Things You Didn’t Even Know That You Didn’t Know!

Olivier MullerRecommended Reading4 Comments

collection watches

The best kept secrets are the ones you’ve never even heard about. The ones that concern information that you didn’t even know that you didn’t know! Some industries are aware of this and use it to their advantage, but the watchmaking industry has taken this concept to the next level, establishing it almost as a golden rule. Here at The Watch Lounge we always try to offer you some new perspectives, going beyond just the pure product approach. Still, there are some topics that remain untouchable: price policy, R&D, or emerging markets, for example. That is not necessarily going to stop us, however!

Money Money Money – In A Watchmen World
The price policy of brands is a strange paradox: retail prices are available for everyone to see and yet this is the last area brands would explain to you. A recent (and excellent, as usual) article by our colleagues at Horlogerie Suisse shows that prices are set according to a mix between rational and irrational factors. And, of course, no one would ever admit that the second part can generate a 10% or 20% increase, without any economically valid reason.

So where does it all go?

“Investments” is, generally speaking, the answer we get when we ask about the reason for price increases that can reach more than 60% in a decade. Investment in…what ? New buildings, like Jaquet-Droz’s might be an explanation. Marketing? For sure, but most of the time, everything is still managed from Headquarters in the three main European markets (Switzerland, France, UK), or from the US for a brand like Carl F. Bucherer. Apart from outsiders like Romain Jérôme or Hublot, which invest a lot in advertising or community management, most of the brands have not changed their habits for a while.

watch money

R&D – Really Demanding?
R&D is the ultimate indicator of economic health. When the sun shines, brands invest more than 10% of their revenues in Research & Development. Ten times less when it rains. It’s also the place where the road-map for the evolution of the brand is conceived and designed. Consequently, this is the place where the greatest achievements are made, but also the greatest mistakes! Remember the Accutron? The perfect invention, only at the worst possible time, arriving just between the switch from automatic to quartz watches.

Outsourcing the R&D can be a double-edged sword: to a degree the manufacturer is divorced from the financial impacts of any wrong R&D decisions (no dedicated employees, no physical assets, etc.), but, at the same time, the knowledge and know-how remains outside the brand, ensuring it remains dependent on external brains. Extensive use of external designers may be indicative that a brand has (no) faith in its own potential. It also reflects the lack of available funds to fuel a proper R&D department, and thus, in the end, also reflects how banks and investors are shy about your capabilities – even if you foresee great opportunities in the distant lands of hopes and dreams, or as some may call them – “emerging markets”.

The BRIC Paradox
Brazil, Russia, India, and China: the BRIC promised lands. Not a week goes by without the announcement of a new flagship store from FP Journe, Hublot, Corum, etc. in these countries. Some will applaud these developments, while others will ask “given that high end luxury watch brands can’t increase their export capacities (a few hundred pieces per year for most of them), how do they plan to service orders of thousands of pieces?” An industry specialist confirms that “It’s always better to have 100 pieces to sell to 1000 people than the contrary”.

Indeed, but was there really a need to enter these markets? That’s where the doors get closed to our questions. Mass production groups like the Swatch Group had to go East to increase their market shares, while high end manufactures were looking to offset the potential drop in demand in Western countries as a result of the economic slowdown. Independent watch-makers meanwhile go there to service an existing local demand.

analyst

The Final Word
Each industry knows how to keep secrets but watch-making has a turned the practice into an art form. Have you ever seen a watchmaking analyst? Any specialized consultancy firms such as those we have in the IT or Banking & Finance fields? Any rating standards like “A++”? No. Some would say it’s part of the myth. But as far as I am concerned, when I buy a watch, I’d also be interested in knowing some of the key facts & figures of the company that made it. For example, whether they will still around next year…

Maybe I am the only one. What do you think?

Olivier MullerThings You Didn’t Even Know That You Didn’t Know!

4 Comments on “Things You Didn’t Even Know That You Didn’t Know!”

  1. DC

    Great article Olivier- bravo.

    Whether there was a need to enter BRIC is less the question than was there an opportunity…which of course there is.

    dc

  2. Tom Mulraney

    Hey DC,

    Thanks for your comment!

    I couldn’t agree more, there certainly are a number of opportunities in what Olivier cheekily refers to as the BRIC “promised lands” and I think it’s almost a case of act now or get left behind. Although by the same token I can see Olivier’s side of the arguement, just because there is an opportunity it doesn’t mean you have to act on it, especially if you can’t service it fully in the long term.

    Time will tell I guess…

  3. DC

    Yes, Tom, but as a greedy capitalist I would say you DO have act on opportunities. Even if supply is fixed, everyone wants excess demand- just means you can jack your prices up. I think my dusty text book would say that you increase marginal price until it meets the demand curve- boom, a perfect market (!)

    Of course, this holds true unless unless you are a private family business with hugely wealthy shareholders. In which case, put down the Mandarin phrase book, pour yourself another glass of wine and toast your good fortune.

  4. Olivier Muller

    Hi David,

    Good to see you here my friend. Thanks for your comments ! Much appreciated !

    Speak to you soon,
    Cheers,

    Olivier

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