WatchProSite Moderator Patrick_y, was a fan of magic and illusion shows since a young age. Not only because he enjoyed watching magic shows, but he enjoyed the challenge of figuring out how a trick was done. In this article, our moderator peels back the curtain and describes the Master Plan behind today's "Drop" culture... Warning, this is a long article that is best consumed in its entirety in one sitting.
Portrait of Mr. Burns from "The Simpsons" (Photo from FOX Media)
Omega and Swatch, along with parent company Swatch Group has been planning this MoonSwatch launch for many moons...
One is US$6000 and one is US$260. Can you tell the difference? Photos from Omega and Swatch Websites, respectively.
In today's "drop" culture, products are launched at a very specific time and with the entire intention to generate "chatter" on social media. Notice, chatter is the priority, an even higher priority than revenue and profits. All drops need to "sell out" in the first few hours, two days is the limit for any product, and for luxury goods, 2-5 minutes is the ideal sell-out time. This sell out in a relatively short period of time promotes the fact that the brand is desirable. So when a MING sells out in 5 minutes, that reinforces the mindset that the product is desirable. Furthermore, the brands understand consumer psychology, so they are playing games to manipulate that consumer psychology to give the brand the best advantage! And to all of the people who say they're not influenced by marketing, marketers are happy to let you keep on believing that you're immune.
In the case that a product does not sell out in the specified time allotted, most of the time, a "Click Here To Be Added To The Waitlist" button is added where the "BUY NOW" button was. This can be DONE REGARDLESS IF THE DROP IS ACTUALLY SOLD OUT OR NOT. The reason why this is done, is that it adds urgency, and reinforces that urgency. Imagine you're on the fence of buying something. And before you click the "add to cart" button you hesitate - you are spending thousands of Dollars/Euros/Francs on something you don't need. Even if you were going to pass, if all of a sudden the choice to buy is taken away, your mind would interpret this as a loss of opportunity. Your mind even says to itself, "I would be willing to pay a small amount of money, $100 perhaps, to buy an option." That is exactly what it is, an option, like a "stock option" which you pay to have the right to buy a quantity of a specific stock by a certain time. Once you get an email back stating "you've been selected from the thousands of waitlist applicants" you'll buy the product on the spot with little hesitation, even if you weren't going to buy it initially!
Why have retailers and vendors gone to "Drop Culture" and what are the benefits? Well, for one reason, consumers are human, and thus flawed with human psychology, once you have a grasp of it, human buying behaviors can be easily predictable. Second, it creates urgency. I'll give you another example. Let's say you could buy an Omega Speedmaster Moonwatch for $6000 US Dollars any day of the week. You've got no urgency there. But let's say, I only allow you to buy this watch on a specific date... You've got urgency, because you don't have the luxury of time nor choice! Retail salespeople hate the words, "I'll think about it" because the consumer has all the power. Retailers want to hear the words, "I'll take it." But when there is plentiful supply and it's a commodity product, then the consumer has first-mover advantage. What if a retailer could take away the consumer's ability to think about it? That's what they've done. Drop culture has reduced the consumer's option to say "I'll think about it." Once consumer thinking is out of the equation, they're much more likely to be more emotional and less rational. Combined with the fact that prices are ever increasing, and post COVID you-only-live-once mentality, consumers have been conditioned to be more decisive than ever before.
We all know that Swatch Group owns both Swatch Watch Limited and Omega SA. They have made an interesting product - the Omega Speedmaster MoonSwatch. This is an Omega branded watch (there is an official Omega logo and an official Speedmaster logo with the trademarked markings) that will be sold out of Swatch stores! What will the best way for the parent umbrella corporation to proceed in order to maximize its key goals - those goals being maximizing revenue and maximizing chatter? As a fan of strategy (I study retail sales and marketing strategies for fun) combined with my understanding of consumer psychology, the following would be my plan if I were on the Strategy Team at Swatch Group.
