Please help a Dorklehead understand.

[TheVTCGuy]

I am a complete and admitted Dorklehead with marketing, the economy, sales in general, but am reasonably intelgin- intalgeant-.... intelllegente-... smart, so am trying to understand the strategy behind Rolex restricting production and/or delivery of their watches. I get it, reducing supply increases demand, but exactly how does ROLEX, the manufacture, increase profits from the current impossible to get strategy? Now, STRICTLY speaking sales to customers from ADs, let’s leave grays out of the original description. If a Gray market plays in to Rolex’s strategy, please explain how.

One thing I have learned, is that Rolex wants to increase their PM sales, because they make a much higher profit on a PM watch then a SS. This makes perfect sense. So, if they limit the number of SS models reaching the ADs, the plan is more customers will opt for the PM watches and bang, more profit to Rolex. But, if I am to believe my local AD, and every AD I have been in the last three years or so, even the PM models are impossible to get. As an example, my grail is the WG GMT, probably the blue dial. My AD said they have seen one in over a year. Again, assuming they are telling the truth, how is that serving Rolex? I would think if their main goal is to increase profits by increasing sales of the PM models then cases would be filled with them. If you want to reduce the sales of SS models and increase PM, then you make SS models extremely difficult to get (mission accomplished), but make it EASY to purchase a PM one. How many of you have walked in to an AD lately and seen a full available selection of PM models sitting in the case? Again, I am speaking solely AD purchasing, but if the Gray somehow plays in, I am all ears. But remember, my question is how does ROLEX, the manufacturer make more profit buy seemingly making every single watch model, PM and SS, so difficult to purchase through an AD?

Please, help out a Dorklehead like me

[donas]

I visited my local AD Tuesday, they have 4-5 glass display cases and literally had 3 watches in one case, that is all. I've heard people say, "they keep the desirable watches in the safe". Like you, I just don't get it. Granted, the diminished supply is almost causing a "panic" for lack of a better term, but it isn't helping the end profits. I really don't understand why a manufacturer wouldn't want to sell as much as possible, no matter what the product is. Looking forward to a non-dorklehead to respond.

[Potawatomi]

Isnt it because rolex is a non profit company?

[ADR1982]

You need actual sales data to re-affirm your hypothesis. Just because 20 people on TRF want a wg gmt or a smurf doesnt mean they are high demand or make Rolex a lot of money. Rolex has always profited well off standard PM and TT DD DJ and if I were them that what I would fill my ADs with. Economies of scale dont work for PM models that a few enthusiasts want. Ive always seen a lot of TT and PM DJ at ADs. Imagine setting up dial, hands, case, etc supply chain (even if internal) for a handful of WG GMT vs literally thousands of TT DJ.

If I were Rolex, Id cater last to the enthusiast TRF crowd. My cash cow would be casual wealthy buyers (gifts, random vacation purchase, marks some achievement) many of whom couldnt care less what movement is in the watch and will never take macro shots of their Rolex pointing out flaws. These are the customers who decide they are buying a Rolex first and then make a choice based on options at the AD.

[Shamorai]

I would say they are going as quick as they can. They won’t just hire anyone to make their watches. It takes time and there is only so many of them there.
I don’t agree with those that say a Rolex slows production on purpose, as this only benefits the grays. Rolex still sells all their watches at list price.

[macrowatch]

At a certain point, you can sell less units but if the average per unit is higher, then the revenue is actually higher.

Regardless of the math, the CEO has explicitly stated before they want to elevate the prestige of the brand further and go back up market. I think the WG GMT being hard to find now (limited deliveries, esp metorite) reflect that strategy coming into play.

[avidflyer]

If you believe the numbers they do over a million a year in production. (something we all seem to agree on). I think any more and they could start to dilute the brand. If we could walk in and buy any model, would we still pay the price we do for a even more mass produced watch. As far as the blue gmt, I have debated several times on one....love it but can I justify it for what I'm really getting....evan as a collector.

[77T]

Originally Posted by TheVTCGuy

But remember, my question is how does ROLEX, the manufacturer make more profit by seemingly making every single watch model, PM and SS, so difficult to purchase through an AD?

