Gold Pricing: Poll and Experiment

[T3F]

I've recently started considering a move into PM models, and have a question that I wanted to run by other members of the forum. A full gold model, including bracelet, runs for about $25,000 more than its counterpart in SS, which ends up being about 3x as much. Obviously, the value of the gold in these watches isn't worth that much -- my guess is $5,000 at the very most. Now, I understand that Rolex isn't going to just charge an extra $5,000 (or whatever the true value is) for a gold model, but it seems to me that the markup is excessive.

Personally, I would absolutely buy gold watches if they were priced in the $25,000 range, which would still be a very large markup relative to the price of the gold. I could stomach paying two times as much as I would for the comparable steel model, but can't justify the 3X (closer to 3.5X, actually) premium that there is now.

Are there a lot of people in the same camp as me? I can't help but wonder if Rolex would actually make more money if they dropped the price of these models. Let's run through the (admittedly very simplified) math assuming revenue to Rolex is 60% of RRP:

Current: $35,000 RRP = $21,000 in revenue
Scenario 1: $30,000 RRP = $18,000 in revenue --> if sales increase 16.7% or more, revenue is at least as big as it currently is
Scenario 2: $27,500 RRP = $16,500 in revenue --> if sales increase 27.3% or more, revenue is at least as big as it currently is
Scenario 3: $25,000 RRP = $15,000 in revenue --> if sales increase 40% or more, revenue is at least as big as it currently is

To see if these theory holds any water at all, let's conduct a poll. My prediction is that the optimal price is $27,500, but let's see!

EDIT: A lot of people are saying the cost of materials is irrelevant to the price, and I actually agree with that, for the most part. I'm talking more about willingness to pay, which, depending on the person, may or may not be related to the price of the gold itself.

[joli160]

How can you possibly justify a SS Rolex with 1 $ worth of steel in it ?
Compared to that any gold rolex is a bargain

[Michigan_State]

I like your mind game, but would like to believe that Rolex did the due diligence (supply and demand and competitors and positioning and everything)?

[Brew]

I don't think the average person makes luxury purchases via such math. I know I don't.

[jsausley]

I'm not sure if I understand what you're saying. You're using the term revenue but you mean profit I think?

Anyway, it's no secret that the margins on Rolex PM models are significantly higher than SS models. That's why they don't mind if the stainless models are in a shortage if it helps them move PM ones.

I don't think dropping the price would help the bottom line. People are still buying PM models (Rolex sells more PM Datejusts than anything else). For those of us who don't care about gold, a 30-40% reduction in price will NOT change our minds and make us want to buy PM.

[enjoythemusic]

At least 25% off MSRP. Have gotten ~33% off on a special order DD40.

[DoctorA]

If it’s purly the cost of material then a ss model shouldn’t be more fun $1000
It’s the price of luxury!!

[T3F]

Originally Posted by joli160

How can you possibly justify a SS Rolex with 1 $ worth of steel in it ?
Compared to that any gold rolex is a bargain

In my opinion, that's a weak argument. Sure, you can't "justify" any Rolex purchase, but that doesn't mean I should just be happy to pay whatever price they charge. I'm not talking about justification, I'm talking about willingness to pay. I'd be willing to pay 2-2.5X as much for a gold Rolex as a steel one, but not 3-3.5X.

Originally Posted by Michigan_State

I like your mind game, but would like to believe that Rolex did the due diligence (supply and demand and competitors and positioning and everything)?

They probably did, and this is intended primarily as a fun experiment. However, given the huge discrepancy between retail and secondary market price for many models (some go at a huge premium while others go at a huge discount), I'd argue they haven't got it completely correct. At the same time, I recognize that this is far more complicated than I'm making it, and that having huge shortages of some watches could be better, in the long term, than simply hiking the price so that demand meets supply.

Originally Posted by Brew

I don't think the average person makes luxury purchases via such math. I know I don't.

I agree on the part about the value of materials in the watch. However, I disagree in that I think pretty much everyone will think, "do I really want to spend $X on this when I could buy [insert other item/collection of items] for a fraction of the price?" when buying luxury goods.

Originally Posted by jsausley

I'm not sure if I understand what you're saying. You're using the term revenue but you mean profit I think?

