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What do the watch industry hate more?

  • Replicas

    Votes: 70 85.4%
  • Grey Market

    Votes: 12 14.6%
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A wee thought popped into my head and I'd like to know what the WIS community think.

Replicas are bad, I think we can all agree to that. The watch industry works tirelessly to limit their output etc. But it can be argued that the replica market does not harm the luxury watch industry as much the grey market.

The guy or gal buying a replica watch was never in the market of the real thing. He/she probably had the choice of a fake_____ or a decent quartz; my point is that the luxury watch company didn't lose any money because that person was never going to be a costumer.

The same guy or gal who is wanting to buy the real thing can get a healthy discount buying the item of the grey market. This means that the company doesn't get its full MRSP , which may knock profits. Also, the watches become more common and less exclusive which hits the brand image.

So which do you think the pisses of the what industry more replicas or greys?
 

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The watch manufacturer still gets their price in the grey market. They sell to the ADs at a fixed price. The discounts in the grey market are taken out of the AD's portion. I suspect most grey market watches are supplied by ADs, so not sure they are feeling the hurt either. It is possible the manufacture doesn't like it because discounted prices may negatively affect their image.

I assume manufacturers have a bigger problem with replicas.
 

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I think...if I was the manufacturer of anything...a grey market item is something that happens after the sale and still represents my product sold at wholesale level and an accounts receivable item. It wouldn't really hurt me all that much if at all. I still made it. I still delivered it to a supplier, I still made my money.

A replica product gets all the advantage of my hard work and investment in advertising and returns absolutely NOTHING to me.

As a dealer it would probably be the opposite. The grey market item represents the loss of a sale, someone eating my lunch without paying for it and the replica sale being a customer I never had a chance at anyway.
 

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In before the lock.

But yeah, I have a hard time seeing how these compare - both the grey market and fakes "cheapen" the brand's image in some sense, but only of them is both fully legal and gets the genuine product sold and the manufacturer paid the same as though the watches had been sold through an AD. Distributors and dealers, not the manufacturer, are the ones taking a haircut to sell through the grey market.

I mean, if you were a lawyer, which would you prefer? A client who pays you for your advice but ignores it anyway, or a random guy who does something stupid and claims you're his attorney and told him to do it?
 

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If a watch brand truly had issues with grey market sales, there are well established ways of counteracting this. This includes cutting dealer margins, reducing the AD network, and instituting tighter controls. Look at what Rolex and Patek does with their AD network to get an idea of what can severely curtail the grey market. Ultimately, it boils down to having a MSRP that realistically reflects what people are willing to pay for their watches.
 
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If a watch brand truly had issues with grey market sales, there are well established ways of counteracting this. This includes cutting dealer margins, reducing the AD network, and instituting tighter controls. Look at what Rolex and Patek does with their AD network to get an idea of what can severely curtail the grey market. Ultimately, it boils down to having a MSRP that realistically reflects what people are willing to pay for their watches.
I respectfully disagree with the last statement. Saying that people have a high willingness to pay (close to MSRP) for a Rolex/Patek completely ignores the other side of the equation which is "what they actually have to pay". Just to give an example, you can have a guy who has a very high willingness to pay for an Omega (let's say even above MSRP) but since there are plenty of grey market dealers offering the same watch for 75-80% of MSRP, then this guy will only pay that much. Does that mean Omega is "overpriced"? Clearly not to this theoretical individual since he was willing to pay more but was able to purchase the watch for less.

I think when it comes to luxury goods like watches that have very little intrinsic value (relative to MSRP), grey market prices reflect availability of product more than willingness to pay. The reason Rolex/Patek has very high resale and grey market value is because they are able to control their supply better by being more selective in choice of dealers or artificially limiting supply (I'm not sure about the actual numbers on this), not because people have a very high willingness to pay (close to MSRP) for their product.

Besides, while in theory willingness to pay is independent of price, in reality we all know this is not the case. Part of the reason why people are willing to pay a lot for luxury watches is because they believe/know that other people also have a high willingness to pay for the watch (often by looking at secondary market value). That is, high end luxury watches have common valuations (like high-end art) rather than private valuations (like say a burger). So is the 'street' price for a Rolex high because people have a high willingness to pay for it (your argument) or do people have a high willingness to pay for a Rolex because the street price is so high?
 

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I would say replicas. I wouldn't be surprised if they were selling to the gray market dealers themselves. They don't want AD's discounting their watches as soon as discounts come along it is hard to stop. And it weakens the branding. Because lets face it that is what you are paying mostly for once you get over a thousand or so. But they know there are cheap skates out there. So they get the best of both worlds. The cheap buyer goes to the gray market and the person who isn't cheap pays full price. They get the same amount of money either way.

I was on a site the other day and there was an ad from overstock.com that had a watch for 144,000 dollars appear. I don't know but if I am paying over 140,000 dollars for a watch I am not buying it from overstock.