Please, help out a Dorklehead like me

There are several potential positioning tactics to accomplish an overall strategy. What we see (as WIS) is the limited ability to buy a Rolex. What the general public sees is “rarity”.

In Marketing, there are 4 major strategy categories called the 4 P’s - Product, Price, Promotion & Place (aka Distribution). If you can align the direction of each vis-a-vis the market itself and the leaders in each category, then you get an impression of Rolex’s overall direction.

Can’t really tell you the product is better than others - all the top Swiss brands have accurate and appealing models.

PP & AP models are also in demand due to less production - they are fairly good in the price leader role of setting a high price that buyers will gladly pay. Rolex has been historically underpriced relative to those brands. With demand high, they are approaching a 5-digit price point in the SS Diver category which may cause some resistance but I think they’ll easily blow through the $10K mark in the next year or two.

I have never seen a merchandising tactic by Rolex, so the idea of promoting the product continues to be selective advert placement, celebrity allure and event sponsorship for brand awareness.

Distribution has stalled due to excessive demand. They are stuck in the AD model when a direct e-commerce strategy has been adopted by folks like Omega. If you consider that Rolex sells every model they can make due to their contractual control over the supply chain, they aren’t trying to make new fortunes on that brand.

But if you look at the sales jump in Tudor, like adding US AD’s, then you may be onto something - it’s a profitable lineup at much lower prices.

That in a nutshell may be the growth strategy: Position Tudor against Omega to amp sales revenue for itself and the ADs.


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[Maiden]

While it may be true Rolex limits production it could be other factors at play. I tend to think unprecedented Asian demand, an instagram culture that has driven consumers into a frenzy and now a several months manufacturing shutdown has a lot to do with it.
Who really knows for sure?


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[BroncoOne]

Rolex is in the wholesale business, not the retail business. You cannot apply retail strategies to understand the company.

It is a bulletproof business model. Rolex sells every single watch that it makes at a price that it dictates and takes zero risk that retailers do ( rent, insurance, theft, products that don't move, retail employee headaches etc).

Why should Rolex change anything?

Grey market sellers are just part of the capitalist markets and serve a purpose: if you want a hard to get watch they will get it for you if you want to pay the markup. Negotiate it. Greys aren't part of Rolex's business model. They are part of the larger world and exist in other product markets as well.

[LeftHookLacey]

Originally Posted by avidflyer

If you believe the numbers they do over a million a year in production. (something we all seem to agree on). I think any more and they could start to dilute the brand. If we could walk in and buy any model, would we still pay the price we do for a even more mass produced watch. As far as the blue gmt, I have debated several times on one....love it but can I justify it for what I'm really getting....evan as a collector.

This does not add up. What other luxury business worries about diluting the market?

If you want a $20K suit, you can walk in and get one. If you want a $100 Tiffany diamond or a Cartier gemstone (whatever stone) ring, you can walk in and buy one. Cars, scotch (for the most part) same thing.

[garyk]

Originally Posted by donas

I visited my local AD Tuesday, they have 4-5 glass display cases and literally had 3 watches in one case, that is all. I've heard people say, "they keep the desirable watches in the safe". Like you, I just don't get it. Granted, the diminished supply is almost causing a "panic" for lack of a better term, but it isn't helping the end profits. I really don't understand why a manufacturer wouldn't want to sell as much as possible, no matter what the product is. Looking forward to a non-dorklehead to respond.

I’ve heard that “desirable watches in the safe” theory also many times. I worked as a subcontractor for an AD and was privy to a lot of things over many years. The watches in the safe were almost exclusively incoming customer watches awaiting delivery. I also heard from a friend who was close to a very large jewelry company owner that SS Daytona’s were held back from public view to allow the jeweler to select who they would go to among their best customers. The idea there was the store did not want the watches to go to outside non local customers.

[Ranger67]

Don't you know it takes a year to make a Rolex -

[sunnygps]

Rolex sells what they plan on selling each year. They may have reached capacity on how many they can build each year due to factory/manufacturing limitations at this point. They may need to build another factory to build more watches and only Rolex knows what their plans are. The demand for these watches have gone through the roof. There are enough watches in market ready to be bought, just not at SRP/MSRP from an AD.

