Have you ever wondered why Rolex watches are so expensive compared to other watches? Or why people seem to want a Rolex watch over and above other watches when the tangible differences between watches don’t really justify the huge differences in prices?

Did you know that the pricing scheme you choose can influence a consumer to buy a really expensive luxury product like a Rolex when the rationale choice would be to buy a cheaper, more reliable watch?

Before we start answering these questions. Let’s start with what makes an item like a Rolex luxurious. Is it the materials, the rarity or something else that gets you a price premium worth 9x-20x more than your competitors?

 

How to create luxury pricing items

 

I’d like to kick off with a little known fact to give you a clue about the secrets of luxury pricing: Did you know that some Seiko brands are more expensive then Rolex brands and mechanically better and more advanced too. Yes. In fact, the Grande Seiko range is only marginally cheaper on average than prestigious Rolex brands like perpetual – and every bit as prestigious and quality per value-priced as Rolex.

 

So here’s how they do it..

 

The value based pricing scheme for luxurious products typically works off three principles:

 

  • Quality – only the best materials are used in manufacturing luxury products – so we are told or like to believe. As consumers, the assumption is that the wealthy elite want the very best in life. The same applies to when they buy luxury products too: i.e., We don’t just want our products to last (durability), we want them to look beautiful too.

 

  • Heritage – provenance and brand reputation adds authenticity to a luxurious item. Consumers trust that a brand belongs to a top-class maker/manufacturer when it comes with proof and paperwork. In fact, the price of luxury goods tend to go up (or depreciate less) when there’s proof about the item’s quality and performance. And, when there’s proof about the item’s social credibility from word of mouth referrals.

 

  • Exclusivity – consumers want to believe they belong to a small, elite group when they buy a luxurious product like a Rolex watch. They want to know that there’s a ‘red velvet rope’ protecting their prized possessions. The wealthy (like the average consumer) are willing to pay a lot of money to guarantee that very few people have the luxurious item they have just brought. What’s more, they are willing to pay for the status that exclusivity brings with it.

 

Other aspects to consider are drivers of customer value – sometimes called the customer value proposition;

 

  • Consumers look for functional value drivers when they buy luxury goods. Functional value drivers are important because they somewhat influence our decision to buy a luxury product. Consumers will consider the practicality and usefulness of an item, as well as how it looks aesthetically and/or how it work mechanically compared to other like goods.

 

  • But it’s the emotional value of a luxury purchase that really drives the greatest price premiums for sellers and manufacturers of luxury products. And, this is not only true for luxury products like Rolex, but also true for industrial parts and machinery items. And, even so-called commodity items like energy and fuel.  Concepts like: brand, reputation, desire for success, risk of missing out, risk of product or supply failure. And even psychological drivers like: opportunity to self actualise; need for success; appearance of progression and advancement; social endorsements and validation.

Psychology and emotional cues of success and risk are the backbone of luxury pricing; giving you price premiums that are 5- 13x greater than functional value drivers.

 

For example, take Rolex watches: For more than a hundred years, Rolex have been the epitome of luxury watches. They have perfected technical ingenuity in spite of top-notch adversity and competition. The term “Time is money” is like a motto for Rolex. Its philosophy is “the highest quality for a high price.” A philosophy that the early founder, Hans Vilsdorf spent a vast fortune on in order to advertise Rolex – not only in Europe but to the whole world.

Rolex targets rich buyers or people perceived as wealthy through its history. Both sets or customer groups identified closely with wealth, success and influence. Rolex know their target market segments and they give them exactly what they want: i.e., Different price points to access their ecosystem and lots of opportunities to fulfil the desire for self-actualisation. Oh, and lots of bragging rights too.

 

 

 

Not a Luxury Brand at First

 

But did you know that Rolex didn’t always start out as a luxury brand? No,  it took Hans Wilsdorf many iterations to product design and strategy to get the Rolex brand to where it is now. In fact, Hans Wilsdorf decided in 1915, to change strategy and launch a quality product for everyday use.

 

During those days, the idea of a small wristwatch only applied to female accessories. The assumption that men only used or wanted mechanically superior pocket watches. At this stage in society, it was believed that men were not influenced by their emotions like women; and that the concept of a wristwatch would be rejected by their affluent and purely rationale male target market.

 

So, one could argue that Wilsdorf not only radically challenged early assumptions on male buying habits and preferences. But also, was one of the first businesspeople to hypothesise and prove that men were just as influenced by desire and emotion as their female target market. And, it was this insight into consumer psychology which marked the turning point for Rolex. From this point in time onwards, Rolex have been be the must-have luxury accessory for:

 

  • People who can afford luxury Rolex watches;
  • And for people who would pay the hefty price of aspiring (or perhaps dreaming) to be in an elite group.

 

Marketing Strategy for Luxury Pricing

 

Rolex represents the perfection of technical innovation and aspiration. In Rolex’s watch history, it introduced the chronometer, automatic date changers, an oscillating winding rotor and most importantly the first waterproof wristwatch. Although, over time, Rolex realised that their technical firsts were not purely responsible for driving impressive price premiums. Rather, they found that how they marketed fundamental pricing and psychological principles to their target segments were the biggest driver of Rolex’s pricing power.