But either way it shouldn't be hurting the more expensive brands anyway. It isn't like someone who is buying a replica Panerai or Rolex is going to buy one of the real things if the replica wasn't available.
 

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I respectfully disagree with the last statement. Saying that people have a high willingness to pay (close to MSRP) for a Rolex/Patek completely ignores the other side of the equation which is "what they actually have to pay". Just to give an example, you can have a guy who has a very high willingness to pay for an Omega (let's say even above MSRP) but since there are plenty of grey market dealers offering the same watch for 75-80% of MSRP, then this guy will only pay that much. Does that mean Omega is "overpriced"? Clearly not to this theoretical individual since he was willing to pay more but was able to purchase the watch for less.

I think when it comes to luxury goods like watches that have very little intrinsic value (relative to MSRP), grey market prices reflect availability of product more than willingness to pay. The reason Rolex/Patek has very high resale and grey market value is because they are able to control their supply better by being more selective in choice of dealers or artificially limiting supply (I'm not sure about the actual numbers on this), not because people have a very high willingness to pay (close to MSRP) for their product.

Besides, while in theory willingness to pay is independent of price, in reality we all know this is not the case. Part of the reason why people are willing to pay a lot for luxury watches is because they believe/know that other people also have a high willingness to pay for the watch (often by looking at secondary market value). That is, high end luxury watches have common valuations (like high-end art) rather than private valuations (like say a burger). So is the 'street' price for a Rolex high because people have a high willingness to pay for it (your argument) or do people have a high willingness to pay for a Rolex because the street price is so high?
I think your analysis is naive, and the reality is that these two things are intertwined. The question is not whether there exists at least one individual willing to pay full retail for a watch, but rather if there were X watches available for sale, what the X-th buyer is willing to pay for the watch. Put another way, what is the lowest price you have to sell a watch for in order to sell out your stock within a reasonable period of time.

ADs have less of a temptation to sell to grey market dealers if the number of people willing to pay close to full retail is close to the stock levels that an AD is required to maintain in order to maintain their AD status. If you're required to carry $500K in stock in order to maintain your Patek or Rolex AD status, and the stock sticks around for years before you're able to sell the item for close to MSRP, then you're much more tempted to liquidate part of your stock through a grey market dealer. In contrast, if you have a product that you always have a full waiting list of people willing to pay full retail for, then there is absolutely no temptation to sell to a grey market dealer unless you're loosing your AD status.
 

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I respectfully disagree with the last statement. Saying that people have a high willingness to pay (close to MSRP) for a Rolex/Patek completely ignores the other side of the equation which is "what they actually have to pay". Just to give an example, you can have a guy who has a very high willingness to pay for an Omega (let's say even above MSRP) but since there are plenty of grey market dealers offering the same watch for 75-80% of MSRP, then this guy will only pay that much. Does that mean Omega is "overpriced"? Clearly not to this theoretical individual since he was willing to pay more but was able to purchase the watch for less.

I think when it comes to luxury goods like watches that have very little intrinsic value (relative to MSRP), grey market prices reflect availability of product more than willingness to pay. The reason Rolex/Patek has very high resale and grey market value is because they are able to control their supply better by being more selective in choice of dealers or artificially limiting supply (I'm not sure about the actual numbers on this), not because people have a very high willingness to pay (close to MSRP) for their product.

Besides, while in theory willingness to pay is independent of price, in reality we all know this is not the case. Part of the reason why people are willing to pay a lot for luxury watches is because they believe/know that other people also have a high willingness to pay for the watch (often by looking at secondary market value). That is, high end luxury watches have common valuations (like high-end art) rather than private valuations (like say a burger). So is the 'street' price for a Rolex high because people have a high willingness to pay for it (your argument) or do people have a high willingness to pay for a Rolex because the street price is so high?
The reason Rolex and Patek hold their value is because more people are willing to pay full price for them new. If Omega and Zenith were able to have more people willing to pay full they would not have so many watches on the gray market. Rolex and Patek do a better job of marketing. People think of these brands and they think expensive status symbol. Omega has to discount to sell their watches. It isn't the gray market discounting them 30 percent it is the general public doing this. Gray Market prices are a symptom not a cause.
 

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As most grey market watches come from ADs I can't see how it would harm a manufacturer as they still get the same price regardless of what the watch retails for.
It could be argued that people who buy replicas wouldn't buy the real deal. This may be partly true but a good number of replica customers would buy the real thing if copies weren't available.
 

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The reason Rolex and Patek hold their value is because more people are willing to pay full price for them new. If Omega and Zenith were able to have more people willing to pay full they would not have so many watches on the gray market. Rolex and Patek do a better job of marketing. People think of these brands and they think expensive status symbol. Omega has to discount to sell their watches. It isn't the gray market discounting them 30 percent it is the general public doing this. Gray Market prices are a symptom not a cause.
Exactly the point I was trying to make.
 