From Rolex’s perspective, they are selling what they plan on selling - now if it goes to ADs, grey dealers or anywhere else, that is downstream from Rolex. Anyway you look at it, Rolex makes their money each year.

[samson66]

Originally Posted by Ranger67

Don't you know it takes a year to make a Rolex -

With every single solitary part assemble by hand. Each case is painstakingly whittled out of a block of steel by one man with a hammer and chisel.

[georgekart]

Originally Posted by TheVTCGuy

I am a complete and admitted Dorklehead with marketing, the economy, sales in general, but am reasonably intelgin- intalgeant-.... intelllegente-... smart, so am trying to understand the strategy behind Rolex restricting production and/or delivery of their watches. I get it, reducing supply increases demand, but exactly how does ROLEX, the manufacture, increase profits from the current impossible to get strategy? Now, STRICTLY speaking sales to customers from ADs, let’s leave grays out of the original description. If a Gray market plays in to Rolex’s strategy, please explain how.

One thing I have learned, is that Rolex wants to increase their PM sales, because they make a much higher profit on a PM watch then a SS. This makes perfect sense. So, if they limit the number of SS models reaching the ADs, the plan is more customers will opt for the PM watches and bang, more profit to Rolex. But, if I am to believe my local AD, and every AD I have been in the last three years or so, even the PM models are impossible to get. As an example, my grail is the WG GMT, probably the blue dial. My AD said they have seen one in over a year. Again, assuming they are telling the truth, how is that serving Rolex? I would think if their main goal is to increase profits by increasing sales of the PM models then cases would be filled with them. If you want to reduce the sales of SS models and increase PM, then you make SS models extremely difficult to get (mission accomplished), but make it EASY to purchase a PM one. How many of you have walked in to an AD lately and seen a full available selection of PM models sitting in the case? Again, I am speaking solely AD purchasing, but if the Gray somehow plays in, I am all ears. But remember, my question is how does ROLEX, the manufacturer make more profit buy seemingly making every single watch model, PM and SS, so difficult to purchase through an AD?

Please, help out a Dorklehead like me

They create impossible to get model. It forces people to bundle to get the watches they really want. Buying up PM or ladies pieces that have higher profit margins. Then they produce more PM and ladies watches and make money on them. If I had to make a guess Rolex makes more money (at least percentage wise) on ladies DJ (or any DJ) over the Submariner or GMT. So if they can have people who just want Rolex switch to getting OPs and DJs, and those who want sports models switch into getting ladies models and PM models they can sell more watches bringing them more money. If I had to make a guess there are a lot more DJs and OPs being made now than 5 years ago. And ladies models and PM watches as well.

[77T]

Originally Posted by LeftHookLacey

If you want a $20K suit, you can walk in and get one. If you want a $100 Tiffany diamond or a Cartier gemstone (whatever stone) ring, you can walk in and buy one. Cars, scotch (for the most part) same thing.

Thats market equilibrium in a nutshell.

Demand is too high for Rolex currently (and trailing 24 months).



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[Snake Plissken]

I'll repost something I wrote in another thread. Fwiw I work in marketing for luxury brands.

This sucks and it's frustrating but it's by no means a unique phenomenon in the luxury world. Ferrari does the exact same thing with their hot models. Hermes does this with the Birkin bag. Of course in the watch world Patek and AP also do this for their SS sports models.

It's important to remember that for all of these companies, their biggest asset is their brand itself. And what they understand very well is that the most important thing for a luxury brand to have is exclusivity. This is especially true in the Instagram era, where people have a mass avenue to project their status and image which builds hype for the brands. Even non-luxury brands like Supreme and Yeezy are prime examples of how powerful this is.

A lot of people seem to think that withholding production to generate exclusivity is "bad for business", but I don't believe this is true. The effect the exclusivity has on elevating the brand as a whole undoubtedly leads to a much higher sales of lesser demanded models as people get pulled into the brand by the "halo" products. And it allows the brand to keep prices high.

