Reheated Leftovers - The Sunk Cost Trap

Yema... a watch maker that apparently makes perishable watches. I got an email regarding my great opportunity to save 40% off of "End of Line Collections". Let that sink in for a moment. A watch is not milk, or even cheese for that matter. Now granted, 40% off a direct (B to C) sale leaves them with 10% MORE than they would get from a retail partner, but the message it sends to retail partners is "f - you", and the message it sends to direct customers is "Sucker, you paid full price!". Now if this were a one-off event it might be excusable, but if memory serves this is not the first large discount sale. And this made me think of the sunk cost trap. Now to be clear, this is a variation of the theme, but because it is happening now with some regularity, it is in line with the construct - in this case, that the brand will do its best to sell, then dump the balance of stock on an annual basis. And this is where the true sunk cost trap comes in - they've already spent the time and money on new product even though they have not "cleared the shelves", and they need the cash to move forward. Surprisingly, they did the same thing previously. Not so surprisingly, they will probably do the same thing in the future. 

So as a public service, I share with you once again, The Sunk Cost Trap -

The Sunk Cost Trap

I think we have all experienced this in one way or another throughout our lives.  For those of you not familiar, the Sunk Cost Trap is the tendency of normal, sane people to foolishly and (if we're being honest) irrationally follow a plan that is clearly not succeeding in its expected outcome.  

Why?

Well, because we feel that we have "SUNK" too much time, and or money into the exercise and we further feel that all of that time and money will be wasted if we changed course.  

Sound familiar?

The Sunk Cost Trap explains why we keep books that we'll never read, and clothes that we've never worn. 

The Sunk Cost Trap explains why some brands continue to "sink" hundreds of thousands of dollars into failing partnerships, celebrity ambassadors and the on again, off again retention of the same PR firm that tends to get signed for a year, then replaced the next year, only to be signed again the year after that.  It's a bit like the Olympics or the World Cup, except that it's every two years instead of four.  

Why?  

Because they've sunk too much money into it now to walk away.

The Sunk Cost Trap explains why blogs and magazines will continue to keep a brand's ads running even though the brand has not paid for an extended period of time.  This is two-fold:

1.  Time spent and money not received
2.  Fear that walking away will ensure that the  brand will never advertise with them again - which is pretty silly when you consider that they are giving the brand free advertising already and not getting paid.  What exactly is it that they are afraid of losing?

The Sunk Cost Trap explains why someone who really only wants one nice watch will buy several discounted through the grey market assuming and hoping that the value of those watches will somehow magically increase in the not-too-long term so that they will be able to flip those watches and have a nice enough profit to then afford that one nice one...  

Which never happens because - you guessed it - they are then trapped by the notion that if they sell the watches they bought on the grey market they will be losing money.  Which, of course, they will.  So they hang onto the not-so-loved watches in the hope that things will change.  Which, of course, they won't.

The Sunk Cost Trap explains why a retailer who continually hoses the brand manager by not paying their memo account when they actually sell something will not be confronted by the brand manager.  

Why?  

Simple, the brand manager has sunk too much time and too much money into the partnership, and even though they often wait a ridiculously long period of time to get paid (making several expensive trips to the retailer to count the safe and prove to them that, in fact, they have sold the watches and need to pay), this "partnership" will live on. Often without the brand manager getting paid, and inevitably seeking new professional opportunities, because sooner or later that brand manager reports to the brand itself, and although they have kept on the brand manager probably longer than they wanted to because of (you guessed it) the Sunk Cost Trap, the brand manager is the easiest thing for them to change.

The Sunk Cost Trap explains why an honest retail  partner will get shafted by a brand who will not provide them with a limited edition watch to sell to their client (at full price) because they want to try to sell it at their own boutique.  Even though they do not have anyone who wants to buy it.  But the fear of having had it, and not selling it?

You get the idea. 

DOXA - What Does It Really Mean?

