Rolex has just released for public sale a new model watch called the Milgauss to the public with a MSRP of $6,400. However, you will have little chance of acquiring one from an authorized dealer(AD)for possibly years unless you are one of the select few preferred customs. On the other hand, you can buy one from a auction forum such as E-bay for $15,000. It is a bit of a shock to the system, but that seems to be the price people are prepared to pay for this new model.

The price is a function of supply and demand. Demand for the new Milgauss with its unique green tinted crystal is high and the number of pieces released for sale by Rolex are much lower than the demand.

The precise point in time a new model is released for sale is within the sole discretion of Rolex. Rolex can wait until they have 10,000 pieces manufactured and in stock and then release the new model in an orderly fashion to cope with demand. Alternatively, Rolex can release say 100 pieces world wide so that the model is very scarce and demand far outstrips supply.

So what are the real world consequences of a release of sufficient supply V. a small insufficient supply: to the public of a new model such as the Milgauss?

A plentiful supply of a new model to the market means:

(a) all enthusiasts, grey dealers and joe average gets to buy one from an AD

(b) the grey dealers cannot ask outrageous prices (like 1-200% margins above retail) as supply does not permit that to occur.

(c) there will be a quantity of pieces for sale on e-bay and possibly at or a little below MSRP which will not please AD’s who will not be able to extol the notion of ‘exclusivity’ or ‘rarity’ and who are also under increasing pressure to discount the new piece and reduce their profit margin.

(d) there will not be a false perception that the new model is ‘exclusive’ or ‘limited’ or ‘rare’ and dealers will not be able to tell their big spenders how fortunate they should feel having received such a ‘rare’ item.

(e) Rolex is still perceived as a luxury brand but when the ‘exclusivity’ of the new model is lost, it becomes less desirable to those who want something that Mr. Jones doesn’t have a few doors down the road.

A scarce or very limited supply of a new model to the market means:

(a) many enthusiasts will miss out the opportunity to purchase from an AD for some considerable time, possibly years or otherwise spend a large sum buying it from a grey market dealer who makes more profit than Rolex;

(b) grey dealers and others who have a quantity buying relationship from an AD will get preference to buying the new model only to put it on the market for at least 100% margin eg ebay;

(c) AD’s who favour their big spending customers can use the rarity of the model to illicit additional purchases from their big spenders (not necessarily Rolex) so AD’s can use it to increase their total sales volume and profits;

(d) Joe Average has no chance to acquire this model from an AD for what may be a considerable time being possibly years down the track.

(e) Rolex and AD’s cannot get any advantage of calling the model ‘rare’ or ‘scarce’ and able to promote an image of exclusivity to bump up price and procure collateral sales i.e. you buy a Patek and you can have a Green Milgauss.

(f) Once the item is sold on eBay for a massive premium and ADs start to foster the orchestrated believe in the rarity of scarcity of the model, they too charge a premium for the sale of the new model.

(g) The enthusiast suffers buy now for 100% above retail or wait for an indefinite period.

Conclusion: Although Rolex does not approve of the selling of new models on eBay sales by unauthorized re-sellers, the notional exclusivity generated by limited numbers and sale prices of more than 100% above retail suits Rolex’s marketing strategy and exclusive image positioning. At the same time such unauthorized sales keeps authorized dealers happy by letting them pick and choose who they sell to for to procure their own substantial gain to maximize profits. The Rolex Forums discusses the world of Rolex

Source by Stephen C. Smith