Rolex stands for wealth and class. If you are lucky enough to own one of those watches, you probably have quite some money. Rolex is the definition of a status symbol and has remained successful since being founded in 1908.
During this time, the watch industry underwent a couple of changes. Nowadays, we have cheap watches with all kinds of features. We even have smart watches for relatively affordable prices. But even throughout that, Rolex remains successful. But who is that possible when all new watches have better features? The answer is Branding.
Crisis and Solutions
In the early 1970s, the watch industry started to change. Japan began to produce quartz watches, which were cheaper and more accurate than classic mechanical watches. So, they quickly started to replace the mechanical watches. This happens in every industry. Innovation brings up new technology, making the other one outdated and replacing it. Companies either adapt or die. But if you are an expert on watches, you might already have thought: “Wait a second. All Rolex watches are mechanical.”. And you are absolutely right. But how did Rolex survive this crisis while, technologically, there were far better watches out there?
The answer is simple: Rebranding. Instead of participating in this race, they just stepped out. They could not compete with Japanese brands like Casio, which were far ahead in producing quartz watches and much cheaper. It would have been a race to the bottom. The most inexpensive watch with the newest technique will win, and the others already have had a head start. So Rolex, along with other Swiss watches like Patek Phillipe and Audemars Piquet, changed their strategy. From then on, they were luxury brands. Their mechanical watches were particularly more expensive than the Japanese quartz watches. And it worked. Those brands became status symbols. Only the rich and successful could afford themselves a Rolex. It did not matter that other watches were more accurate or had other new functions; Rolex remained successful. Even when smartwatches came around, owning a Rolex remained being the dream of many people.
Why did it work?
As Rolex showed, Premium pricing can boost your product. But why?
The first reason is pretty simple. A higher-priced product has a higher perceived value. Take the watches as an example. If you see a 60$ Casio, a 250$ Apple Watch, and a 9.000$ Rolex, which would you think is the most valuable item? Probably the Rolex. You probably think the quality and the material have to be astonishingly good. Otherwise, they would not charge that much, right? The pricing leads you to associate the product with superior quality. As a result, we consumers are more willing to pay higher prices for products we perceive as high quality or luxurious.
Another reason is Social identity. Premium-priced products can become symbols of social status and identity. Consumers may choose these products to communicate their social standing or to align themselves with a particular lifestyle or group. To break this complicated scientific speech down: it is cool to own a Rolex and it makes other people jealous of you. Owning a Rolex is often seen as a symbol of success and achievement, allowing wearers to signal their social standing and financial success. Because not everybody has several thousands of dollars to spend on a wristwatch, not everybody buys a Rolex. That makes owning a Rolex more exclusive and only affordable to people with wealth. And this makes purchasing a Rolex more appealing to people without enough wealth.
The last reason it works is trust. This refers a little to the first reason. If a product is high-priced, we trust it more than a low-priced product. Imagine buying a watch that lasts several years and has excellent quality. Would you trust the $100 Casio or the $8,000 Rolex more? It works because the high price creates trust in the quality. We assume that if the price is high, we will at least get something great for our money. The premium price positions Rolex as an authority in watchmaking, leading consumers to trust the brand's products.
What can we learn from this approach?
But enough of talking about watches that I can never afford. What can you take away from it?
Simple: charge a higher price. The easiest way to make consumers think they will get a higher quality is to charge a price that indicates it. If you fight with other brands about having the lowest-priced product in your niche, that makes you vulnerable. Someone can always do it cheaper, and your profit margin shrinks. On the other hand, if you charge a luxury price, the others will have a more challenging time competing, and you will make more money, which is a nice side effect in my opinion. A high-price product or service indicates quality and creates trust. Therefore, price your product not on the cost of making it but rather on the value it provides.
That does it for this week. Did you like this newsletter? Then please subscribe to my newsletter so that one day I can afford a Rolex myself. Right now, I am 10,000$ away from buying an $8,000 Rolex.
I appreciate you, and see you next week!