Credit: Lilo and Stitch Cartoon - Disney Films
1. Part I, maximizing the hype... The current launch date is 26-Mar-2022 at a number of key stores around the world. There are only 12 stores in the USA that will sell the watch. If I were a consultant for Swatch Group, I would suggest that the chosen stores all have a very limited amount. Around 100-150 units per store. That's incredibly few, at an average of 125 units per store, 12 stores, that's only 1500 units! At $260 each, that's only $390,000 USD in revenue! Every client is limited to only 1 or 2 pieces, remember, you want clients to post this on social media to give you free marketing! So you definitely don't want them buying more than 2. Another rule, if they buy two, they have to choose two different colors! You can argue limiting it to 1 per person so they can reach more people, but with 2, the TikTokkers and Facebookers can compare and contrast between the two colors and give more opinion and content. Assuming that most stores typically open around 10AM on Saturday morning, by 12PM, the watch should be sold out, since there's only around 100 units per store. Giving your brand solid street credit as a desirable brand. Some stores may even have a line out the door. Expect photographs of these lines! It is free marketing when people take photos of people queuing for a product! I would even have the sidewalk painted at 2 meter intervals (COVID Spacing recommendation) with MoonSwatch logos to further promote the product and to help inform passer-by what these people are waiting in line for! Passer-by who don't care for watches will be posting on their social media "Crazy line outside @Swatch store for something called a #MoonSwatch."
1a. Details... From a USA perspective, the city that has the most amount of influencers and hype is Los Angeles. However, Swatch Group does not have a Swatch store in LA! Wow! Considering the importance of the market, the beautiful backdrop and scenery, etc. This was a likely mistake not to do a temporary pop up shop in LA for this launch. Another aspect to consider is security. Hopefully the stores will have security guards. With the recent crime wave and an unprecedented amount of mass shootings in the USA - the weekend of 19-20 of March, 2022 saw several large mass shootings in USA, Swatch Group wouldn't want any negative incidents related to its watch launch. A PR crisis team should be on standby in case something happens.
2. Part II, maximizing the revenue... By 12PM on 26-Mar-2022 all the watches will be sold. But Swatch Group just did a big risky maneuver on its Omega brand. It's not going to do it for a paltry $390,000 in revenue from USA. Assuming that USA gets around 15% of the world's volume, that means there are only 10,000 units sold worldwide; equating the entire world only generated $2,900,000 in revenue or around 2,600,000 Swiss Francs. Still a tiny number to a group that does over 7 Billion Swiss Francs a year. The Hayeks are very smart people who didn't become experienced, powerful, and influential by undercapitalizing nor fumbling big projects. Furthermore, with the risk they took on the Omega brand, they're expecting a huge return. The hype and "chatter" on social media generated by MoonSwatch will be tremendous and will spread like a virus to an even larger audience. Ideally, Swatch would like to see these watches resell on the secondary market for multiples of its $260 USD or 250 CHF price tag (bringing in a whole new wave of profiteers to the watch market unfortunately). Millions will be talking about it at the dinner table, on social media, and at the workplace. Soon, over a hundred million people worldwide will know about the MoonSwatch, and a percentage will desire one. My studies have shown, that at a set time, roughly 2-3 weeks after the first drop, is the best opportunity to strike with a follow up drop, just to keep the hype alive and to keep it from dying down. This drop will be a follow up to the initial drop on 26-Mar-2022. So expect another drop in mid-April. Note, Mid-April is a tricky time for USA retail, since this is income tax season for most US residents.
