What ist the true value of a watch?

One of the questions we occasionally get is “Why is this Zeitwinkel watch more expensive than a watch from this very well-known brand”? Our reflex is then to explain how much manual labor and traditional watchmaking are a determining factor in the price of a Zeitwinkel watch. All correct and true, but in doing so, we forget a very important aspect:

We are speaking from the position of an industry insider to someone who mostly relies on information that is publicly available or even just a marketing statement. And in those marketing statements, truthful facts are optional.

Let’s start with comparability of pricing

Unless a watch enthusiast is well informed about how the watches of a specific brand are actually made (down to the single components), it is very difficult to compare the pricing of two seemingly similar watches. Add to that whether a watch enthusiast finds the appreciation and broad recognition of a brand important and comparability of pricing becomes all but impossible. We will try anyways – let’s dive in!

What makes up the price of a watch?

To simplify, there are direct and indirect contributors. The direct contributors are factors like the cost of design and construction of the watch (written off over a larger number of watches), the cost and quality of the components and of the time spent on finishing and decorating those components, assembling them into a movement, watch or case and then obviously the cost of finishing the watch, testing and packaging it.

Indirect factors are (among others) the cost of marketing/selling the timepiece and the margin required to cover all other expenses of the brand (administration or the CEO’s Porsche). Some watchmakers can even afford to include a budget for failed experiments. Add the shareholders’ expectations of an adequate return on their investment on top of that and you can calculate a price for the watch.

Sounds as straightforward as any other business, doesn’t it?

Yes. But actually, it isn’t. Because we are talking not only about a brand product, but a “luxury” brand product. Manufacturers have much more room to maneuver, weigh factors or even outright set prices arbitrarily.

For a more commoditized product such as let’s say a wooden toothpick, manufacturers are subject to the constraints of competition. Once you meet certain quality criteria, it’s all about cost efficiency – from procuring the wood to getting the toothpicks onto a supermarket shelf.

So why do watches and other “luxury” goods elude common pricing calculations?

First of all, while certainly communicated differently, there are no commonly accepted quality standards for most aspects of watchmaking. It is therefore not possible for a customer to determine the cost of meeting a certain standard. Terms such as “inhouse”, “manufacture”, “handmade” or “haute horlogerie” hardly ever mean the same thing twice. There are few official quality seals to speak of apart from those for precise timekeeping, rules for designations of origin such as “Swiss Made” are quite lax and transparency for consumers is low.

In part, the traditional division of labor in the watch industry is to blame for that. Highly specialized suppliers that often only make one or two specific components often have in turn a long chain of subcontractors including artisans working from home. That’s not a bad thing at all, but it makes it difficult to track for outsiders.

A lot of the intransparency is however intended and deliberately created. Visitor centers of large brands often have little to do with the actual manufacturing, the share of manual labor is greatly exaggerated and “inhouse” often just means that there was a roof over a factory in some far-away country.

None of this necessarily results in an inferior product. In fact, industrialized production of components (designed specifically for this production method) often renders a more precise watch. But if telling the time was the primary purpose of “luxury” watches, we’d all be better off looking at our smartphones.

And obviously, “luxury” products bring with them a curious phenomenon that for some defines “luxury”: the Veblen effect. Named after the US scientist who prominently described it, Veblen goods actually become more desirable as they are priced more expensively. They are used to define the status of the owner, provided their price can be made known through the brand or other means.

The fact that consumers attribute a value to a luxury brand detached from its products, to the alleged manufacturing methods, to the stories behind the product or brand and to relationships can be turned into a tangible value for the manufacturer. That attributed value expresses itself in a higher price for a product that is not justified by the sum of the components and production steps. In fact, one could argue that the surcharge is the value of the brand. But it’s obviously not the value of the product you’re buying.

Let’s take a look at what most customers think they are buying, let's look at value in watchmaking.

The de facto price ceiling

If the perception of value in luxury watches is mostly subjective and if concrete information is hard to come by, will just about any price be justifiable for a watch?

The answer is obviously no.

There is a price ceiling for most categories of watches. Which means the traditional watchmakers usually cannot command more for their watches than a well-known brand that only puts their label on a third-party product. Sure, there are exceptions for very revered watchmakers that produce maybe a handful of watches every year. And there are always hyped watches or brands that defy the pricing logic. But those disappear as quickly as they rise.

Let’s take a three-hand watch with display of hours, minutes and seconds, a high-end movement (quite subjective categorization as well), a well-made but not overly elaborate dial and a steel case. There are only very few examples of such watches that exceed 20,000 Swiss Francs (ex VAT). But there are plenty of examples in the range of 15,000 Swiss Francs, so we can assume the price ceiling to be somewhere at or below the 20,000 mark.

Having a maximum price and obviously a minimum price as well means that there must be a perceived market price for every sub-category of three-hand watches. This becomes important in the next step when we look at the restrictions for a brand such as Zeitwinkel.

