Value in a story

The watch scene has felt somewhat uneventful since Rolex announced their CPO program, probably due to the holidays, and probably because I wasn’t paying attention to anything that did happen! It’s quite difficult to come up with topics to write about, so I’d welcome any ideas if you have them. That said, here’s the first post of 2023 🙂

This post is about perceived value from the perspective of watch buyers as well as watch makers. Of course, the term ‘maker’ becomes quite loose when you move away from independent watchmakers, since the product development strategy and technical innovation in a large entity such as Rolex is vastly different to a one-man operation like Laventure, Ophion, AkriviA or Ondrej Berkus to name a few. Anyway, I argue here, that watch makers can look towards the value of storytelling to ‘create value’ for consumers. Let’s get into it!

Value capture vs Value creation

First… some basics using simplistic analogies to frame an opening argument. Whether you’re the CEO of Breitling, or Rexhep Rexhepi at AkriviA – I posit that the ultimate goal is to create value. Forget the semantics… ‘creating value’ could be framed as creating mechanical art, or being at the forefront of watchmaking innovation… at a more fundamental level: the big brand or independent watchmakers all want to make stuff, and they want people to pay them for this stuff (because they ‘value’ this aforementioned stuff).

As a reader of this post, you are almost certainly one of those people who see ‘value’ in these watches – you pay large sums of money for watches which you don’t need – and the price you pay, is the ‘value capture mechanism‘ for the watch brand or watchmaker who you buy it from. Great, so that’s settled: the watches we buy, create value.

So what?

In the real world, these brands or companies aim to grow, and most do grow. Along with this growth, there is an expectation of increasing the value captured. Of course, this can be done in two ways:

  1. Capture a larger percentage of the value you create
  2. Create more total value

For the most part, what we see most often, is that companies will prefer option 1, because it is easier and requires less work. We will come back to option 2 later. For now, we have seen option 1 unfold in an aggressive way over the last few years. Prices have been raised, brands started bundling (good with bad) products to shift the slow moving or bad stock, and the customer experience declined to dizzying depths. If anything, this was value destructive for both parties (buyers and sellers). Why did this happen?

Well, the secondary market drove some comical thinking for the brands: “we sell you a product for $10k, the market price is $20k, and therefore we are doing you a $10k favour“. The measurement of value was now extended beyond the actual price paid, and into the fantasy world of free market prices. What’s comical about this approach, is that these same sellers would tend to also discourage (and even punish) people who chose to sell at the market price! The hypocrisy is rather striking.

In many instances, the sellers chose to raise the retail prices, in order to lock in some extra value, which meant that raised the ‘watermark’ for new buyers’ perception of value. In the previous example, you might now be paying $15k not $10k, market price would not rise proportionately to $25k, but perhaps $22.5k instead; and so in this example, the ‘favour’ from the seller is now only $7.5k (instead of the $10k before the prices went up). The whole time, however, the actual watch does not change! No innovation, no upgrades, no real added value. That is why the market prices can’t go up indefinitely. At some point, people stop paying idiotic prices for the same watches.

The only thing that remains true is that this is a zero sum game – if the seller wins, the buyer (watch collector) loses. The product being unchanged and the prices going up, results in a convergence of value perception – at some point, people decide that the price being charged for a watch brings no added value, and in an arena where there is boundless choice for collectors with money to burn – they stop buying that particular watch.

To drive this point home, consider another analogy for an employee / employer relationship. You earn $500k per annum and you create ‘value’ for the employer by doing your job. If you create $750k of value, this means the employer is making $250k of ‘net’ value by employing you. If you ask for a raise of $100k and continue doing the same work in the same way, this is a ‘net loss’ for the employer i.e. a zero sum game. Alternatively, you could start being more efficient, perhaps work longer hours, and end up creating $2m worth of value. In this instance you have made the pot bigger, and you getting a raise of $100k is instead a ‘net gain’ for the employer. You may realise, that is, essentially, the same as option 2 above; i.e. a win-win for both parties.

“Option 2” in the world of watches?

The crux of the discussion is about value capture versus value creation. The recent ‘hype’ cycles in the watch market have caused sellers (both large corporates and independent watchmakers) to focus more on value capture, rather than value creation.

It is no surprise, therefore, that any rare occurrence of true innovation (aka value creation) is going to be handsomely rewarded – here, I am thinking about the Christopher Ward Bel Canto. As a sum of its parts, the Bel Canto may not be ‘worth’ it. As far as brand value goes, again, it isn’t worth the money relative to the alternative options at a competing price. Brand history and heritage, again, not particularly noteworthy… I say all of this with utmost respect – not to belittle the brand itself, but to highlight that despite all these rather ordinary and vanilla traits, the company managed to innovate sufficiently to the point where none of that mattered – they created something which was perceived to be extremely valuable to the customer – and they have been rewarded for doing so, with all their launch stock sold out, and subsequent orders now being sold out for the rest of the year.

