By selling the 17,000 USD Apple Watch Edition, it would seem as if Apple is trying to become a luxury brand. Here I would like to discuss how I think this argument does not capture what Apple is really becoming. I don’t think Apple is trying to be a luxury brand at all. Instead I view this as Apple becoming a new kind of brand. A brand that brings luxury to the masses.
A luxury brand can only sell to a small portion of the total market. However, by becoming a luxury for the masses company, Apple is aiming to take both profits and volume from the markets that it targets. This is much like how the iPhone captured 10-20% of the global smartphone market (which made it the first or second largest vendor), with close to 90% of the profit share.
What do we mean by luxury?
“Luxury” has been an issue in the commentary surrounding Apple for quite a while. It used to be directed towards the reason why people buy iPhones as opposed to premium Android phones. With the Apple Watch, because of the gold Edition, this argument has become even more commonplace.
The problem is, nobody really seems to know what “luxury” means, and the people who do seem to use it somewhat differently. As Horace Dediu mentioned in a recent podcast, maybe it is time to stop using the term “luxury” and to come up with something new. This does however seem rather extreme given that other industries have been happy with this for decades.
I am not in any way an expert in neither luxuries nor fashions and hence I have no informed opinions on how these terms should be used. I do think that the distinction is important for understanding Apple Watch.
Luxury is very often associated with price. Simply, cheap products are rarely luxuries and luxuries are usually pricy.
Looking at the prices of Apple Watch, the Apple Watch Edition satisfies the criteria for a luxury watch. It is priced from 10,000 USD to $17,000, with the emphasis on the 15,000-17,000 USD versions (10,000 USD is for the sport band which is rather unusual for a luxury watch).
However, the aluminium and stainless steel versions, which start at 349 USD and go up to 1099 USD are not exactly luxury. They compare in price to 200-400 USD watches from DIESEL (which calls themselves a “premium casual brand”), mechanical watches from FOSSIL. They are also at the low end of premium watches by brands like SEIKO and CITIZEN and at the high end of fashion watches from CASIO. It’s impossible to classify the aluminium and stainless steel Apple Watches as luxury.
Taking a completely different view, they tech view, you also find that it is squarely in the range of the iPad mini to iPad Air. The Apple Watch aluminium and stainless steel versions are actually at the lower end of Apple’s whole product line.
So although the gold Apple Watch Edition is certainly priced as a luxury product, the other versions are not. The other versions are simply premiums as are any other products in Apple’s product line.
Is Apple Watch luxury?
Since I don’t really understand luxury, I’ll defer explanation of the term to articles on the web. For example, here is an article by James D. Roumeliotis.
There is a classic litmus test:
- Is the product manufactured in artificially limited quantities? (i.e. the rarity factor)
- Does the firm have a story to tell? (i.e. history & pedigree)
- Is the firm portraying a unique lifestyle?
- Is craftsmanship the hallmark, which delivers products that only High Net Worth individuals (HNWI/UHNWI) can purchase without question?
- Does the brand offer authenticity?
In the video for the Apple Watch Edition, Jony Ive briefly mentions limited quantities so it would seem criteria 1. is satisfied.
Criteria 2. is satisfied by the very nice videos, which are available for all versions including the cheapest aluminium Sport model.
Criteria 3. is not met for any of the versions.
Criteria 4. is problematic. Jony Ive describes the highest level of craftsmanship (or care), but most of this is automated. This craftsmanship is mass-produced by precision machinery and is available for all versions. It is at the highest level, but is not exclusive for the rich.
Criteria 5. is something that is something that I don’t understand. I won’t comment on this.
What you see is that all versions, even including the aluminium Apple Watch Sport, satisfy a number of the criteria for luxury. In fact, the only criteria that the gold Edition uniquely satisfies is that regarding limited quantities.
Luxury for the masses
Apple Watch is actually a “luxury for the masses”. By automating and mass producing what previously required a high level of craftsmanship, Apple has brought luxury products within reach of the masses.
Importantly, this is not unique to the Apple Watch. Nor is it something that is recent. Almost all Apple products have been produced with the same amount of care and precision machining for quite a while now. What Apple is saying is that the attention and care to detail they have been exercising for years on products ranging from the iPad, iPhone, MacBook, iMac to the PowerMac, has always been worthy of luxury status.
The Apple Watch Edition is not a special product. It is just like every other Apple product.
A note on fashion
An aspect that was not previously an topic for Apple, but is now a topic for the Apple Watch, is fashion. In the article I linked to above,
However the nature of fashion is ephemeral and change. Pick up a copy of September Vogue and judge for yourself.
Although there are some fashion brands that are very pricey, price itself is not a criteria for fashion. Fashion is more about change.
This is why we have fashionable Swatch watches from under 100 USD. It is perfectly OK to be cheap but fashionable.
It is very possible that the Apple Watch would be fashionable. The prices certainly do not preclude it. Also like Swatch, there are a wide variety of bands and clock faces to choose from which allow the wearer to express their individuality. Brand power is also likely to be a key in fashion, and the Apple brand is certainly one of the favourites among e fashion conscious people.
What I find interesting about fashion is its dynamics of change. Fashion can change very quickly in the span of a year or two. It can also be rapidly obsoleted. Therefore, if there is a strong fashion aspect to the Apple Watch, we have to accept the possibility of a very, very rapid uptake, which could even be faster than the previous tech adoption champion; the iPad.
We should look out for how often the Apple Watch appears in magazines and news dedicated to the fashion conscious. If it is significant, then we might see an extremely quick ramp in adoption, an adoption rate that is characteristic of fashion.
Why does this matter?
The distinction between what it means to be a luxury, premium or fashion is important because it defines the addressable market. A luxury product in the pure sense must have exclusivity, and hence the market is limited. That is why Swiss watches only capture 3% of the total watch market in unit sales. This compares to iPhone having over 10% market share of global smartphone shipments and having about half the smartphone market in the US and Japan. Add to the fact that most people nowadays don’t even wear watches, and you have to conclude that the luxury watch market is pretty small from Apple’s perspective.
It’s not that Apple seeks to maximise profits. It’s that Apple seeks to make meaningful contributions. And you can’t really change the world by just targeting the luxury segment.
Luxury for the masses
I believe that Apple is aiming to bring luxury to the masses, and has actually been so for quite a while. If fact Apple has from its very beginning, always been a “for the masses” company.
With the Apple II, Apple brought personal computing from the hands of hardware enthusiasts towards software enthusiasts. With the Mac, Apple made personal computing easy enough for everybody to use. With the iPhone, Apple brought personal computing away from office environments and into more personal settings. Apple has always been about expanding the number of people who can use their products, and increasing use-cases.
Apple is misunderstood because in bringing their products to the masses, they do not rely on cheap prices. People think Apple targets only the premium and luxury segments of markets, while forgetting that these markets would often not have existed without Apple in the first place.
Categorising Apple as a luxury or even premium company does not capture the essence of what Apple strives to do. We must understand Apple as a “for the masses” company. What is new with the Apple Watch is simply that this time, Apple has explicitly brought luxury to the masses.