I would argue that if you've attained the level of status as a brand that Rolex has this is ultimately something you have to do. Decreasing exclusivity will dilute the brand, and it is much, much more difficult to reverse the loss of a top brand's value than to simply maintain or increase it. When you're just another luxury watch brand, you have to spend a lot more on marketing and price your products much more competitively to stay in business. When you're Rolex, you can do almost no marketing, charge way more than your competitors, and people will still be selling out your stores for years. It's hard to imagine a brand like Omega or TAG Heuer ever being able to reach that level of status from where they are now.

So, yeah this sucks for many of us, but if Rolex know what's good for them, I don't think it's going to change in the foreseeable future.

[watchwatcher]

Originally Posted by TheVTCGuy

But remember, my question is how does ROLEX, the manufacturer make more profit buy seemingly making every single watch model, PM and SS, so difficult to purchase through an AD?

The difficulty to purchase is EXACTLY what they're going for. This strengthens the brand, long term, and that is the goal. And when you look at how well they're doing lately, it's hard to argue. Indeed, I'm thrilled. I never would've dreamed 20+ years ago the value of my present collection.

Remember, they're not having to explain how many units they've made, and the cost of each, as well as units sold, to shareholders, like traditional companies we're used to dealing with. All that stuff is cloaked in secrecy with our friends at Rolex HQ.

I suspect, though, they're playing more of a longer game, where they don't ship everything they make, creating an artificial demand, and then when it reaches fever pitch, they can turn the throttle every so slowly and release whatever they think is the correct balance point between demand and brand sustainability. Just a theory on my part.

[Ranger67]

Originally Posted by Snake Plissken

I'll repost something I wrote in another thread. Fwiw I work in marketing for luxury brands.

This sucks and it's frustrating but it's by no means a unique phenomenon in the luxury world. Ferrari does the exact same thing with their hot models. Hermes does this with the Birkin bag. Of course in the watch world Patek and AP also do this for their SS sports models.

It's important to remember that for all of these companies, their biggest asset is their brand itself. And what they understand very well is that the most important thing for a luxury brand to have is exclusivity. This is especially true in the Instagram era, where people have a mass avenue to project their status and image which builds hype for the brands. Even non-luxury brands like Supreme and Yeezy are prime examples of how powerful this is.

A lot of people seem to think that withholding production to generate exclusivity is "bad for business", but I don't believe this is true. The effect the exclusivity has on elevating the brand as a whole undoubtedly leads to a much higher sales of lesser demanded models as people get pulled into the brand by the "halo" products. And it allows the brand to keep prices high.

I would argue that if you've attained the level of status as a brand that Rolex has this is ultimately something you have to do. Decreasing exclusivity will dilute the brand, and it is much, much more difficult to reverse the loss of a top brand's value than to simply maintain or increase it. When you're just another luxury watch brand, you have to spend a lot more on marketing and price your products much more competitively to stay in business. When you're Rolex, you can do almost no marketing, charge way more than your competitors, and people will still be selling out your stores for years. It's hard to imagine a brand like Omega or TAG Heuer ever being able to reach that level of status from where they are now.

So, yeah this sucks for many of us, but if Rolex know what's good for them, I don't think it's going to change in the foreseeable future.

This all makes sense, whereas we all complain about the lack of availability can you imagine the meltdown if all of a sudden we can buy on request and prices of watches people already own (not everyone) start to drop.

[powerfunk]

Originally Posted by donas

I really don't understand why a manufacturer wouldn't want to sell as much as possible, no matter what the product is.

Omega used to sell more watches than Rolex for about 60 years straight, then they began to take this approach in the 1970's (Omega got more "mass-productiony" with the 1000 series movements). Rolex has been eating their lunch ever since. Rolex hasn't been on top forever and I don't think they take it for granted.

[Hollie_Rollie]

Originally Posted by Maiden

While it may be true Rolex limits production it could be other factors at play. I tend to think unprecedented Asian demand, an instagram culture that has driven consumers into a frenzy and now a several months manufacturing shutdown has a lot to do with it.
Who really knows for sure?


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I agree. I dont necessarily think Rolex is limiting their production numbers. I believe the Rolex brand has been overran by hype and the grey vultures were ahead of the curve (as they should’ve been because this is their career) and have just driven the price through the roof. I’ve sold to greys before and they told me whether it’s true or not that they were buying to store away. I won’t be selling to greys anymore and certainly won’t be buying from them even when we go back to a 2016 scenario.