Anyway, it's no secret that the margins on Rolex PM models are significantly higher than SS models. That's why they don't mind if the stainless models are in a shortage if it helps them move PM ones.

I don't think dropping the price would help the bottom line. People are still buying PM models (Rolex sells more PM Datejusts than anything else). For those of us who don't care about gold, a 30-40% reduction in price will NOT change our minds and make us want to buy PM.

Nope, I mean revenue. Revenue is simply the money received (Rolex appears to sell watches to ADs at about 60% of RRP, according to a number people on this forum), whereas profit would be the revenue minus the costs.

You could be right, and you probably are. However, I'm willing to bet (and the early results of the poll are agreeing with me) that there are a solid amount of people who like gold watches, but can't stomach buying one when they could have the steel version of the same model for 30% of the price.

[envuks]

I did not vote in this poll. The cost of materials is irreverent to the cost of these watches. PM costs so much more because of the perceived value against stainless.... whatever the cost, Rolex has the strategy correct because I see a lot of SS buyers on the forum making posts about “stepping up to PM” due to the ss shortage.

[Bigblu10]

The markup on a gold Rolex is actually not excessive. I challenge you to buy a solid gold bar and make a Day-Date or a Submariner out of it. To put things into perspective look at solid gold models from AP and PP and their MSRP and a DD or Sub or GMT looks real affordable in solid gold. Besides, how much value of stainless steel do you think is in a Sub, GMT, Daytona or what have you?

[R!$]

Depends on the model but you have to have at least one gold watch

[huncho]

25-30% off the price of retail+tax is ideal for me

[enginerd]

I don't think I'd even pay the lowest of the choices. In fact, I didn't.

[ap1]

Gold is good

[jsausley]

Originally Posted by T3F

You could be right, and you probably are. However, I'm willing to bet (and the early results of the poll are agreeing with me) that there are a solid amount of people who like gold watches, but can't stomach buying one when they could have the steel version of the same model for 30% of the price.

I don't think your poll will accurately reflect what you're asking.

The poll should be, for those of you who have NOT bought a PM piece and WILL NOT buy a PM piece, would you buy one instead if the price was X% cheaper?

Lots of people are already buying them at the current price so of course they'd be more likely to buy if the prices were lower. What you're asking if how many NEW customers would dropping the price secure.

I didn't answer because there's no option for "I would not buy a PM piece regardless of the price."

[T3F]

Originally Posted by jsausley

I don't think your poll will accurately reflect what you're asking.

The poll should be, for those of you who have NOT bought a PM piece and WILL NOT buy a PM piece, would you buy one instead if the price was X% cheaper?

Lots of people are already buying them at the current price so of course they'd be more likely to buy if the prices were lower. What you're asking if how many NEW customers would dropping the price secure.

I didn't answer because there's no option for "I would not buy a PM piece regardless of the price."

I'm by no means taking the most scientific approach to this.

I want to include the people who have already bought one or would buy one at current prices, as then I can (really, really roughly) estimate the percentage increase in demand at the lower prices. For example, if 10 people said they'd be willing to pay $35,000 for one and 4 people said they wouldn't be willing to pay more than $30,000, then there would be a 40% increase in demand if the price was dropped to $30,000. The way you suggest setting it up, all I would know is that 4 people would buy one if the price were dropped to $30,000, which doesn't say much without a comparison.

[AK797]

So if we say $35K is this retail, probably the majority of buyers were paying this, not even thinking of asking for a discount, while WIS and the chancers probably would want 20-25% off so I'd say the average discount would be 10% off. But this was before the tightening, so now that would be halved again so around 5%. If you are getting more off you are doing better than most, and this is working for Rolex who are selling PMs faster than ever before.

[Mystro]

Look what a 18k Submariner sold for 25 years ago and see what it sells for now. It’s almost the same price today. Compare the same time line with a SS Submariner.

[Seibei]

Where is the none of the above option? The prices are all too high.

I don't like gold watches, but that has nothing to do with the price. I prefer steel or well done titanium.

[Burlington]

There are probably a lot more conversion costs with gold manufacture than SS to build into the COGS.

Additional security for one.

[nektar]

$$ does not really matter.. And the price for luxury item does not need to make any sense. Again you will buy it.
R Millar stated that that whatever he makes, no matter the price, it always sells..

[watchwatcher]

Originally Posted by ap1

Gold is good

Yes!