Luxury products are expensive. that’s a fact. While purchasing a Porsche or Paul Gauguin painting can be justified as a good deal, watches don’t seem to receive the same attitude and sometimes are just “too expensive”. Obviously, it doesn’t mean it makes sense to spend the same amount of money on a watch like you would on a luxury car. However, some people need to acknowledge that manufacturing a watch is not as complicated as manufacturing a car, but is definitely not as simple as they might think. I won’t exaggerate if I would say that a watch making takes a lot of thought and precision in order to make it right and luxury.
Based on the average income in U.S. ,suppose the average person wanted to purchase a luxury watch he’ll need to spend $2,500 which would be 6.5% of his annual income. So what does make a wristwatch worth that much? Is it overpriced? Let’s dive in.
Margins make a difference
In 2015 Apple announced it’s Apple Watch. They revealed that the cost to manufacture this watch was about $81, which is the total cost of manufacturing this product and probably the least expensive product of Apple. They retailed and sold their Apple Watch for about $350, which means they made $269 for each and every watch that has been sold. That’s some tremendous profit!
It is quite easy to understand that Apple came in the watches industry, especially the smart watches industry — they can markup enormously.
And it’s not the end of the story. The manufacturer may ask for a higher price when selling his product at a wholesale price to the distributor. The distributor himself won’t keep the price as it is and will double the price to the consumer, which is you. Before you even notice, a watch that cost $100 to manufacture now has a price tag of $2000 and even more. Therefore, business that manage to manufacture their own products, are able to have a more affordable brand with significantly lower prices than others.
Supply never meets demand
When I reluctantly took Economic courses on University, I had always been taught that a perfect market is a market which supply is equal to demand. If people the supply is lower the demand will be higher. And you know what happens with products you can’t get but everybody wants them? That’s right, their prices are getting higher and they become luxury.
Back in 1991, Rolex released it’s Daytona on the market. It’s been three years since they were not for sale anymore and people went crazy for it that the waiting list grew to six years for those who want to get a hold of the Daytona.
Luxury brands relay on letting their product be unreachable so people, and it’s not about the time it takes to make the product and it’s complexity – it’s about making the product luxury. In other words, the brand makes the product luxury and not the product makes the brand luxury. The name of the brand (Rolex for example) is what luxury and not the product itself. It’s even more clearer in the clothing industry – Nike makes a simple T-shirt that cost $100 to the consumer but has nothing different than a Primark T-shirt that cost $3, same thing with premium watch brands.
Think for a moment about Richemont, which owns different brands like Piaget, Officine Panerai, IWC Schaffhausen, Jaeger-LeCoultre and Cartier, spent almost $300 million for goods they couldn’t sell. Their decision let to a massive increase in Cartier sales in half a year, showing that sometimes less is more.
The movement of the watch has been evolved through the years and quartz movement has been invented. Quartz watches uses an electronic oscillator that is regulated by a quartz crystal. Whereas quartz watches were far easier and simpler, the traditional mechanical movement started to die. At this time people had no reason in buying mechanical watches. Now companies like Rolex and Patek Philippe that produced quartz watches seemed more advanced and even more prestigious.
The magical tourbillon
The tourbillon, “whirlwind” in french, is a stunning addition to the mechanics of a watch escapement developed around 1795. A tourbillon aims to counter the effects of gravity by mounting the escapement and balance wheel in a rotating cage, to negate the effect of gravity when the timepiece, thus the escapement, is stuck in a certain position. Gravity is the sworn enemy of the most delicate parts of the escapement, balance wheel and hairspring.
The tourbillon job is to reduce the impact on the watch’s accuracy. Although tourbillon should improve timekeeping, researches have shown that tourbillon does not accuracy. This fact didn’t prevent watches brands to put a higher price tag on tourbillon watches. A reason for that could be the enchanting look of a tourbillon mechanism.
Luxury means expensive. Always.
Watches used to be a handy tool to tell time.But over time, cell phones broke into the market and literally slowed the watches industry for a while as their functionality had no use anymore. Today they are more of a fashion accessory like a ring or a necklace or sentimentally endowed from father to son. In order to keep the watches industry alive, many brands embraced the idea that a watch is no more useful in the meaning of telling time, but can be gifted for yourself or your loved ones.
When a brand makes his customers to think of his own brand by saying “luxury”, they are liable to raise prices. After all, you’re now not only buying just a watch but a name that everybody recognize and will know what is it on your wrist.
In addition, affluence is a sign of status, high status. People want to have at least a normal status and even higher, a good example for that is when you see poor people buying iPhone and dressing up with golds. If they will wear an expensive watch, this will increase their status. The human being is programmed to try and get what he doesn’t have and what is hard to get seems more glittering. Society dictates what is valuable and worthless and we follow these norms which eventually define our status or power.
Will luxury goods ever vanish?
The answer is definitely no. These factors above raised the watch prices and they stood still. Manufacturers aren’t selling you products to collect, but products that shows wealth and status. Like every aspect in the world, someone buys them eventually, just like buying expensive cars and large villas. Luxury products are here to stay and brands have the legitimate to produce them. Do luxury watches worth the money? Depends who you ask.