SDC Weekly 41; Status Quo Bias; Watch Pricing Deep Dive
OnlyWatch coming soon, Dynamic pricing, NFL economics, watch manufacture myths, Rolex big date, Spacetime, How planes fly, and the trillion dollar equation.
“Everything feels unprecedented when you haven’t engaged with history.”
Hello 👋 and welcome back to SDC Weekly. This may be the longest SDC Weekly yet, so make sure you have a coffee and some snacks handy!
OnlyWatch
First off, OnlyWatch is back! This interview with Luc Pettavino explains the audit is complete;
The auditors’ report certifies the financial statements for the last three years and states that the financial situation we have presented is true and fair, as well as the fact that it is in accordance with our purpose and the standards which we are subject to. It also certifies that the association's funds are used in accordance with its purpose. - Luc Pettavino
Christie’s is still their auction partner, and Luc reckons the Only Watch sale could open as soon as 10 May 2024.
The Watch Register
The Watch Register recently issued their 10-year Anniversary report. They discuss their own transformation over the past decade, from a human-led investigative team to a global database utilising advanced algorithms alongside human oversight, processing over 200,000 searches annually. It emphasises their database’s growth and success in matching and recovering watches. Despite challenges, such as competition from other database services and the rising threat of watch counterfeiting, they of course explain how crucial they are for many stakeholders, including law enforcement, insurers, and watch industry players. Unsurprisingly, they advocate for increased collaboration and standardisation of serial numbers to combat watch crime effectively. They also had some positive quotes from Chrono24, Sotheby’s Metro police and ADs. Here’s a couple of their charts, and a BBC article covering them too. Great PR, to be honest!
Fake watches
This article discusses the rise of fake and franken watches in the US, with an estimated 23.3 million of them circulation. Apparently over 20% of watches for sale in NYC are fake too (see chart below). Worrying stat for me, was that ~80% of counterfeit watches today are classified as “super-fakes” vs. 5 years ago when only 20% were good enough to dupe experts. Oh, and frankenwatches accounted for 21% of all fake watches purchased in the US (in their sample; in reality there are probably even more).
Dynamic Pricing
You may recall when Wendy’s made news last month, as their CEO mentioned the company would be implementing “dynamic pricing” in 2025 by investing $20 million in digital menu boards with “AI capabilities.”
“We expect our digital menu boards will drive immediate benefits to order accuracy, improve crew experience and sales growth from upselling and consistent merchandising execution. Beginning as early as 2025, we will begin testing more enhanced features like dynamic pricing and day part offerings along with AI-enabled menu changes and suggestive selling.”
He said this during a quarterly earnings call, to investors who you would expect value the idea of using AI to improve efficiency and create value. Turns out, most customers back in the real world weren’t too keen on this… Despite how this might reduce demand, and potentially speed up service and increase quality, they were less enthusiastic about the prospect of pulling into the drive-through to see the cost go up by 30% on the fly. It is the unpredictability which didn’t seem to sit well. Wendy’s later issued an announcement to say it never intended to raise prices at times of peak demand, and only intended to lower prices when store traffic was slow.
Just remember, dynamic pricing isn’t new at all. Not in the fast food world, and anywhere else for that matter. In fact, we’re probably more used to it than you might think. Airlines and hotels always have surge pricing during holiday season, and on weekends. Even your Uber will cost more when there are fewer cars around. We don’t like it, but we still use these services. Even the WSJ is talking about this, explaining how many restaurants, supermarkets and other businesses are taking advantage of this approach.
You may have bought cinema tickets in a ‘two for one Tuesday’ deal… that’s 50% off on Tuesdays. You have also probably seen ‘happy hour’ in your favourite bar, or delayed travel to enjoy ‘off peak fares’ on public transport. Fundamentally, the idea of dynamic pricing is implemented by discounting the full price, as opposed to increasing it during peak times. (Don’t talk to me about airlines, I hate them, and that’s a different story entirely!)
What’s the difference anyway? Discount the price, or increase during peak… if they did the math and made the price ‘the same’, would this not leave consumers indifferent? Well, no… because, psychology matters!
When there is dynamic discounting during off-peak times, discounts will be viewed as a benefit for the consumer… conversely, if there is a dynamic increase in price during peak times, this will be viewed as a penalty!
This old McKinsey paper discusses dynamic pricing, and explains how doesn’t have to be extraordinarily complex, but it does have to be strategic and disciplined:
Consumers expect airfares to change constantly, but they expect the price of a jar of pasta sauce or a bottle of shampoo to stay fairly consistent. Ensure that all algorithm-recommended price moves are aligned with your brand and with the desired customer experience. Establish and enforce strict pricing guardrails. Your prices shouldn’t fluctuate so dramatically that they confuse and alienate customers. If customers perceive price changes as random, unfair, or disconnected from your value proposition, they’ll simply shop elsewhere.
So how about pricing luxury watches? We will explore this in more detail below.
Let’s dig in.