 

Wilsdorf always knew the importance of both marketing and advertising the right aspects of the human psyche – even in 1905. He spent 100,000 francs on British newspapers to get his message across. Then got a marketing moment when, in 1925, he asked Mercedes Gieitze to swim across the English Channel wearing a chronometer Rolex Oyster on her wrist.

 

Media Marketing Moment

 

With media exposure like this, Rolex had become instantly sought after not only by the rich but also by the masses. Its association with Ms. Mercedes Gieitze symbolised limitless opportunities for women with a dream. Rolex became a hit overnight for the every-man and woman who were committed to working hard to achieve their dreams – one of which was to wear a Rolex on their wrist.

Marketing broadened Rolex mass-market appeal to more than just the wealthy segment of society. But it was how Rolex cleverly protected their brand throughout the years that really ensured their market dominance. In simple terms, Rolex has always ensured they own the distribution of all their products. What’s more, they are the director of a very carefully stage-managed customer journey; and the architect of their own value-based pricing scheme by product, segment and channel.

For example, Rolex do not allow online purchases or small outlets to distribute their watches. They have consciously chosen to partner with the best and own the customer relationship in full. They realised many years ago, that if their customers’ experiences of Rolex is anything less than first-class, this negative feeling will in term impact their brand and reduce their pricing power.

Rolex Brand Strategy in Luxury Pricing

 

It all has to do with brand imaging. A brand is the unseen attributes of name, packaging, history, reputation and advertising. It also comes from the experiences, relationships and attachments customers have with the products they buy on a very subconscious level. The feeling when owning a product and their level of satisfaction when there received a product – from online shopping, in-store sales reps, packaging.  How the product looks to the comments received from others when they are using it.

 

Basically, when people think of a brand like Rolex, they associate it with luxury and the prestige of owning it. Not many can claim they have a Rolex watch. It’s the idea of Rolex that is synonymous with top quality and exclusivity. Even a second-hand gold Rolex watch fetches top prices because everyone believes its the best watch in the world.

 

It is vital to maintain the image of the brand.  Which is why brands like Rolex are coveted. When you visit the Rolex website you instantly know that you are entering into a world of opulence. And that if you were lucky enough to have one, you would feel proud of wearing it. The functionality, usefulness, and emotional aspects of the product all evoke a deep psychological message to customers using brand, marketing and luxury pricing.

Owning a Rolex

 

Owning a Rolex watch or any luxury builds on the owner’s self-esteem, social role, and popularity. Rolex bases its luxury pricing on the positive attitude of the brand. Things such as:

 

  • the visual attractiveness of the product

  • the prestige of owning it

  • its fame as a luxury item

  • the international reputation of its fineness and quality

  • Its stability to last a long time. Even considering it as an heirloom.

 

Also, the materials in the making of Rolex watches are of high-end quality. Only the best materials used in its creation. But saying this Patek Philippe uses even better materials than Rolex and are officially a more prestigious brand than Rolex by watch connoisseurs  – but most people wouldn’t even know this.

Rolex is the top user of gold and precious gems in its manufacturing factory in Switzerland. They are masters of the ‘dress watch.’ They employ only the best watchmakers in the world and only a few select retailers in the world can sell the watches making it an exclusive club.

 

 

Comparison with other watches

 

All too often, Rolex, when compared to other watches, comes out top – both in terms of price and precision. But did you know that Rolex almost went out of business with the advent of the quartz watches in the 1970s’. What’s more, it was  Japan’s Seiko watches that beat Rolex in terms of time, engineering and mechanical precision. The quartz watch can keep up to a 100th second in terms of accuracy. Something Rolex watches can’t do.

 

 Quartz technology made a mass-produced, cheap, accurate timepiece possible. It threatened the market-leading position of the Rolex in watch engineering. So why didn’t Rolex make a quartz watch? Well, they did, but it was not as successful as Seiko’s or as good.

 

But when it comes to brand imaging, people associated the Seiko to every man’s watch. Hence, Seiko became associated commonly with affordable watches. Even though they have their Grande Seiko range. Whereas the Rolex, conversely, considered by most people as luxury, precise and better. Even though this is not officially true or factual.

 

Thankfully, in the mid-1980s,  the Rolex brand was saved from oblivion. During the advent of the luxury watch industry and due to a culture of excess – in which the appearance of wealth and opulence was the number 1 customer value driver.

 

Implications

 

  • Many watch manufacturers including Seiko try to emulate Rolex in terms of luxury but only one watchmaker continue to come out on top which is Rolex.

 

  • Rolex luxury pricing comes from marketing an exclusive item that only a few can own i.e., risk, status and scarcity.

 

  • Rolex watches are very much in demand as the brand created a collage of emotional and psychological value and risk drivers, such as self-esteem, status, fear of missing out and prestige.

 

Conclusion

 

  • The Rolex pricing and marketing strategy has worked for nearly 100 years. It continues to grow, gaining more new customers at more profitable price points.

 

  • Rolex maintains its reputation with technical perfection using it’s brand and pricing power.

 

  • Owning a Rolex watch is like joining an exclusive club

 

  • Brand imaging is necessary to make Rolex as a luxury item – time and materials are not enough to command higher price premiums.

 

  • Luxury pricing of Rolex watches depends on advertising success, pricing to avoid risk and managing supply and demand.

 

 

If you would like more about luxury pricing scheme, then download our free pricing guide or e-book now.

 

Or, feel free to call me on (2) 91994523

 

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