http://www.stern.nyu.edu/Sternbusine...004/rolex.html
Maintaining Demand
Rolex also maintained its brand image by limiting production, even as demand rose. For luxury goods, scarcity in the marketplace can influence value, spur demand, and contribute to collectibility and long-term appreciation. And a company that can pitch its product as an investment can frequently charge a premium. Finely-made luxury watches tend to appreciate in value over time. The Complete Price Guide to Watches (2004 edition) lists the value of a 1936 Patek Philippe Calatrava in 18-karat gold at $700,000. Rolex watches have held their value well, too. Price guides for collectors indicate that almost all older Rolex models are valued above their initial selling price. Most collectible Rolexes sell in a range of between $1,500 and $20,000.
Rolex has also taken pains to ensure that its watches are sold only in appropriate venues. The crystal prism that indicates a store is an Official Rolex Dealer is highly prized. Rolex looks for dealers with high-end images, relatively large stores, and attractive locations that can provide outstanding service such as Tourneau. At one point, Rolex got into a dispute with Tiffany because the venerable retailer was imprinting its name on the Rolex watches it was selling. When Tiffany refused to stop, Rolex dropped Tiffany as an official jeweler. In the 1990s, as part of an effort to control sales of their goods in the so-called gray market, Rolex cancelled agreements with about 100 dealers.
Rolex has also focused on maintaining the purity of its brand. Many luxury-goods makers have used their original product as a springboard. Cartier and Mont Blanc, for example, have bet that the equity of their brand built on a single product will pull sales for a variety of luxury goods. And some brands have licensed their brand to other manufacturers, thus ceding some control over the products appearing under their name. But Rolex makes only watches, and it has never licensed its name.
Whats more, many watch brands have responded to competition by merging into conglomerates over the last few decades. LVMH Moët Hennessy Louis Vuitton, the worlds largest luxury goods company, with annual sales of more than $15 billion, includes venerable watch brands such as Tag Heuer, Zenith, and Dior Watches. Compagnie Financière Richemont, the worlds third largest luxury goods maker, owns watch brands such as Cartier, Baume & Mercier, Piaget, Jaeger-LeCoultre, and Officine Panerai. Well-known brands Movado, Patek Philippe, and Breitling remain essentially independent. By placing control of the company in the hands of a foundation, Wilsdorf guaranteed that Rolex would have the means to withstand the pressure to affiliate with a larger company that has a range of interests and markets.
Rolex also maintains its brand purity by combating counterfeiters. Today, many copies are so good that only an expert can tell the difference. And while connoisseurs will certainly note the difference between a $5,000 Rolex and a $25 knock-off, the existence of large number of counterfeits inevitably affects demand at some level. Rolex likely spends more money policing fakes than any other brand.
In the future Rolex will no doubt face stiffer competition as innovative entrepreneurs search for new ways to attack its markets. And the large luxury goods conglomerates enjoy certain advantages over an independent firm like Rolex. They have restructured operations to take advantage of size and significantly reduce cost, enjoy synergies in advertising and marketing, and are more willing to engage in open discussions in trade associations to learn from the competition. The conglomerates may also be more willing to source from Asia, where labor costs are considerably lower than Switzerland.
But as it approaches its 100th anniversary, Rolex is sticking to its core strategy of independence, continuity, and brand purity. The companys attitude has allowed it not just to survive decades of technological and economic upheavals, but to thrive amid them. Even in todays massive, global luxury-goods market, an independent company that clearly defines its market niche and relentlessly sticks to its strategy can rise to the top.