[Hollie_Rollie]

Originally Posted by Ranger67

This all makes sense, whereas we all complain about the lack of availability can you imagine the meltdown if all of a sudden we can buy on request and prices of watches people already own (not everyone) start to drop.

Actually, I can imagine it. I think back to 2000-2016 years...

[007timer]

Originally Posted by Maiden

While it may be true Rolex limits production it could be other factors at play. I tend to think unprecedented Asian demand, an instagram culture that has driven consumers into a frenzy and now a several months manufacturing shutdown has a lot to do with it.
Who really knows for sure?


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You are exactly right Maiden. The production at Rolex has indeed increased in recent years. But the overwhelming demand from emerging markets and newly created wealthy younger individuals is squeezing that supply line to scarcity. I have read articles about Rolex running 7 days a week and increasing production, etc. but if your demand went up by 200%, there is no way to meet unless Rolex assumes it’s a permanent spike that they can invest in additional infrastructure, staff, machinery, etc, etc.

This is not their first rodeo and if they felt this is the new norm, Rolex would indeed scale up.


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[zjd168]

if now Rolex can sell every PM and lady DJ in no time, wasn't it goal achieved and profits maximized?

[GradyPhilpott]

Originally Posted by Potawatomi

Isnt it because rolex is a non profit company?

Rolex is not a non-profit company.

It is owned by a charitable trust, the Hans Wilsdorf Foundation.

The fact that Rolex is privately-held gives Rolex a lot of freedom that publicly-held companies don't have.

[Rootsblower]

Google “ The laws of anti-marketing” it will explain a lot.

Sorry can’t post links

[bmclaurin]

Originally Posted by GradyPhilpott

Rolex is not a non-profit company.

It is owned by a charitable trust, the Hans Wilsdorf Foundation.

The fact that Rolex is privately-held gives Rolex a lot of freedom that publicly-held companies don't have.

^^^^^^ This. Plus the above comments about brand elevation, absolutely spot on.

Rolex does not have to satisfy short-term analysts expectations of cash flows, EBITDA, revenue growth, etc. They have the enviable position of being able to take a very deliberate, strategic, *long-term* view. And theirs is clearly and squarely focused on brand elevation for the reasons already stated. The current supply-demand imbalance is not a problem for them; rather, it is precisely the desired result of their intentional strategy.

All that said, eventually Rolex must eventually IMO fix the customer experience, which is clearly broken right now.

[Fleetlord]

As I said in previous posts...

To put it crudely....hide the cheap #$%% and the upsell WILL happen.

Limiting distribution of lower margin SS watches cures a lot of issues that Rolex was experiencing that was NOT GOOD for a luxury brand. Notice, I didn't state production, but distribution. Lower the number of dealers. Go to allocation for certain references...Daytona, JCDS, BLNR to start off with...

Go back 4yrs ago. Cases were full. Rolex were sold routinely for 15% off @ grey dealers. TT watches were called "dogs" and "undesirable".

Customers would just buy SS Sports because they were plentiful and cheaper than they EXPECTED to pay. The SA were lazy and didn't upsell into TT and PM. I saw it happen too many times to count @ AD while I was there. "oh, I thought these were more expense"...when looking @ an $8k Sub. So those and SS DJ were selling and the higher factory margin and prestigious references were languishing.

All of that is now resolved. ALL Rolex are very desirable. The secondary market pricing is corrected and watches aren't discounted, which fosters FOMO and drives even more brand equity. That is so crucial in todays market. People want to know their money is "safe" and that what they are buying is EXCLUSIVE and INCLUSIVE. In that they want to own something that is hard to obtain but something they can be part of the "club" of fellow owners as well.

When you see other brands buying back their product off the grey market just keep their brand from looking like cut rate junk, it's clear how important the posturing of the secondary market is to the success of a brands image.

[ERH]

My theory is that Rolex must have hired one of those MBAs who got fired from the investment banking business who set up a 100 column, 750 row Excel spreadsheet with seven deep what-if formulas that only he/she can manipulate/update and voila there you have it, piss off your customers and improve your margins by secretly setting up a gray market controlled by Rolex, saving on warranty expense because it wasn't sold through an AD.