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The Critical Path #147: Attracting the Mind

Apr 29, ’15 3:18 AM
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Horace and Anders look at the segments of the luxury market and consider how success can be measured in Apple’s watch business.

via 5by5 | The Critical Path #147: Attracting the Mind.

  • On naming the Apple Watch, Apple doesn’t use the words “smart watch” or “smartwatch” to describe the Apple Watch. In fact, those words don’t appear anywhere on apple.com.

  • On luxury, studying Rapha (1) might shed some light on the challenges Apple faces entering the fashion arena with the Apple Watch.

    Rapha was founded about a decade ago and entered the cycling market with an overt luxury message. The result of their price points and its marketing efforts was instantly polarizing. Ten years later the company is still a love-it or hate-it proposition for most cyclists (2).

    When Rapha entered the cycling apparel arena there was only one other company competing at the same pricing levels. That was assos of Switzerland (3). Despite the fact that both companies offer jerseys priced over $250 (while many cyclists are happy to ride in $35 jerseys) and bib shorts priced north of $450 (while many cyclists ride comfortably in $50 bibs) it’s Rapha that takes nearly all of the cycling community’s venom.

    How is it that both companies are very successful by most business measurements, both companies share similar high-end pricing models, both companies emphasize fashion in their marketing, yet one company is accepted and the other derided?

    The answer in hindsight seems to be one critical difference in their marketing messages. Both companies are proud of their technical and design chops, and both companies deserve to boast in this regard, but only Rapha wears luxury on its sleeve.

    Cyclists seem to have no problem listening to (and buying into) messages about life-changing technical garments, but the appear to be far less comfortable being overtly sold on luxury.

    I can’t help but wonder if that is also true of technology buyers. Early reviews from tech journalists suggest that this might be the case. With that in mind, I hope Apple walks this fine line carefully, overtly selling utility and organically (patiently) cultivating its association with luxury. Right out of the gate I’m concerned that they’ve already crossed this line, but time will tell.

    (1) http://www.rapha.cc
    (2) http://forums.thepaceline.net/showthread.php?t=148154
    (3) http://www..assos.com

  • This Edition situation is interesting, because two business interests I have followed for a long time are now converging. It is fascinating watching analysts from each side who I admire struggle to come to terms with the issues involved.

    The threat of the Apple Watch is not to other watches in the luxury category. As you said some of those brands only make 10k units per year. Those 10k customers are not going anywhere. At the low end Swatch et al are definitely at risk.

    The threat is to the luxury fashion brands in their merchandise/leather goods category. I think they potentially face a 30% reduction in spending in that category.

    I was in the luxury department store Galleries Lafayette in Paris a couple of weeks ago when Apple opened what must be one of their most expensive retail spaces per foot, exclusively to sell the watch. This is a department store that caters heavily to Asian (primarily Chinese) tourists. They have ‘International Customer” desks where staff make appointments for you at the different concessions, and a tax return desk where you can claim back your VAT immediately. Two people in front of me received 4k Euros and 5k Euros in tax back in cash. That means they spent 40k-50k each. They may have been shopping as a group, but the queue for tax was 30 people deep during the 40 minutes I was there, and all of them looked to be carrying the same volume of goods/tax forms.

    Every day perhaps hundreds of wealthy tourist flock to Galleries Lafayette. Many of them have say 20, 30, 40, 50k to spend on luxury goods that day. And there is the long tail with 10k to spend. The ‘job to be done’ of those goods is to provide an easily identifiable social marker when they get home, or to be a luxurious gift worthy of a particular event. And generally speaking the luxury fashion brands have monopolised that market. They are easily identifiable, and everyone in your social circle knows how much they cost. The ‘killer feature’ of the Edition watch is it’s price.

    Prada, Gucci, LV, Celine, Chanel, Dior, Saint Laurent etc are now competing for a piece of those purchases with Apple. Where that customer would have perhaps bought a 10k handbag, and a 8k trench-coat, and a 2k scarf, maybe now they will buy an Edition, and a 3k purse, and the scarf. That represents a 75% reduction in sales for those brands. And I would bet the “20k customer” is one of their most common.

    Apple knows this, that is why they have rented one of the most visible and luxurious department store concessions on the planet. And yes it was carpeted. 🙂

    • GlennC777

      I have thought along the same lines about this. Luxury spending is probably not quite zero-sum, but it must be fairly close. And the luxury goods industry is very focused. High-value transactions, but relatively few of them. If a billion of those dollars were to go Apple’s way, it would be noticed.

  • I”m enjoying the recent episodes regarding the Apple Watch. Here’s why: all my readings/listenings of yours regarding the iPhone, iPad, Macs are from a past tense perspective. i already own those and know the jobs they do for me. But with the Apple Watch, I don’t know those jobs yet, so I get to ponder your analysis with a real-time/future perspective, and actually, hear the joy in your voice, as this is the first new category from Apple since you started this podcast….Nice!

  • Tony McCarthy

    I was listening to CP 147 and 148 this morning about 4 AM. Meanwhile my Apple Watch has shipped and is scheduled for delivery today. Can’t wait. Originally, May 13-27 delivery BTW and ordered at 1210am, 4/10. Fell asleep. I dreamt that what they do is there is a little bug that puts a hole in you wrist. Then a second bug comes along and plants a seed from which the Watch grows. While waiting for this process to complete there were a lot of explanations. When it was ready Horace was going to give a primer on how to use the Watch but he then told us we could skip that step and he could answer questions later. Finally the watch was ready but my wife came along and I wasn’t sure if she should try it before me. She’s supposed to sign for delivery too if I’m not home. So its on my wrist but she takes control of it. We start gliding along roads. Have we been miniaturized? Not sure really. Its fun!

  • Walt French

    I’m intrigued about Apple turning overtly to luxury at the same time Ahrendts came on board.

    Guessing that some of the early planning for the Watch identified segments they’d logically compete in, if only they had skill in bringing luxury items to market. As you say in the podcast, Apple remains on its foundation of computer hardware and while their brand management is second to none, it’s not in the same space as Edition and even Watch.

    She would’ve been hired for the obvious Retail slot, but maybe with much broader brand responsibilities built into the job—responsibilities that make sense of, and justify her compensation. Many other execs would’ve been capable of “simply” running stores; seems like a rather portentous shift in the exec circle.

    • I think her efforts have little to do with Watch and much to do with expansion of stores in China.

      • Walt French

        Curious, then, how Apple turned its engineering talents to managing luxury goods… how it even had the chutzpah to try, given luxury is so different from its core product fit.

        I can’t challenge her role in opening China stores and maintaining the brand image; it’s just that I’m a bit surprised at the notion that talent to do luxury brand management would’ve been built organically, given the resources we’re familiar with.