Okay, there's been a day for the news to settle. And again, while some of us knew about this shift in strategy some time ago, it is clear that the news that the Jenny family are going to take sole control over the DOXA SUB has caused quite a stir in the watch community. Think I'm kidding? Check my email, messenger, LinkedIn, phone and What's App accounts. As I mentioned yesterday, I have not worked directly for DOXA since 2010, and although I have done some freelance work for the SUB, truth be told I have more followed from afar than the day to day. But the more I've thought about it, the press release that went out yesterday has created more questions than it answered.

Now in a typical watch brand (and let's be very honest with ourselves, the SUB might as well have been its own brand, and is far from typical) this would not be much cause for noise. Changes both big and small happen all the time. But this one is going to be a bit different, because, and I am just being honest here, I do not really know if the Jenny's and the semi-new CEO of DOXA, Jan Edocs fully understand how the business has really worked on this side of the water for the past 20 years.

The press release makes mention of DOXA's team in the US -

With the launch of the new www.doxawatches.com website, customers will also be able to learn more about the new Doxa organization and discover the new collections of Doxa Watches for the next quarter of this year. Our dedicated team in the United States under the direct management of HQ in Switzerland will be happy to help and answer any queries.

And this one was a head-scratcher. Because unless I forgot to wind my 8-Day clock and slept through the appointment of the dynamic, crack US based team, if it does exist it is a fairly recent development. Wanna' guess why? Because said team, as far as I can ascertain, are freshly minted (or in the process of being onboarded) to work for DOXA here in the US. And what does this mean? Well, to be clear I don't have an inside line, but I can only assume that it means that Mr. Edocs intends to try and open up retail markets. I also assume that means that he will be reaching out to his former running buddies from his time at Milus (the former, not the current), Versace and indirectly Hanhart. But keep in mind, while these folks have a lot of experience in retail - with big brands with deep pockets, this is going to be something entirely different. It doesn't mean that DOXA won't break into retail here in North America. It does mean that the key to the current business is something altogether different. And that is the direct to customer side of the business.

Now, if the belief is that they can hire some eager, young millennial to man the live chat function and reply to emails? Well, they're in for an interesting learning experience ; )

There is a reason why several bigger brands with larger budgets have tried and failed in the direct to customer business.  And it has NOTHING to do with the fact that they already have brick and mortar presences.  It has to do with the level of attention and interaction that many watch buyers, particularly those who are "Team DOXA", demand.  These are hard-core fans. Some are extremely knowledgeable about the product and watches in general. And they will want to sift through facts and vital statistics, down to the most granular.  And then you have the "Clive Cussler" tribe.  These are people who, in many instances, could not care less about what is in the watch, how it was made or how it stacks up.  They are drawn by their love of Clive Cussler's writing and his fictional hero, Dirk Pitt.  But as this is a very, very expensive purchase for these folks, they need reassurances, and hand-holding.  And believe me, that is more than fair. I needed to be walked very patiently through a $500 used camera purchase at Leica's Boston boutique (and thanks again guys!).

So I thought in the interest of helping lend understanding to some of the challenges that the new Team DOXA USA are going to face, I would share a "day in the life" from my DOXA days:

8:00 - log in to the sales tracking system and check to see if anything came in overnight.  3 sales in.  Check voice mail messages, read and respond to emails, and turn on the Live Chat function.  Email informs me that a customer who ordered a 1000T has changed his mind and wants to cancel the order.  Spoiler alert, 2 days later the same customer orders the same watch again.

8:00 - 8:15 - service issue, the customer has only just sent the watch in a week ago and wants to know what the status is.  Reach out to service department, and let customer know that I will follow-up as soon as I have an update, and gently remind them of the estimated time for service (4 - 6 weeks).  Spoiler alert - the watch is serviced and returned to the customer within 2 weeks of the service center receiving it.

8:20 - 9:15 - potential customer calls in.  Customer walks me through his entire collection (it sounds impressive) and then runs through every feature of the SUB 5000 wanting to know the pros and cons in comparison to his Sea Dweller.  The call seems like it is ready to conclude, and then he wants to haggle to get a 30% discount.  I explain to him that we cannot do that.  He then mentions a retail store in California that has assured him that they can get it to him for 30% off.  I encourage him to follow-up on that as I can't do it.  What customer X does not realize is that I am also responsible for retail, and at that moment we only have one retail partner in Texas who absolutely holds the line on pricing.  I make a mental note that I will probably be getting a call from a California based retailer within the next 36 hours, and I have a sneaking suspicion as to who it is.