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The reason Rolex and Patek hold their value is because more people are willing to pay full price for them new. If Omega and Zenith were able to have more people willing to pay full they would not have so many watches on the gray market. Rolex and Patek do a better job of marketing. People think of these brands and they think expensive status symbol. Omega has to discount to sell their watches. It isn't the gray market discounting them 30 percent it is the general public doing this. Gray Market prices are a symptom not a cause.
How do you know that Rolex and Patek hold their value because more people are willing to pay full price for them new and not the other way around? It could be that people are willing to pay full price because they know that the watch will retain value. Just browsing various watch forums, I think it can be argued that there is a Rolex "bubble" particularly for their stainless steel sporty models. Some people are buying these up not because they think they are 'worth' their price but because they think they can sell them at cost/close to cost/with profit.
 

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How do you know that Rolex and Patek hold their value because more people are willing to pay full price for them new and not the other way around? It could be that people are willing to pay full price because they know that the watch will retain value. Just browsing various watch forums, I think it can be argued that there is a Rolex "bubble" particularly for their stainless steel sporty models. Some people are buying these up not because they think they are 'worth' their price but because they think they can sell them at cost/close to cost/with profit.
We can speculate all we want about why the prices are the way that they are, and why people aren't willing to pay closer to retail for an Omega or Zenith as opposed to a Patek or a Rolex. Whatever the reason might be, the reality is that many people balk at paying full retail for an Omega because it's brushing up to the retail price for a Rolex, and that gives them pause. In practice, this means that even in the absence of a grey market, it is difficult for an Omega AD to charge full retail for an Omega except to the most clueless customers.
 

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We can speculate all we want about why the prices are the way that they are, and why people aren't willing to pay closer to retail for an Omega or Zenith as opposed to a Patek or a Rolex. Whatever the reason might be, the reality is that many people balk at paying full retail for an Omega because it's brushing up to the retail price for a Rolex, and that gives them pause. In practice, this means that even in the absence of a grey market, it is difficult for an Omega AD to charge full retail for an Omega except to the most clueless customers.
Again, I would have to disagree. There's no way to actually prove/disprove this statement mainly because we don't observe this counterfactual with no grey market dealers. Given the current reality, I agree with you that you would be stupid to pay full MSRP (even if you were willing to pay up to that price) when you can get the same watch discounted elsewhere. But how do you know that, absent grey market dealers, people who currently own Omega/Zenith wouldn't want to purchase them for MSRP. Because they're not doing it now? It seems to me your argument is that since people pay full MSRP for Rolex but only 80% MSRP for Omega/Zenith that those 2 brands are overpriced where as I think this line of thinking is very naive and things are much more complicated than that. People don't want to pay full MSRP because grey markets exist and now you have to look at why grey markets exist for some brands but not others. It could be that MSRP is too high relative to what people are willing to pay. It could be that the profit margin for the AD is too high enabling them to undercut each other for quicker turnover and still make a profit. It could be that there are simply too many watches produced or too many dealers selling the watch (oversaturation) again encouraging undercutting. It could be related to manufacturer policy as well (some manufacturers might police their distribution channels more to look for 'leaks' to grey market). There are many reasons as to why the grey market could exist and to simply conclude 'overpriced' without looking at the big picture is more naive in my opinion.
 

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The watch manufacturer still gets their price in the grey market. They sell to the ADs at a fixed price. The discounts in the grey market are taken out of the AD's portion. I suspect most grey market watches are supplied by ADs, so not sure they are feeling the hurt either. It is possible the manufacture doesn't like it because discounted prices may negatively affect their image.

I assume manufacturers have a bigger problem with replicas.

Exactly!

You have to remember that the margin that brands earn per piece is very very big so grey market is not the enemy is just another sales channel.
The real problem is replicas. And you are wrong by assuming that people buying replicas can´t afford the real thing, there are people with hundreds of replicas that translated to $$ well, you get the point. Besides not all replicas are cheap, the good ones costs several hundreds.
 

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I work in marketing for a different industry that has grey market and counterfeit/replica challenges. No doubt grey market is preferred over counterfeit/replicas because as has been mentioned, with grey market the manufacturer still gets a cut. With grey market issues the manufacturer has control of their own destiny. It still is not optimal as it hurts the brand, hurts relationships with (faithful) authorized resellers and leaves money on the table for the manufacturer.

However grey markets and channel conflict can be managed internally through commitment and savvy. It is not easy and all manufacturers are not competent in this area. It is a leap of faith and a one-time sales hit to reign in the problem. To reign things in discipline is needed and it is a long term gain. The more a company is beholden to shareholders the more politically difficult it is to both pull the trigger and sustain. Manufacturers with significant grey market issues have sloppy business models and Marketing is not driving the bus. This is a long term death spiral for any luxury brand.
 
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