLE ENGINE!!! is one of the dumbest pieces of advertising I've ever seen. That being said, yes I believe the one of a kind, limited editions etc priced from 20K to 500K are worth their price as collectable pieces of art deserving of reverence for the engineering and time put into them, but they are not watches to me, they are pieces of functional mechanical art. Is an $16,000 gold Cavalatra for every day use worth the price? I don't think so. Is a Quartz Seiko chrono worth $325? Absolutely not, but for the most part, a Rolex Sub for $4000 that will last for 20 years of hard wearing before any service is needed and will probably be worn by my grandson when I'm gone is, to me worth paying the price for that kind of reliability over a $200 Swiss movement replica that will quit in 4-5 years and sit in my drawer because repair will cost more than the purchase price.

[eddhead]

Anyone who would dispute Rolex's right to sell a product for what the market will bear does not understand the fundamentals of capitalism. Rolex does not have a monopoly on watches. (Do they know that you can get a watch that actually tells accurate time for 5.00usd at Walmart, with the same functions as a datejust?) Anything approaching price manipulation in luxury goods by the government should be laughed at in todays economy.

If you want to see a vision of the slippery slope created by artificial pricing, read Atlas Shrugged by Ayn Rand or just take a look at the Soviet experiment.

I would hate to see the day when a company cannot make a reasonably good product, mark it up so much that it defies any logic, and then sell it to rich, greedy people for what they are willing to pay. When that day comes we are surely in for a Randian nightmare.

I beg to differ and I DO understand the fundamentals of capitalism. Rolex is not a direct seller to the public, and while they do not have a monopoly on watches, they do have one Rolex watches which is a commodity unto itself. This by itself would not be an issue if they did not exert pressure on retailers to apply list pricing, however, by penalizing retailers who attempt to discount from list, they are effectively engaging in price manipulatiion. If you don't think so, try to find a retailer in the US who will publically advertise or admit to discounting Rolex watches. You might be able to work with one "behind the scenes" but certainly not publically.

[shimside11]

@eddhead

I agree that Rolex uses price manipulation, very skillfully at that. I'm ok with that because it is their product and they can charge what they want for it. They should also be able to set the retail price of the product for those dealers with whom they have a contract (as they are representatives of the mfgr.). Now, grey market or any resale, all bets are off. Sell it for what you want since it is now private property.

My point is that when you get in bed with the government and they start setting prices for the manufacturer of goods, you have to be very careful (there is a whole other school of thought for public monopolies, industry-wide price fixing, etc. which one could debate for days). If you [censored] off the invisible hand, it might slap you.

I'd like to get your take on how the MSRP should be set and if it should be held to by the retailer. Should they be able to set any price they please as long as the supplier gets what they ask for the goods?

BTW, I see this as good friendly debate, no hostilities, I figure that I may learn something.

Anyone, jump right in, I don't see this as a private discussion.

[Category 5]

I have to say that I think that at least brands like Omega are pretty reasonable in their price point. You can tell just by holding a Gen that there is a significant imporvement in the quality of crafstmanship over a rep. Screw down crowns will screw down without any effort -turning the hands of the watch with the crown is a smooth as silk -the dial is printed and assembled with precision that has to be seen under a loupe to really be appreciated - the markers are straight - the lume is bright and uniform throughout the parts -the watch is guaranteed to be properly assembled and regulated.

Then there is the issue of testing the watch. Most luxury watches are tested to ensure consistent operation under vibration, heat, shock, etc. Then, there is the added cost of having the watch certified as a chronometer. I am sure the COSC doesn't do that as a favor to watch companies.

Factor in the cost of development, assembly, testing, advertising, certification, packaging, distribution, international duties, taxes and the cost starts to get more understandable. The PO cost me $2000 at an online discount retailer. I think the watch was a great price.

Yes, I was able to get a rep with a box for $300 - but it does lack the AR coating, the markers aren't straight, the movement doesn't turn as smoothly, the lume is not as bright, the stainless steel is not of the same grade, it has not been serviced, it is not certified as a chronometer, and the precision of the parts machining (while very good) feels nothing like the gen when they are side by side. ...not to mention there is not a real co-axial escapement in the rep...and it isn't safe in 10 feet of water let alone 2000ft.

There is a point to gens, oh yes. There is a precision, and a feel that people pay for (aside from the gold and diamonds).

Now if were talking about Rolex...well then. They are way pverpriced for the watch you get. But the truth still stands. Rolex is the most recognizable name in the luxury watch world, and it carries value of it's own. While I agree their watches are 3 times too expensive for what you get, your money can be considered an investment. Rolex are like bonds. Once they mature you can only make money on them (if they are cared for).

[eddhead]

@eddhead

I agree that Rolex uses price manipulation, very skillfully at that. I'm ok with that because it is their product and they can charge what they want for it. They should also be able to set the retail price of the product for those dealers with whom they have a contract (as they are representatives of the mfgr.). Now, grey market or any resale, all bets are off. Sell it for what you want since it is now private property.