9:20 - Spouse of devoted Clive Cussler fan wants to buy "Dirk Pitt's" watch for an anniversary present for her husband, and is concerned that it won't arrive in time.  I ask when the big day is (day after tomorrow).  I then explain that, unfortunately, as watches typically ship directly from Switzerland and as the watch has to go through US Customs, I cannot guarantee it will arrive in time. BUT, I will see what I can do and call her back no later than 12:00 noon.  I then reach out to our retail partner in Texas by email to see if they have the watch currently in stock.

9:55 - phone call: "I work for (insert formerly famous individual's name here) and I want to speak to the owner".  I explain that the owner is in Switzerland, but maybe there is something that I can do to help.  Long story short, at this point in time formerly famous individual was doing some sort of tv based promotional programming and would DOXA be interested in participating (i.e. for a fee as yet to be disclosed because it can only be discussed with the owner).  The caller is clearly working from a script in a boiler room and I suspect has never met formerly famous individual in her life.  But I also realize that we all have to work and I try to politely get her contact info so that the folks in Switzerland can call back.

10:35 - email back from our retail partner in Texas.  He has checked the inventory and the safe and they have 2 models that will fit the bill. Do we want to do a stock transfer so that we can sell it directly?  I tell him absolutely not, I want him to get the full sale and have an opportunity to develop a relationship with the customer. I call the customer back, give her the name of the store owner and his contact info., and let her know that we are here if there are any questions/concerns. I also ask her for her mailing address as we would like to send an anniversary gift. I then pack up two DOXA hats, and put the "away" message on the live chat, and let my colleague on the East Coast know that I am running to the post office - luckily a five minute walk.  Send the hats priority with a note.  Ship some books and marketing collateral to our partner in Texas.

12:05 - bit of a blow-up on the forum (Watch U Seek).  Log in and try to answer questions and concerns. This takes about 90 minutes.

2:05 - customer calls in, orders a GMT.  Short, sweet, easy.

2:55 - customer calls with service issue and wants to discuss the merits of the ETA 2824.  Get an RMA (repair authorization form) sent to the customer with directions for shipping, etc.

4:10 - prop-wrangler for a movie production company wants a watch for himself.  Promises that this will make it more likely that DOXA will be seen by the director or the actors and they will want to wear one. Been down this road before, it NEVER works out that way. I tell them we will think about it. Send message regarding request to HQ.

5:10 - as I am walking out of the office, the phone rings. A store in California wants to order a watch. I say no problem, they can either do it online or I can take a credit card over the phone. How much? I tell them the price. Pause, and then "don't we offer industry pricing, like Keystone (50% off)?". I explain that we can certainly discuss his store becoming an authorized retail partner, but that will take some time. This call goes on for about an hour, with the retail store owner getting crankier and angrier. "Don't you know who I am?!?" I explain that yes, I do. I've seen his picture in Watch Time and iW at in store promotions for some impressive brands. More silence. I explain that we do not sell individual watches for individual one-off sales as it is not fair to our retail partners who have invested in the brand. More silence. I cheerfully ask him if he would like to discuss becoming a retail partner? And... he hangs up.


So, Team DOXA USA, this is a small taste of a typical day. I know that the belief is that you simply need a call center with someone manning the phones. But it is so much more than that. DOXA SUB customers, for better or worse, are involved in a RELATIONSHIP with not only the watch, not only the online community, but with the brand. Think I'm full of it? I've seen some pretty interesting arm tattoos that say I'm right ; ).

When your customers are making such permanent statements about their love for your brand, you will need to be set-up to return that love.

Or as my friend, one of Severin's Children often says -

You can't email a handshake.

Black Friday Repeat

This originally came out nearly a year ago.  And I probably would have let it sit in the closet like an ugly Christmas sweater had I not gotten a promotional email from a "light grey" market site that offered me the rare and wonderful opportunity to purchase "BRAND X's" rare and wonderful price, at the rare and wonderful discount of 65% off!  It also bears mentioning that this "group source e-tailer" also has a section titled:

Sex & Lingerie!