Before the Bel Canto, you might recall another barnstormer… the Tudor Black Bay 58. In fact, I would argue Tudor in general, definitely feels like an ‘option 2’ brand. The BB58 was some sort of unicorn when it came out; giving almost everyone, exactly what they had been waiting for… the smaller size, thinner case, gilt dial, red marker as a historical nod, 70hr power reserve… the list goes on – and sure, they did, and continue to do annoying things like using a faux-rivet bracelet, and not slimming down the GMT movement… but for the most part, they continue to innovate and people continue to be enticed by the value proposition. If anything, this might be an ingenious product development strategy… give people ALMOST what they want, but keep holding back so that you can sell more on each subsequent launch! After all, they’re in the business of selling more watches every year, not creating the perfect ‘forever watch’ so that nobody feels like buying another one ever again!

Still, it is definitely unreasonable to expect endless genuine innovation from watchmakers over a short period. Once something works well, it takes a long time to invest in R&D to improve it. Consider for example how long Rolex used Nivarox hairsprings before they transitioned to their own Parachrom hairsprings… and since 2014 have been working on deploying the newer Syloxi hairspring, but have still not rolled it out widely across all models – nearly 8 years later. The point being: massive innovation takes place over a longer timeframe, not over a year or two. Yet, watch collectors are sitting around with money burning a hole in their pockets, waiting impatiently for each year’s novelties, so they can complain about a lack of innovation and buy the watches anyway!

Well then, what are these brands selling? If they can’t innovate too quickly and there are a limited number of ‘Bel Cantos’ and ‘BB58s’ on the horizon, how should brands improve their value proposition?

Stories

It turns out, we think in terms of stories. Humans have been telling stories for thousands, maybe even millions of years. We have related stories while huddled around fires; painted them on cave walls; written them down on stone tablets, scrolls, and in books to be shared with future generations. Humanity has travelled far and wide to tell stories, fought wars because of them, and made huge sacrifices to preserve them.

The nature of humanity has led to several lenses with which to view ourselves: homo faber (philosophical man), homo economicus (rational man), homo politicus (political man), and, of course, homo sapiens (wise man). Adding to this, Walter R. Fisher proposed homo narrans (storytelling man) as an important addition to this list in 1985, because storytelling seems to play a massive role in human interaction.

If we look at the theory of narrative thought (TNT), it was developed as an alternative to rational choice theory – this alternative makes sense to me, since watch collecting is pretty irrational! TNT observes that the brain processes everyday sensations around us and compiles sequences of these sensations into events. Sequentiality implies causation, and causation implies time. If that was too complex, think about how you see the world… you see time in a linear way, such that the past has shaped the present or the present will shape the future, but you don’t consider the future shaping the present. In other words, causality is inextricably linked to sequentiality… “this happened and then that happened“— the formal name for this form of organisation is: Narrative.

The theory suggests that there is evolutionary value in organising our world into narratives. If you weave links past events and their manifestations in the present (Carl stepped on a poisonous snake and he is now injured), it can help you extrapolate what could likely be expected to occur in the future (stepping on a poisonous snake will probably lead to injury). In evolutionary terms, this helps us better understand and recognise threats before they happen, reducing potential for future harm. 

Apart from the evolutionary hypothesis, Nassim Taleb suggests (in The Black Swan) the Andrey Nikolayevich Rule, which posits there is a non-psychological, economic rationale behind our inclination to narrate. The idea is that in the real world, there is a ton of information which is costly to obtain, costly to store, and costly to manipulate and retrieve. So, we simplify! We simply reduce the dimensions of our lives through the use of stories. As Taleb puts it, stories help us to make the world “less random than it actually is,” and they fit with our incessant drive for sense-making. Chater & Loewenstein similarly posit that our hardwiring for stories is based upon our dislike for entropy or disorder. We try to organise our lives into narratives, to force sense into the randomness around us.

So what the actual f*ck does this have to do with watches?

You are no doubt wondering where I am going with this… thanks for getting this far. The point I was making, was that there is good reason to believe that we use stories in the way we think, and therefore, watch brands can use stories to create value. If brands take the view that people tend to believe generalities as irrelevant to them when delivered from an authentic source, can offer valuable lessons about how they can engage better with stakeholders. More specifically, using a narrative tends to be more effective than alternative forms of communication because it is more engaging, demanding more focus, more attention, and more involvement.

