The Apple Watch went on sale today and while many in the tech industry have been wondering if Apple have once again created a new tech market – doing for the smart watch what they did for digital music players in 2001 – from a marketing perspective it’s perhaps more interesting to consider what effect they will have on luxury marketing.
Apple’s most expensive model on the UK site today, the Watch Edition 38mm with yellow gold at £13,500. Of course there’s nothing new in a watch that costs that kind of money. Apple’s head of retail Angela Ahrendts’ old employer Burberry sells a watch at this price point. The difference is that the Burberry watch obeys all the usual rules of marketing a £10,000 – £15,000 luxury watch: It’s a limited edition, has a custom mechanical movement that will not date, is assembled by hand in Switzerland and is sold in a very exclusive retail environment.
To compare the two watches
Luxury branding has traditionally relied on five factors:
Historically the luxury brand must deliver over and above that of the regular brand. For example a Farrari is not just fast, but it is built to offer a unique driving experience. Prada handbags are hand stitched. The Apple Watch performance is exactly the same as the standard version and it’s manufactured in the same factory in exactly the same way.
Louis Cartier, Enzo Farrari and Coco Chanel all impart a special history to their brands and part of the appeal of many luxury brands is that they have a timelessness. Fashions come and go, but the Burberry Trench Coat and the Cartier Tank Watch have been largely unchanged for nearly a hundred years. Whist some of the original Apple products like the Lisa do now sell for thousands of pounds this is because of there rarity value. Smart watches are on a yearly cycle, where the marketing of the new updated versions will necessarily be focused on convincing existing owners that their current version is out of date.
Paucity (or the impression of it) is vital for luxury brands. For an example of what can go wrong look at what happened to Burberry ten years ago, when it seemed like every other teenager was sporting a Burberry baseball cap. Angela Ahrendts is credited with turning Burberry around and I’m sure this experience is what Apple are at least in part interested in, because if there is any brand that is ubiquitous it’s Apple. Crafting a luxury brand from a brand that is part of everyone’s daily life will be a challenge.
Visually there is little difference between a luxury and a premium brand identity. The problem for Apple is being both at the same time. Back in the 90s when Mercedes wanted to extend its product range from the premium £80,000+ market into the £300,000+ luxury car market they reinstated the Maybach brand. The reasoning behind it was that it’s customers would be reluctant to tell people they had a Mercedes for fear that their friends would think that they had an “ordinary” car. Apple have chosen not to create a new brand for the luxury versions of their watches. The question is, will the gold colour alone be enough of a differentiator?
Pricing is incredibly important for luxury brands. A key part of their value is in their exclusivity, in economics this is called the Veblen effect. Veblen goods do not follow the usual rules associated with supply and demand. For most products when the price falls, demand increases, but for Veblen goods, reducing the price will reduce their desirability because exclusivity is a major part of their appeal. In the case of the £13,500 Apple Watch, its exclusivity is clearly attractive for some wealthy customers.
Just how successful Apple’s foray into the luxury market is, only time will tell. In the absence of superior build or performance, will a luxury price tag be enough to sustain a ubiquitous premium brand like Apple in the rarefied world of the luxury brand?
Many other brands have managed to have both premium and luxury products. For example Dom Pérignon sell champagne at both the £100 and £1,200 price points. The difference is that up until now brands have started as luxury brands and then extend down into the premium market. Apple is trying to go the other way.
Right now their top end watches are sold out, perhaps over the coming weeks we’ll find out just how many sales this actually is. Assuming they have been successful, will it last? What happens to that highly desirable watch next year when it’s functionality is out of date? There is nothing timeless about Apple’s timepieces. Will buyers of the luxury version continue to upgrade like Apple’s regular consumers – Patek Philippe customers don’t discard their current watch when a new one comes out, in fact they generally appreciate in value over time.
Perhaps most importantly, if Apple pull it off could this strategy be replicated by other brands? Could a premium brand like BMW generate demand for a luxury model, simply by making a few tiny cosmetic tweaks and increasing the price by a factor of ten?