There’s a lot of discussion about what constitutes “luxury” or “affordable /accessible luxury” as it relates to brands all over forums that I’m a member of on LinkedIN, and in the watchworld these conversations happen all the time. So what constitutes “luxury” or “affordable luxury”? Sure, the quality of the product has a lot to do with it but the majority of it has to do more with how a company markets their product/brand. Daymond John, founder the FUBU clothing line and Shark Tank personality known as a branding genius, defines branding as “a tag that somebody puts on you”.
For example, in the watch world, the entire Swiss watchmaking industry (as an entity) was near death in the 1970’s but succeeded in making watches “fashionable” by shifting the idea of a watch from a necessary item to a status symbol, a luxury product that appeals to the emotions of the buyer. The watch you’re wearing on your wrists today doesn’t just show your “status,” it’s a symbol, rather than the tool it was fifty years ago. A symbol of who you are or perhaps, who you want to become. It’s a way to express your style, and your character. The key element of this perception shift is marketing. Brilliant marketing campaigns have changed the perception of the watch to become an emotional and aspirational product rather than just a tool. In essence you’ve been “tagged”.
The watch industry has been ingenious in reshaping consumer perceptions and making luxury timepieces a collector’s item, a long-term investment that will pay dividends and a status symbol. The watch industry is a $45 Billion dollar a year industry with 99% of the luxury market (approximately $25 billion) controlled by 3-4 Swiss conglomerates who own 6-12 brands each. Switzerland exported 6.89 million mechanical watches last year, the most since 1982, amounting to $16.6 billion. Exports have grown at an average annual rate of 7.2% over the last ten years, with more than 95% of production exported focused on global competition. 2.2 million Swiss watches are imported a year with a value of $2.8 billion dollars in the US. The watch industry is Switzerland’s 3rd largest sector and accounts for 20% of Switzerland’s GDP. Twenty-four companies employ 52,803 people.
In a business worth $25 billion, image and reputation are everything. The “Swiss Made” label has proven immensely valuable as a seal of quality and marketing. Regardless of who makes the cases, components, movements, and how they are manufactured, a watch with “Swiss Made” on it will be 100% made in Switzerland right, “haute horlogerie”? Ummm…well…no. In 2012, the watch industry imported $2.4 billion dollars worth of watch parts from the Far East. China and Hong Kong delivered mainly cases, and Thailand, surprisingly, delivered movements, considering the “Swissness” regulations. What’s that? “Swissness”? We’ll get to that in a second. Back to the movements in Thailand for a second. Various watch companies have set up shop in Thailand and import parts and movements into Switzerland and assembled there. What? Again with the what’s. Why would they do that? The main reason parts are imported from abroad is that the production costs associated with the components is lower. Up until recently, the criteria for labeling a watch as “Swiss Made” was stipulated as having half the watch 50% (by value) made in Switzerland. In June 2013 that figure went up to 60% (the cost of manufacturing) with the passage of the “Swissness” bill. Under the new “Swissness” criteria a Swiss watch must also have its movement assembled, cased and inspected in Switzerland. However, as prices in production continue to rise and Swiss immigration reform impacts the watch trade (Last month, 50.3 per cent of Swiss voters decided to void a pact giving equal footing to European Union citizens in the Swiss watch market), more non-Swiss parts can be used thus allowing the continued use of the “Swiss Made” label. For some I know this is surprising, it’s nothing new for those of us who know that the Swiss industry balances cost-saving production against brand image. Since quartz technology and disposable watches almost destroyed the mechanical watch industry, the Swiss redefined the purposes of owning a mechanical watch and that purpose was a savvy business sense wrapped up in luxury and emotion that appeals to almost any buyer. As Martin Green from Revolution magazine observed: “You can build the greatest, most magnificent watches in the world, but the bottom line is that the watch industry is still a profit sector, and money needs to be made in order to survive and continue to create great and magnificent watches. One way of doing that is to let the general public know how great and magnificent the watches that you make actually are. Advertising in selective newspapers and magazines have always been one of the favorite ways in which watch brands deliver this message.” In a recent study by Deloitte consulting revealed that 86% of watch brand CEO surveyed see social media as important for the watch industry. Many companies are actively participating on popular social networks as well as interacting with watch forums and providing access and samples to popular watch bloggers. In order to be considered as luxury, a watch needs a brand that is recognized and considered by everybody as belonging to the world of luxury. Therefore, a new brand entering the market is compelled to invest in huge advertising campaigns in order to gain recognition (image) from the public. A product possesses the title of exceptional and luxury only if everybody knows the brand and accepts it as a luxury object. Finally, recognition can also be a guarantee for quality. In fact, very few people would pay thousands of dollars for an unknown brand or a brand that imports its components from the Far East
In the world of luxury, the principal tool to compete between brands is the intensive use of advertising. Brand recognition is tightly tied to marketing. Luxury watchmaking relies heavily on differentiation strategies that require lots of investments in advertising and public relation (PR) events. Objectively, the product is, from a design point of view, very similar from one brand to another even though most companies claim their product is unique. It would be more correct to say that the brand and its communication bring life to the product, give it its identity and maybe has the potential to make it unique. A product is something that is made in a factory; a brand is something that is bought by a customer. A product can be copied by a competitor; a brand is unique. A product can be quickly outdated, a successful brand is timeless. In 2012 ( 2013 data hasn’t come out yet), Watch brands spent more on U.S. advertising in 2012 than ever before creating brand identities. Total spending reached $399.74 million (check out the million dollar club and how much they spent here http://www.watchtime.com/wristwatch-industry-news/industry/million-dollar-club-2012-watch-advertising-all-time-high/)
To sum up, brands are emotional products and emotional products are about a message– a strong, exciting, distinct, authentic message that tells people who you are and what you are and the premium you are willing to pay. It is no longer a utilitarian product that shows the time but a piece of time that incarnates a lifestyle. Therefore, the brand is an inestimable intangible asset in this industry; it is very costly and it takes time to be established. Marketing and communication, brand equity, is undoubtedly the main differentiator between brands. Does this mean that a product is made any better, or is a better value than a competitor? Not necessarily, in most cases it just means they are better at communicating their brands message. The more uniqueness a company can build into the positioning of their product, the more they can control the price. If companies can make the product both desirable and unique, the customer, (which is you) is more likely to pay the price since you cannot get the same product image anywhere else. Or so you think. In my next post I’m going to tell you why you should pre-order the Hager Commando or the GMT Traveler. In case you missed it you can check out the Pre-order here http://www.hagerwatches.com/PREORDER%20DETAILS/page18.html