Good to know that after I save a boatload of cash on a grey market watch, I can then purchase some "adult toys", lube, and God knows what else that has fallen off the back of the "cyber truck".

Despite assurances to the contrary, I am still not convinced that the shot callers have really gotten their heads around what is going on right now, and so I am going to air this one out again -

The Myth of Black Friday

So I got the question from more than a few friends and colleagues in Switzerland and Germany -
"What are you doing working, why aren't you out shopping?  Isn't it what you call Black Friday?"

So before going any further I want to be clear that in some retail segments, the carrot of "low, low prices" is a strong motivator.  And as the chaos done to a Nike store will attest, too much food and alcohol, combined a four day weekend and perhaps too much time forcibly spent with family members otherwise only seen at weddings and funerals can drive even the sanest, most rational person to lose their shit.

But what has started to creep into the luxury industry is a growing sense of uncertainty, and this has begun to manifest itself into more random short-term solutions that may (or may not) have the desired impact.  And when we are talking about watches, at least those of a certain price point, we are not talking about the types of things that typically wind up under the average American Christmas tree.  A discounted cashmere sweater?  Sure!  A G-Shock?  Absolutely!  And I have no doubt that there may well be people out there who awake December 25th to find that Santa has left a timekeeper with a retail value of over $5,000 in their stocking.  But I think it's safe to say that in virtually every economy, that is an atypical household.

For those of you unfamiliar with the concept of Black Friday, allow me to inform you that this is a phenomenon that began in the US.  The idea being that the majority of Americans had a day off from work on the day after Thanksgiving (Thursday) and therefore it might be the perfect way to kick off the holiday shopping season.  So that's the Friday part, but the Black aspect was in reference to the ledger books.  As anyone who has suffered through accounting will share, black is good, red is bad.  Black means that you are not losing money.  And the operating theory being that good year or bad, the amount of sales going on would push you firmly into the black for the remainder of the year and that everything after that would be profit.  And from this, we then moved to Cyber Monday.  And in fact, hell, let's just make it Black December because truth be told, nobody can tell the difference any more.

Now in the high end watch business (and let's lower the bar a little and say that is anything over $1,000), there might have been the 10% or 15% deal.  Or retailers would park all of the "pre-owned" or discontinued models in a "Holiday Special" show case.  But it was understood that this display case was the watch equivalent of the Island of Misfit Toys.  If you wanted something desirable you were maybe going to get a small discount, but nothing of the magnitude of what we are seeing this year.  And this discounting mania has moved beyond just the retailer to brands offering 25% off on their own websites.  They are essentially working to move product under the guise of a holiday promotion.  This, in turn, succeeds at then driving the grey market, Mass Drop and Touch of Modern prices to dip even lower than they already are.  I received nearly hourly email promotions on the most recent price discount on Touch of Modern and Mass Drop over the holiday weekend.

Now whether or not these deep-discount sales promotions will succeed in saving the brand's bacon remains to be seen.  But what this really all comes back to is what I've been saying for YEARS - over production.  If your product is scarce, it will be desired.  You can then demand a premium price.  When your product is everywhere, it becomes less exclusive.  Moreover, it manages to lower the desirability of other brands at the same level or price point.  The only exceptions that readily come to mind are Patek Philippe and Rolex.

Put another way, just as a high tide will raise all the boats in the harbor, a low tide will bring them all down.  Supply and Demand is a pretty simple concept, and when you continue to ignore it for years?  Well let's just say it will take years to undo the damage.  And maybe those brand CEOs who refused to forgo the high life for the sake of their brands and their employees should be getting coal in their stockings, and maybe a visit from Krampus ; )

Happy Holidays from Krampus

Happy Holidays, and enjoy your watches!

Blind Discounting....

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:

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

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

Customer:
"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 -

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

Customer:
"I'm an orthodontist."

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

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

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

Customer:
"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.

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

Customer:
"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 ; )