I used to sell enterprise software. We always had a good chuckle about “list price.” In my little corner of the world, everyone sold into the channel by offering huge discounts off list. How huge?
We’d gladly sell software for 70 percent off list (a.k.a., MSRP). Customers – even just-fell-off-the-turnip-truck-hayseeds – could “negotiate” 30 to 40 percent off list. Some software providers regularly took 90 percent off list.
The moral of the story?
List prices are complete bullshit.
Sure, companies set the list price to ensure the company makes a profit. But beyond that, marketing and sales teams set the list price to position their service or product against the competition.
“We should be about 10 percent under much bigger company X to show we’re a better value, but higher than startup Y because we have a more substantial feature set.”
All this came to mind when Robert texted me this product page from authenticwatches.com:
Forget the questionable aesthetics, tourbillon movement (the horological equivalent of optional caviar in a tasting menu) and the fact that everyone who sees the Bell & Ross BR01 variant will think it’s an Apple Watch. Focus on the list price.
Instead of paying $170k list price for this French watch you could buy:
- All four precious-metal variants of the 40mm Rolex Day-Date
- The Grand Slam of a Patek Philippe Nautilus, Audemars Piguet Royal Oak, Rolex Daytona and a Vacheron Constantin Patrimony
- A sensibly optioned Porsche 911 Turbo
It’s highly doubtful anyone paid $170k for that Bell & Ross watch. By the same token, the $200k Patek Philippe Split-Second Chronograph above is widely available for 80 percent off MSRP. And sure, you could pay full list for a precious-metal Rolex. You’d be doing the dealer an enormous, perhaps unexpected favor.
On the flip side, the list price of for grail watches like the Patek Philippe Nautilus or a steel Rolex Daytona feels like some kind of cruel joke – a glimpse into a land where materials and workmanship have some bearing on what a watch costs.
A world where a white gold Rolex Daytona is worth three times more than the plain-Jane steel version because of its precious metals, the extra care and time needed for manufacturing, and so on.
This is, of course, weapons-grade BS. Again, list prices are marketing driven.
Customers perceive a gold Rolex Daytona to be 50 percent better than a plain Jane Rolex Submariner because it costs 50 percent more. Rolex can’t raise the list price of the Panda Daytona to market-clearing price because it would rip out the purchase justification for more expensive models.
Similarly, Bell & Ross chose $170,000 for the abomination above because that put their product in the same league as the big boys – regardless of the fact that you’ll never find a Patek Philippe marked down 85 percent.
List prices act as anchors to get consumers thinking that they’re getting their money’s worth. The entire universe of watch-buying advice centers around list price. Discounts, premia, relative value – it all starts with the watch’s list or “retail” price.
As a consumer, recognize that a watch’s list price isn’t any different than an endorsement by Roger Federer, an ad in Departures or sponsorship of an F1 team. It’s marketing by another name.