Europa Star

WATCH PRICES: to raise or lower prices?

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January 2017

WATCH PRICES: to raise or lower prices?

the face of all this uncertainty, the ongoing paradigm shift, the burden of excess stock and industrial overproduction, what strategies are open to the brands? And the sixty-four-thousand-dollar question: should prices be raised or lowered? Every brand has or will have its own response, some better suited than others to the realities of a market in motion. And the responses vary depending on where the brands are situated on the social hierarchy scale.

WATCH PRICES: to raise or lower prices?

Here is one possible response, which Jean-Christophe Babin, CEO of Bulgari, recently gave to questions by Europa Star:

“In watchmaking, volume and value form two opposing pyramids. The majority of the volume is situated below the 2,000-euro mark. And most of the value is situated above the 5,000-euro mark. The response to the crisis is not necessarily lower prices. In a crisis like today’s, scrambling below the 5,000-euro mark is a human reflex, because we associate crisis with a lack of money, but it’s not necessarily the right reflex, or the right solution. We’re forgetting that 90% of the value is in the segment above 5,000 euros and that, in the 10% below that, there are already highly competent players with iconic models and very confident retailers in those brands.

And what you also have to take into account is that below and above 5,000 euros, there is a general decline in sales across the industry as a whole. It isn’t as if all of a sudden people who bought watches at 25,000 euros are now going to buy watches at 2,000 euros: that’s totally wrong.

So, are we going to sell 15% more by positioning ourselves 10% lower? Personally, I’m rather sceptical. I think that more than ever, the products we offer should have substance that is not only perceived, but real.

Why lower prices when you can be more attractive by setting the right price for new products? Thanks to our retail network, we can exactly measure the behaviour of our customers, and no one came to buy a 3,000-franc watch when they’d bought a watch for 30,000 francs before. But from 30,000 francs to 20,000, yes. A Tesla in relation to a Mercedes – that’s a good response and an avenue to explore for the watch industry.”

Another price strategy and another response is that currently being implemented by Jérôme Lambert with Montblanc. He made a splash – and raised a storm of criticism accusing him of wanting to kill off the market – when he was CEO of Jaeger-LeCoultre, for having produced a tourbillon for around CHF 40,000. He did it again at Montblanc, producing a perpetual calendar selling at 10,000 euros.

Davide Cerrato, director of Montblanc’s watchmaking division, responds to competitors’ criticism of the company’s price strategy.

“Offering competitive prices in relation to perceived value has been the constant strategy of Jérôme Lambert at Montblanc for the past three years. We achieve our greatest sales volumes in the 1,000 to 5,000 franc segment, in particular with sport chronographs. Thanks to this consistent position, we are not being forced to go down market today. Three years ago, when market conditions were excellent, you really needed vision to impose this constraint of accessible prices. We want to be viable in the long term. If we started lowering our prices now, neither our brand nor our partners would be able to do business. Montblanc’s objective was to set the right price, not to cut prices, as we’re sometimes accused of doing.”

Lower prices? Cut-throat prices, even? That is the strategy chosen by Ebel CEO Flavio Pellegrini to put back on track a brand that used to be in the spotlight before more or less disappearing off the radar.

“The industry has been too greedy these past few years in terms of profit margins, going for in-house production and vertical distribution with their own sales outlets. Certain brands have two years’ worth of inventory and components upstream, and two years’ worth of watches in their own boutiques downstream. It will take at least two years to be reabsorbed. But you have to remember that the quartz crisis was an existential crisis far more dramatic than today’s. We’re going to have to give it time.

Our battle-horse and our anti-crisis remedy? To maintain brand quality, but with aggressive pricing. For example, our gold and steel Wave model with a diamond- set bezel and a mother-of-pearl and diamond dial used to be priced at CHF 5,900. Our engineers have found smarter ways of lowering prices, and we’ve also revised the architecture of the timepiece,

The message from the independent watchmakers is quite different:

With a track record of nearly 30 years in the watchmaking business, François-Paul Journe has no intention of changing policy and puts the ball back in the court of the large groups.

“While today it’s easy to find prestige watches sold with a 40-50% price reduction, you will never find one of my watches at a discount price. It took me more than 20 years to build my image, and I’m not going to destroy it at the first gust of wind. In my view, the current crisis is largely due to the blindness and greed of a large number of major watchmaking companies.

Today, they’re paying for their recent excesses. But when you are a young brand and have not yet finished building your image, the “price war” that has sprung up on several fronts forces you to find a response. And to engage in pitched combat on prices, while communicating about quality.”

For Julien Haenny, CEO of Anonimo, price is the key.

“Today, price is the key. The brand used to be the gateway to the watch. Today, increasingly, price is the primary criterion. For several years now, watch-pricing policies have become completely disproportionate in relation to the customers.

We are a spin-off of Panerai, but our prices range from 1,900 to 4,900 francs. We’re going for a more aggressive price policy by launching a new line at the next edition of Baselworld, with a target price of CHF 1,500. It’s the only solution for a little-known brand like us – to showcase an attractive price for a genuine, Swissmade product. My aim is to thumb my nose at the brands offering similar products to ours at excessive prices. But the toughest thing for a relatively new brand is to stay the course. Tradition is reassuring. Many watchmaking start-ups are in danger of vanishing in the period we’re currently going through.”

The virtue of stability… No previous price hikes means no hard decisions about lowering (or further raising) prices now, and there is market share to be won, points out Xavier Gauderlot, Movado Group’s President for Europe.

“One characteristic of our brand is that, contrary to the inflation we have seen in luxury watchmaking, we haven’t raised our prices since 2009. We gained market share in 2016, particularly in the United States, our main market, where we have continued to grow despite a shrinking context. We go into this crisis in a better position than we were in 2008, with more tightly controlled distribution.”

For Sascha Moeri, CEO of Carl F. Bucherer, a judicious strategy of price diversification has helped his company to increase its market share in a tense climate.

“In 2016, we sold more watches in the 3,000–5,000 franc segment than in the 6,000–8,000 bracket. The average sales price has dropped. Because of our broad price range, which goes from 3,000 to 400,000 francs, we have flexibility, and that has helped us to gain market share. Every client who comes into the shop is a potential customer for us, and in five years we have gone from producing 6,500 watches per year to more than 25,000. Over the same period, we have also launched a tourbillon, a perpetual calendar and a power reserve. Thanks to this investment across our entire price range, which is very broad, we have succeeded in growing.”

Source: Europa Star TIME.BUSINESS/TIME.KEEPER Dec. 2016 - Jan. 2017