My point is that when you get in bed with the government and they start setting prices for the manufacturer of goods, you have to be very careful (there is a whole other school of thought for public monopolies, industry-wide price fixing, etc. which one could debate for days). If you [censored] off the invisible hand, it might slap you.

I'd like to get your take on how the MSRP should be set and if it should be held to by the retailer. Should they be able to set any price they please as long as the supplier gets what they ask for the goods?

BTW, I see this as good friendly debate, no hostilities, I figure that I may learn something.

Anyone, jump right in, I don't see this as a private discussion.

I completely agree that govt set price controls never work and are dangerous practices. I am actually a strong advocate of market-based economics, which is by far the most efficient and effective way of distributing goods and services. That is why I feel so strongly about this topic. Because not only are government set price controls a 'bozo no-no" (see i am reverting to childhood) but so too are ALL artificially set price controls. I believe that certain luxury watch brands (see if you can guess who i am talking about) circumvent the dynamics of a free market and thus do not play by free market rules; i.e. they do not allow the market to naturally achieve price equilbrium for their products through their retail distribution channels. Instead, they exert pressure on their resellers to hold the line on prices, and thereby circumvent the laws of supply and demand. Just my opinion. ( I have a few)

I also think this is a friendly debate although I admit that I sometimea get a bit overworked on this stuff. My bad. Afterall i only know slightly more about this than I do about watches, which is next to nothing, but maybe I can learn a bit about both topics

[shimside11]

Ok, I see the difference now. I'm looking at the manufacturer and its distribution channel as one entity. When a merchant becomes a retail outlet for a producer, I view them as assuming the last link of the value-added chain in representing the maker. In other words, they are still on the supply side of the delicate supply/demand equilibrium.

Luxury goods are really a strange part of traditional commerce because such a big part of the appeal of a product is the intangible. That said, it looks to me like the free market functions just fine with the company we're discussing. Rolex sells every watch they bring to the market. Every year they raise prices, partially in an attempt to discover what the market will really bear. How far can they push their demographic before it rejects the high prices. If they find that it's too high, sales will wane and their former market will now get their luxury fix somewhere else. Maybe these things are actually priced too low since they keep selling out. (SS Daytonas are selling for 10kUSD+ on the secondary market. Retail is still 6k and change).

If they get too greedy, their market will insist (by staying away) that they lower their prices. The invisible hand (fist?) comment applies here too. The bulls make money, the bears make money but the pigs get slaughtered. Eighteen years in the investment/securities business has taught me that the market's equilibrium is very tough and is hard to disrupt over the long term.

[eddhead]

Ok, I see the difference now. I'm looking at the manufacturer and its distribution channel as one entity. When a merchant becomes a retail outlet for a producer, I view them as assuming the last link of the value-added chain in representing the maker. In other words, they are still on the supply side of the delicate supply/demand equilibrium.

Luxury goods are really a strange part of traditional commerce because such a big part of the appeal of a product is the intangible. That said, it looks to me like the free market functions just fine with the company we're discussing. Rolex sells every watch they bring to the market. Every year they raise prices, partially in an attempt to discover what the market will really bear. How far can they push their demographic before it rejects the high prices. If they find that it's too high, sales will wane and their former market will now get their luxury fix somewhere else. Maybe these things are actually priced too low since they keep selling out. (SS Daytonas are selling for 10kUSD+ on the secondary market. Retail is still 6k and change).

If they get too greedy, their market will insist (by staying away) that they lower their prices. The invisible hand (fist?) comment applies here too. The bulls make money, the bears make money but the pigs get slaughtered. Eighteen years in the investment/securities business has taught me that the market's equilibrium is very tough and is hard to disrupt over the long term.

Where we disagree I think is in the assumption that the manufacturer and merchant have perfectly aligned interests by virtue of both being on the supply-side. Notwithstanding the value added component of the merchant’s role in the transaction, I believe that the two parties are motivated by different interests. The merchant’s objectives are tactical… they want to sell as many watches as they can… velocity = revenue= income... they really do not care about the health of the Rolex or it’s long term objectives. Rolex, on the other hand is motivated by more strategic concerns. They undoubtedly view their brand as their most significant asset and its positioning themselves as a high-prestige item is mission critical. They are in it for the long-haul and are unwilling to sacrifice the long-term health of their brand for short-term revenue gains.

To illustrate, let’s assume that the manufacturers allowed the merchant to set a market based price, and that price was below the current list. The result would be increased demand, accelerated inventory velocity, and yes, increased supply. The manufacturer would sell more watches at a lower price, thereby “commoditzing” (uh-oh b-school word) their product. In the end the commoditization of their brand would cause a cycle where in prices might continue to fall until production capacity was met. The result? More sales at lower margins. Secondary markets would suffer the same price collapse as because the product sold on the primary market serve as a suitable substitute.

Again this is just a 2 cent theory from a layman, but one thing I do feel strongly about is that outside influences (i.e. non-market based ) on price or supply, are never good in a free market economy, aand create a lot of unknowns.

One other thing I can tell you… my brain hurts!!