Weighing content vs. claim

If we start from the assumption that there is a perceived “fair” market price for a three-hand watch such as those made by Zeitwinkel, we can look at the offerings in that price range and compare them. The deeper we dig, the more obviously those watches fall into two categories: those that try to pack as much watchmaking content into a watch and those who substitute the watchmaking with marketing and brand claims, achieving a much higher profit as a consequence.

Category 1: the luxury watch brands

Watches in this category often benefit from the perception that the manufacturer’s brand stands for a certain quality, lifestyle or status. They are often produced in relatively high quantities and the total output can be in the thousands or even in the 10,000s. These brands are so well-known and strong that any investment into the brand image creates a higher return in profitability than an investment into the actual product. In fact, the product can be dumbed down continuously and considerably without apparent damage to the brand.

This works as long as these brands are perceived as having a high quality by consumers who are mostly unable to assess that fact on their own. Saving even only ten minutes of labor cost on a movement decoration or by using simplified parts amounts to considerable additional profit when multiplied by 50,000 watches per year. If such measures are applied gradually rather than all at once, it is fairly easy to withdraw a dividend over a very long period without touching the actual brand equity.

Some investment is of course necessary to compensate for the fact that the product is not as elaborate and exclusive as it is assumed to be. But those marketing expenses, the brand ambassadors, champagne events and luxurious boutique interiors cost only a fraction of what it would cost to build the best possible product at the price. The shareholders are delighted about ever higher margins and the customers benefit from the luxury appeal.

A winning situation for everyone involved, right?

Sure. If only it wasn’t for the fact that eventually gravity will strike and customers will wake up. Especially in times of a downturn, but also as consumers get more educated, does such an approach become dangerous for a brand. Brand equity is based on trust. Once that trust is lost, rebuilding it becomes very expensive, maybe even impossible.

Here's an article by a watch industry insider who calls himself “velociphile” and who regularly discusses the reality behind the appearance. In this post, he points out how shortcuts and cost-cutting at luxury watch brands are effectively alienating watch collectors:

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Follow @velociphile on Instagram and subscribe to his blog for regular takes on what’s actually going on behind the dials of watches!

Category 2: the watchmakers

If the main question for many manufacturers in category 1 is “What is the minimum watchmaking content we can get away with?”, the question for those few brands in category 2 is often

“How can we fit as much watchmaking as possible into a given market price and still make enough margin to pay the bills?”

It’s as if the brands in category 2 operate in a completely different industry. Yes, they also use some of the same suppliers and they are obviously aware of modern manufacturing methods. Yet they create a copy of their version of a work of art from scratch every time they build a watch, rather than just putting a few finishing touches on something they pull out of a machine.

You could say that the difference is expressed in true passion for the art of traditional watchmaking and pride in being accountable for the watch they created. And because they cannot or don’t even want to throw large sums at PR and marketing agencies, their voice gets drowned in all that marketing noise.

It takes most collectors a long time to discover those few brands as they mature in their collecting journey.

So what is the conclusion on what “value” means?

For us, the value of a watch clearly manifests itself in the choice of materials, design of the components, as much traditional watchmaking as possible and the avoidance of shortcuts, even if they would save a lot of money.

But by now it should be no surprise that we are part of a minority. Why does the value of the brand alone extend beyond the assurance of quality and can be extended to mass produced accessories such as key chains and wallets? What is the value of let’s say a country of origin in two otherwise identical products? Why does a product become more desirable when a famous person wears it as a “brand ambassador” – even if you surely know that they are paid to wear it?

All of the above factors and several more are by definition subjective and more often than not an expression of longing to belong. Whether it’s wanting to be perceived as a member of an exclusive tribe, to be recognized as being wealthy, having excellent taste or as a true watch enthusiast, it’s always a similar motivation. You are buying a membership and hope to be accepted. As vehemently as such desires will always be denied, the luxury brands demand a tax from the ones harboring the desire for attention.

But what about the very concrete aspects of watchmaking? What about staying true to the art vs. fully automated production? What about manufacture calibers vs. mass-produced movements? What of all the storytelling is true?

We’re afraid that’s also highly subjective. Beyond the objective quality of a component or product (Is the anglage straight? Is the decoration elaborate and well executed? Does the watch run within acceptable parameters of accuracy?), it’s basically up to you whether you attribute a value to something being manufactured by hand rather than by a robot.

In a way, it’s also quite liberating to have a choice between buying admiration from others or a watch one truly likes. Same as the appreciation of a work of art or a good book, the observers can dive in and form their own opinion. As they progress on their journey, they will hopefully approach an expression of their own taste and preferences.

Let’s change the perspective again and look at the watch brands.

What are the options for small independent watch brands?