A study by Kilaru et al. (2014) shows that narratives are processed differently than other forms of information. According to this study, we process stories the same way we process first-hand experiences; even more incredibly, within the brain, most of the same regions are stimulated when someone performs an action as when that person reads a narrative about that action!

Adaval & Wyler (1998) have previously shown that stories are processed holistically—i.e. we pay attention to the “whole,” not the individual “pieces.” In one of the experiments they ran to demonstrate this; Participants were asked to evaluate vacation packages, and evaluated vacations more favourably when they were described in a narrative than when their features and benefits were simply listed. The authors provide two main reasons why narratives are advantageous: (a) because their structure resembles that of information acquired through daily life experiences, and (b) because of the use of a holistic—rather than a piecemeal—strategy for computing judgments.

So with that in mind, imagine you are buying a new watch. Normal assessments of your consumer decision-making process tend to assume that as you decide whether you will buy it, you first examine each piece of information about the watch individually. In reality, this is not necessarily what is happening.

Instead, you are probably judging the watch by imagining a series of events involving the acquisition use in different world-contexts. You might see yourself visiting a boutique, buying the watch, playing with its functions, sharing with your collector friends, taking it on holiday and perhaps creating memories with it before handing it down to your child. Of course, during this imagination process, the basic features of the watch (price, weight, size, service costs, etc.) may come into consideration. They could come into play as you imagine how it slips under a cuff, or how it looks in photos, or how your collector friends react to you getting such a wonderful watch, or how you struggled to save up enough to afford it.

The point here, is that the ultimate decision to purchase may not be based on the specific features of the watch, but instead, a sequence of imaginary events (narrative) as a whole. In other words, our choices often rely on narratives.

You have of course seen this in play with some of the most successful brands in the watch industry. From Rolex ads linked to famous people and outstanding achievements, to Patek’s “Generations” ads, to Omega and their “first watch on the moon” campaign. All of these advertising campaigns transcend the products themselves, and paint a wonderful story for aspiring owners. A story which any prospective buyer can use in their own imagination, and apply to their future selves. This, I am suggesting here, is part of the ‘value’ they offer when they sell you a product. When you buy a Rolex, you aren’t buying a watch – you’re buying into a story. A story of success, a story of political leaders’, outstanding sportspeople, and other famous and noteworthy individuals from the past and present. This is much more than a ‘tribe’ of rich folks patting one another on the back; it is a swathe of the 1% throughout history.

Before I conclude, I will also add one small practical point around the creation of a ‘story’ for a client, and that is focused on personalisation. Consider Netflix, Spotify, Amazon and all the other services which make use of the magical “for you” label. Personalisation works well, and I don’t see this being utilised much by watchmakers. When it is used, it is prohibitively expensive, and reserved for only the very best customers. Why? The additional cost to the brand when compared with the incremental ‘perceived value’ for the customer ought to make this more accessible to all customers.

This Romain Gauthier belongs to @thewindingstem – and one of the personalisations he requested is his name on the back – circled in red, on the image above. The entire process of acquiring the watch was so endearing to him, he ended up working for the brand! That’s perhaps an extreme example of my point in action… but the point remains; More brands should consider using this approach to create value for customers.

Concluding thoughts

Stories make up a fundamental part of who we are. Homo narrans not only thinks in terms of stories, but is gripped, entranced, transported, and influenced by them too. In the case of the Bel Canto, Christopher Ward not only created a desirable and innovative product at an attractive price, they managed to communicate this in an enthralling story too… romanticising the chiming ‘complication’, discussing the painstaking hours spent trialing different springs until the chiming sound was ‘just right’… and of course tying it all together with their brand ethos of mass-producing and cutting out the middle man from the distribution chain. They also recognised one of the key bugbears of collectors might be the brand name on the dial – so they simply deleted it! This was possibly the most crucial decision of all, and signifies immense self-awareness on the part of the designers and directors.

In my visit to Greubel Forsey (which I should probably write about too), they also recognised the value of a story. They take great pride in utilising old techniques and machines to achieve perfection. I thought I’d throw that in there as a nudge to myself, to write about that soon.

As this post has become far longer than I anticipated it being, I think it would be best that I end it here. I will say that it would be useful to stop seeing the same products released in different colours every year, and for brands to consider how they actually create value for customers before they take the decision to capture more value by raising prices. Hopefully the science around storytelling will serve as some food for thought in that regard.

F

PS – I didn’t proofread, and it probably shows lol

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