Can you commoditize luxury? Peren thinks so. We think not.
- Summary:
- Perens is a new watch brand that claims 'affordable luxury.' It is a brave attempt to deliver something that's stylish but is it the same as delivering luxury at low cost? We think that's a non-sequitur.
Patel notes on Facebook:
I think this start up is missing the point. This business isn't about precision. It's about status. A cheap $10 digital watch can keep time just as accurately as a Rolex. But it doesn't say Rolex on the dial.
Someone once asked the CEO of Rolex how the watch business was doing, to which he replied: "I don't know. I'm in the luxury business."
The article that kicked off (sic) the discussion is typical of those that talk about commoditization as though any industry, brand or business can be commoditized:
Founded by talented watchmaker Bica Andrei, Peren watches offers beautiful Swiss designed luxury watches starting at only $190 CAD, making Rolex look ridiculously expensive.
That's a bit like saying the VW Beetle is an affordable Porsche. As it happens, Ferdinand Porsche designed the Beetle, but that's far removed from this assessment. For a start, the article driving the buzz is dubious on facts. A Google search quickly turns up the fact that:
After working as a sport animator at one of the biggest Hotel in Greece for some time, Andy Bica moved to the famous watch capital Biel/Bienne. In 2013 he was selected for various Traineeships at some famous Swiss watch Brands. After returning to Transylvania, Andy Bica has decided to create his own watch brand inspired by his experience in the watchmaking capital of world.
Looking back at the Perens website, we discover that:
There being selected for various traineeships, at some famous Swiss watch brands and after successful accomplishments, I was forced to return in my home birth country due to the latest Swiss voting.
Basically, the founder was kicked out of Switzerland but with something like a year's experience under his belt, he becomes a 'talented watchmaker.' Color me stupid but that doesn't make much sense. A further search shows that a typical watchmaking apprenticeship takes four years but that there are many specialities to be learned along the way, of which design is but one. Does that make Peren a dubious prospect? Not at all.
What Peren have hit upon is that if you bring great design together with low cost supply chain/manufacture but wrap it up in an air of mystique then voila! you can create a brand out of thin air. That's exactly what Peren have done. But that's not the same as a luxury brand.
The meaning of luxury
Luxury is a contextual, ephemeral quality that can be defined in many different ways. The most concise definition I can find says:
A state of great comfort or elegance, especially when involving great expense:he lived a life of luxury
In the case of branded goods, I have repeatedly seen and experienced the reality that 'luxury' brings with it: an emotional, sometimes visceral response. Here's an anecdote that might amuse.
I vividly recall the time one of my clients ordered his second Porsche off the catalog. When it arrived, I got a frantic phone call telling me I had to come look at the car. It was powder pink with silver sparkly bits. It looked like a giant cupcake with sprinkles. Suppressing the urgent desire to laugh uncontrollably, I listened intently as my (very) wealthy client wrung his hands wondering if he could get a swap for a more appropriate color. He did. And it cost a pretty penny. But you get the point.
Luxury carries with it a sense of well being associated with ownership for something that is largely out of reach to the 'ordinary' person. In similar vein, luxury has associations with fame and power. That's why global stars like David Beckham have/had the choice of the brands they choose to support, which fame is, in turn, traded for premium pricing. In recent times we have seen that spill over into goods that have a luxury attachment to them - watches being a good example where brands like Burberry, Montblanc and others have pitched in.
In our own world of technology we have seen similar ideas play out. There was a time when being in the SAP oil and gas tent at SAPPHIRE conferred 'club' status to which oil and gas companies aspire. 'You don't get fired for buying IBM' carries a similar idea. Both carried premium pricing as part of the entry cost.
Commodity pricing for luxury?
So what of Peren's prospects? That's hard to say. The Kickstarter project aimed to raise a modest $10,000 but has already passed $32,000 with 157 backers. Unsurprisingly, the most popular take up is at $190 CAD which gets you a watch that will retail at $250 CAD. That sounds an awful lot like folk shopping for a bargain, the exact demographic which Peren is aiming for. As another commenter pointed out, there's plenty of demand for a sub $300 watch. A fact that Apple has played on with its soon to be released Watch, adding its own brand of magic dust to arrive at a higher $349 retail price.
That in itself has sparked an interesting debate about whether Apple can add enough value to lift its Watch into the luxury end of the range. Arguments continue but my sense is no although I am open to persuasion.
My take
Peren is a very brave effort to capitalize on a trend for watches that, by all accounts, is a market segment doing better than most.
Using a combination of interesting design and low cost economics is a very good way to achieve a given price point but it is not the same as creating or developing a market.
Luxury is a concept that is difficult to commoditize because it has an air of exclusivity that is often matched with premium pricing. Peren is trying to reverse engineer that thinking but I'm not convinced that is the right argument.
From everything I have seen, goods still require active markets into which the new entrant can successfully insert themselves. That in turn requires real marketing spend plus the ability to disrupt existing distribution channels. Right now, we cannot possibly know if Peren will deliver more than to those who are 'investing' in the Kickstarter project.
Using technology to bring this idea to market via Kickstarter demonstrates how (relatively) easy it is to turn an idea into something tangible but that's not the same as creating a market.
The best outside example we have seen to date is Tesla which realized that a certain demographic would pay a significant premium for a good that is both luxurious and different to the mainstream. But even there, Tesla needs vast amounts of capital, an ongoing and enthusiastic base of buyers and yet still remains far from proven as a concept capable of mass production and/or profit. Peren doesn't exhibit the same characteristics. If it had done so with smart watch thinking in the background then I might have viewed this differently.
Image credits: Peren Kickstarter site.
Disclosure: SAP is a premier partner at time of writing.