We sometimes feel like running one of the few restaurants that still make their sauce from scratch rather than ripping open a pack of instant sauce powder. Not only is it costly, but equally frustrating if nobody takes note. Enough self-pity, here’s a look at options for a small watch brand:

Purchase an existing brand name

Building a brand from scratch takes a long time and is quite costly. Many founders run out of money or enthusiasm before they even get close, so why not purchase an existing brand or revive a dormant name? Ideally, there are also design cues or “heritage models” that can be revived and if all goes well, customers want to believe that they are buying a watch from a long-existing brand.

There are downsides however: suitable brands don’t come for free and by buying into a brand history, the founders often restrict themselves and run the risk of not being authentic. Also, since many have gone down the same way in the last two decades, considerable marketing expenses are nevertheless necessary to be noticed.

Dumb down the product like the big guys

Why not learn from the best and do what the successful brands do? Dumb down the product and retain more money for marketing and to cover expenses!

It would be a bit like a high school graduate wanting to immediately retire. You have to be able to afford dumbing down the product by having a strong brand in the first place and even then, you still have to invest considerably into marketing to conceal it. Also, high production figures are required to effectively pull that off, so this is certainly not an option for beginners.

And don’t get us started on the ethical aspects of this approach. After all, we founded Zeitwinkel specifically because of the watchmaking part!

Ok, but what about investments into marketing then?

Sure, what’s your budget? How many page three ads in the New York times can you afford? How many times can you fly influencers first class around the world? How many parties can you throw in Hong Kong, New York or Singapore before your sales pick up enough to actually pay for it all?

It’s a lopsided game because your competitors will always have bigger budgets that they built through a thriving business, not the other way around. You might create a short-term hype, but very few new watch brands have succeeded in creating a long-term viable business with a huge marketing budget alone.

And don’t forget, to have a sustainable budget for this kind of marketing requires you to dumb down your product in the first place!

Stick to the best possible watchmaking and hope that customers find you!

That’s exactly what we and many of our watchmaking friends do. Find your own design language or specialty, pack as much traditional watchmaking and true artisanship into your watches as possible. And then hope that the few marketing measures you can afford attract the attention of watch collectors.

It actually does work, if you keep at it long enough.

How can watch enthusiasts gain a better understanding of true value?

As we have seen, the concept of value is highly subjective. There is no reason why you shouldn’t be happy with a mass-produced watch that carries a famous brand. Find out what you like and what you appreciate and what you can do without.

That sounds like a common wisdom. But it’s actually not as easy as it sounds. Sure, we have access to more information than ever and there are plenty of forums for discussion with other watch enthusiasts. But you will quickly notice that there are few topics where it’s easy to form an objective opinion. And almost everyone – including us in this article –tries to influence in some form.

It's therefore all about knowledge. Read whatever you can get your hands on. Don’t be shy to approach watchmakers at events and ask them about why they created a complication in a certain way. Visit as many factories and workshops as possible. Ask yourself why somebody nudges you towards an opinion – are they only looking for somebody to confirm their own preferences or is it a helpful piece of information?

We also always find it helpful to understand the psychology behind preferences and purchasing decisions. A blog that covers such topics in the context of watch collecting (along with plenty of news and rumors from the watch industry) is “Screw Down Crown” by a watch enthusiast who calls himself @kingflum on Instagram. He’s opinionated and quite direct, but we feel he’s right more often than not. We have no commercial affiliation with him other than being a paid subscriber:

As you mature in your collecting journey, find a group of other collectors that preferably have different preferences from yours. Watch chat groups and forums are great for this. Use these collectors as sounding boards.

When it comes to watch brands, be wary of the ones that offer you rebates. This might sound counter-intuitive, but how come they are willing and able to offer these rebates in the first place? Even if we leave the topic of value retention aside, what is the future development of such a brand? Are their list prices even remotely reflective of the value you are receiving?

Likewise, see it as a warning sign if a brand tries to impress you with an expensive retail environment (regardless whether it’s their own or a retailer’s) or if you’re invited to lavish parties where the champaign flows freely. All of this is expensive and guess who they want to pay for it. We’ve heard claims along the lines of being able to get that “investment” into the brand back when the collector sells the watch. How about simply not charging the customers for such expenses in the first place and building a brand through the product quality?

Look for the people behind the watches instead. Try to speak to the executives leading the brand, engage with the brand founders. If you get to speak to the watchmaker(s) who assembled your watch, chances are the brand actually cares about creating true watchmaking value for its customers.

Last but not least, the total number of watches produced annually is always a good indication of how much “actual” watchmaking can be involved. It’s simply impossible to scale artisanal handicraft at Haute Horlogerie level to where you can produce ten thousands of watches a year – there are too few economies of scale and not enough highly skilled watchmakers.

We will leave you with a take on Haute Horlogerie by a industry insider who calls himself @scaramanga__ on Instagram. You may or may not agree with his opinion of what defines a Haute Horlogerie brand, but he takes a clear position:

If you found this article helpful, please share it with your watch collecting friends. In any case, we would also love to receive your feedback!