Monday, February 23, 2015

To Charge Luxury Prices, You Need To Make A Luxury Item

It's not my ambition to have this become a Daring Fireball reaction blog, but an article did catch my attention, in which the price point of the forthcoming Apple Watch is discussed. The key paragraph is:
I now think Edition models will start around $10,000 — and, if my hunch is right about bands and bracelets, the upper range could go to $20,000. I was off by a factor of two, and my friend Vincent, I think, nailed it back on the day Apple Watch was introduced.
The Edition models being the upper end, the 18K gold ones. Then we get umpteen paragraphs justifying this price point by comparing the bill of goods to that of luxury watches in that space. A price point of $20K may seem absurd to many for a watch, but undeniably a whole industry exists around that kind of product at that kind of price, and not because the watches at that price point are scarce: limited edition luxury watches can sell for more. The market exists. In general, the Chinese customer will spend more of their income, percentage wise, on luxury items, than Western consumers will, and there are an awful lot of Chinese Apple fans out there. It seems plausible.

So Apple might indeed decide to price their latest and smallest computer higher than any other computer they have ever sold, I have no opinion whether they will or won't. There’s just one issue if they will, that I have not seen addressed: luxury good or not, at some point you have to deliver the basic goods completely, and I am not sure the Apple Watch will. Watches at that price point always deliver the goods: they aways show the time, automatically, wonderfully, visibly. They do not show not a black shiny dead rectangle on your wrist1. Everyone who glances at your luxury watch sees a gorgeous but functional object doing what it should. Nobody with a $20K watch is currently tapping it to make the watch work, double tapping because they got the first tap wrong, looking quizzical at an unexpected event, furiously working the crown. If they are and are seen by their status-conscious buddies doing so, that watch will be traded in by the end of the day.

The reality is that no matter what the band and casing, that Apple thing on your wrist is a computer, not a single-minded mechanic evolved from 500 years of designing reliability. Everyone knows it is a computer, and as such it will come with expectations a computer has: smaller every year, faster every year, cheaper every year, buggier every year.

For this item to succeed as a 5-figure luxury item, the people who currently drop $20K on Patek Philippe have to see the people buying this highest-end Apple Watch as equally wearing $20K. And one down battery, one frantically pushing of the crown for nothing, one stutter of a screen, one having to take it off to reset, and the IWC Schaffhausen wearers know you strapped on the equivalent of an 18 Karat gold-plated Swatch: it has a profit margin of 10000%, but the same place in the heart as a piece of plastic. If they are being kind today, they won't smirk at you as you look at your dead or resetting screen again. They won't have to smirk, though, for the person who dropped 5 figures on a temperamental tiny computer to know they have lost some status.

And this is not even considering that at that price point, the statement you are making with your $20.000 Apple watch is that you are tethered to your $150-with-contract phone.

Luxury items are about doing one thing spectacularly well: telegraphing that you are rich because of the brand or materials, and then performing their one single function without detracting from that first goal. Prada shoes don't have insane 7 layer gel cushioning. Birkin bags don't have meticulous purse organisers built in. Burberry raincoats actually still let your hair get wet in the rain. None of those items are $20.000, and when they are, they still don't have a ton of extra functionality. But they will never embarrass you by forgetting how to protect your foot, hold an item, or wrap around you.

A dark watch face is ok on a $100 watch. Maybe even a $500 one if you are comfortable telegraphing you are a techno adept. At $20K, that gold case had better adorn a beautiful, always-on watch face 24/7. And what I am reading about the battery life will not support that.

1Yes, I am aware of luxury watches that cover their face, but they cover the face with something equally lustrous. Work with me here. I can even conceive of a minimalist luxury all-black watch that doesn't even show a face unless the wearer does something. It may exist, but that is not what the Apple Watch is shooting for.