Friday, July 1, 2016

Summer Rerun - Blind Discounting

This originally ran nearly three years ago, but given the continuing volatility of the watch market, it seems a good one to air out -

So some time ago, I wrote about the dangers of discounting.  I wanted to relate a story back from my days at DOXA where I would often be selling direct.  This would often involve someone calling in and wanting to negotiate.  The conversation would often go something like:

"There's no way it costs you THAT much to make!"

"I hope not, because they need to pay my salary!" (insert gentle, friendly laugh).

"Well, it's still more than it SHOULD be... what is your BEST price?"

Now this is a phrase that I have really grown to hate - your BEST price?  My BEST price is the price on the tag!

So I took a different tact -

"Just curious, what do you do for a living?"

"I'm an orthodontist."

"So how much does a full set of braces cost?"

"I'm not entirely sure, I don't do the billing..."

"So, if I needed braces, would I be able to get them for 30% off?"

"Of course not!  I can't go discounting braces!"

I then said nothing, and after a moment heard a soft laugh on the other end of the phone.

Tell you what, I would be very happy to include a rubber dive strap and a hat for you as a thank you..."

"Okay, done!"

Now, I already know what many of you are thinking.  And I want to be clear, I am not saying that it is necessarily right or wrong to discount.  Ultimately that is at the discretion of the watch retailer and the brand.

But let me give you an example of where blind discounting threw a brand off the rails - Anonimo.

I have no doubt that there are a million reasons offered as to why Anonimo didn't quite make it.  But I want to make one point - Anonimo were in a MULTITUDE of retail locations, and often did not have good follow-up/support for the retail partners.  This was also an issue for customers, often waiting half a year or MORE for service and support. 

And I want to make something very, very clear - they could have possibly recovered from that.  But check the discussion forums and their were typically two topics - poor service and support, and discounting - i.e. where can I get an Anonimo for 30% or less? 

When I worked at Tourneau 1.0 in San Francisco we had Anonimo and they sold well enough.  But often there was such a desire to move the watch quickly, that before a customer even asked, they would be offered 30% off.  So from that point on, the perception is that the watch was over-priced by AT LEAST 30%.

Whether right or wrong, blind discounting has a few definite effects:

1.  Most retail stores will shy away from carrying the collection if it is readily found on Grey Market sites or Shop NBC.

2.  With those retail locations drying up, the brand will have fewer and fewer options other than to sell their watches almost exclusively on, yes, Shop NBC.  Gevril had momentum, had a beautiful watch with the Avenue of the Americas - and now it would seem pretty difficult to find Gevril in a retail environment.  But there it is on Shop NBC.  And of course, as with all things Shop NBC the price has been discounted - at least that is our presumption.  So does that mean we were paying too much before? 

3.  Customers who bought the watch at full retail now feel, to quote my Canadian friends, HOSED. 

4.  The re-sale/trade value of the watch plummets. 

5.  The public perception of what the watch is "worth" heads south along with the "price" and its associated "re-sale" value.

Now, a certain blog out there will say that Shop NBC is, in fact creating a new way to shop, etc.  Maybe, but at it's heart Shop NBC is essentially a mechanism for brands to offload stock that isn't selling without trying too hard.  People who shop there get a better price than they normally would - fair enough. 

But you don't get a little bit pregnant.  If you sell on price, you will lose on price because someone is ALWAYS willing to go lower.  This is fine if you are selling socks and t-shirts.  Not so good when you are selling watches that are supposed to be "exclusive" and priced at several thousand dollars each.

Blind discounting is a short-term solution to a bigger problem.  A watch might not be selling for quite a few reasons:

1.  It was priced too high to begin with
2.  The brand do not have sufficient support in a given market
3.  The brand over produced the watch and now have too much stock
4.  The brand has not supported their retail partners
5.  The brand and the retail partner have given their customers poor to non-existent after sales service

So watch brands - consider this, it is far less expensive to price your watches appropriately and pay for the support than it is to try and continually re-launch your brand.  Anonimo right now is STRUGGLING, Hanhart is missing in action.

I mean no offense to anyone - customer, brand owner/manager, retail store or even Shop NBC.  I only ask that the next time you demand a deep discount on a watch, consider whether or not you are ready to  discount the next set of braces you sell ; )

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