Goldgena Project, a crowd-funded effort to launch a watch priced no more than 3.5 times its cost of production, has released a chapter of information about how its Swiss watchmaking rivals set their prices.
Goldgena has a stated aim to shine a spotlight on the watchmaking industry’s business practices; in general criticising the way prices are artificially inflated not according to quality or complexity, but more often to make a marketing statement.
Last month, the company delved into the opaque regulations that decide what watches can officially be called Swiss Made. This week they are looking at prices, margins and positioning, and suggest that brands don’t create watches and then try to find customers for them, they work the other way round.
“Today the price of a watch is primarily a product positioning. A target consumer is defined by analysing his behavior, his buying habits, the brand of his toothpaste and then his dream watch is created adapted to its budget,” Goldgena says.
“After the positioning and the price have been defined, production costs are optimised by playing on the origin, the complexity of the construction and the quality of each component.
“The goal is to reach the standard multipliers of the watch industry which are generally 6 to 8 times the cost price. In practice there are “aggressive” brands that use a multiplier of 5 and, rarely, others who have created a high perceived value and apply a multiplier of 10 or more.”
Goldgena says that this technique works well in boom times, but the slow down of sales in Asia has forced them to change tack.
“Between the years 2005 and 2012 the Swiss watch would not stop beating export records. In this euphoria, the general trend was the rise in prices – meaning a change in market positioning – which has not always translated into a rise in quality. Often it’s simply the margins that went up,” it suggests.
“This approach of pricing represents a huge risk when sudden changes in the economy or in the purchasing behaviors are taking place as it has been the case recently.
“In this new context, many brands have dropped their prices and returned to a good quality/price ratio. This is a healthy reaction but some consider it too late. Inventories have accumulated among retailers who find themselves in a very difficult position. This creates a situation where parallel networks (second market and gray market) are often the only safety valve to prevent the explosion.”
To illustrate the process, Goldgena has created a visual aid in the form of a Youtube video.