2a. Details... How to do the second drop... There's a fine balance between launching a drop perfectly and launching a drop imperfectly. Details matter. Swatch Group is likely considering two plans. An online drop with shipping and possibly store pick-up. Or a store-only drop. For the USA market, a store-only drop is logistically difficult - you've got a large market, and you don't have stores in every major city which limits how many you can sell. So if you limit it to store-only, you lose a large percentage of the market that doesn't have access to a store. Los Angeles, for instance, doesn't have a Swatch store! New York City has at least five! An online drop allows you to reach a wider audience but is also expensive, as it requires tremendous distribution/fulfillment capacity - perhaps Swatch has already hired a fulfillment/distribution/drop-shipping company to help with these logistics. This second drop needs to maximize the revenue for Swatch. Swatch will possibly sell over a million of these watches, each million units generating roughly 260 million Swiss Francs in revenue! If Swatch does sell 4 million units over two years, that would be 1,040,000,000 Francs, or over a billion Francs in revenue! Keep in mind, the entire Swatch Group (Omega, ETA, Electronics-division, Breguet, Blancpain, Longines, etc.) - the entire Group is a 7-8 Billion Franc a year revenue company! That'd be a home run!
2b. Third drop??? I don't know if Swatch will do a third drop, I think a second drop that is in the millions, would be sufficient, but I haven't made demand predictions nor demand models, and I don't have the data Swatch has. Doing a third drop for a limited time is a possibility, but hard to say overall. But the plan would be similar to plan 2, just even bigger and even wider. If drop 2 is not online, drop 3 will likely be online.
3. Part III, Lasting Impacts... If plan 1 and 2 are well executed, there will be a lasting an impact to watch society... As mentioned there will be a whole new wave of profiteers and scalpers who target the watch market, this is an unfortunate likely reality. After this, Swatch will likely see an increase in demand to the normal Omega Speedmaster. After all, a million (or many millions) MoonSwatch-es will have been sold, 1-3% of that population will want to buy big-boy Omega too. A whole generation of younger Swatch buyers will want an adult-version Omega watch too! Will there be a shortage of Omegas? Perhaps one day! Swatch Group may even ask its subsidiary Omega to cull production to give it a Rolex Daytona or a Patek Philippe Nautilus scarcity. As I already professed earlier, perceived scarcity makes a product more desirable. Regardless of what the plan is... If you always liked the Omega timepiece, buy it now! This is definitely a Swatch Group plan to increase demand of Omega products, but there may not be a major plan to increase supply!
Swatch Group has taken an unprecedented risk here with one of Omega's top selling watches the Speedmaster... But, rest assured, there is a very long-term plan. Maybe more super-high auction results are to come like the November Phillips auction? I was in the room when Lot 53 sold for more than $3.4 Million US Dollars, more than 20x its original estimate. Was it all part of the plan? Photo credit: auction photo, by the author Patrick_y, the photo of the watch is by Phillips.
The takeaway should be that consumers are always being manipulated by marketers. The majority of concert goers don't know that their tickets are often scalped by the band's promoter and agent themselves (often with permission from the band as long as the band gets a kickback), this secret was finally partially exposed in July 2019 in a Vox news article about 80,000 Metallica concert tickets were actually resold by the promotion company - yet this has already faded from memory allowing for more manipulation. And one of the reasons why people are buying watches more than ever now is because they see that watches are a good store of value! Why are watches now a great store of value? Because the resale market has helped the manufacturers so much by buying up all the inventory and creating a markup, a decrease in availability, and overall a perception that prices are higher. In the past the resale/grey market used to be the thorn in the side for the watch manufacturers, today with the insane markups on watches, the resale/grey market is now helping watch manufacturers sell their inventories faster than ever, as people now see watches as a great "investment." Manufacturers and brands armed with McKinsey consultants and top students from the Sorbonne are now factoring this drop culture, social media, resalers, grey-market, and scalpers into their marketing and sales strategies to take full advantage. The best McKinsey consultants and top of-their-class from the Sorbonne have made it their mission to create desire for their products in the eyes of the consumer, and they are likely to succeed. This is an excellent plan, with both a short-term and long-term playbook. From a business perspective, all I can say is, Bravo. Bravo! Or as Mr. Burns from The Simpsons would say, "excellent!"