There is a fun article this week about Jean-Claude Biver in The Economist this week (Face value: Salesman of the irrational, Nov 12). OK, I didn’t know who Monsieur Biver was until I read the article. It turns out that he has made a career for himself since the early 1980s running various Swiss watch brands. Currently, he runs Hublot and has done surprisingly well in the recent downtown. Not too surprisingly, it has be a rough year or so for selling wicked expensive watches but Hublot’s sales are down only 15% when the market is down 30%. Here is the money quote:
Hublot’s success stems in part from Mr Biver’s penchant for rationing his products. He was careful to restrict supply when business was booming, delivering only seven watches, say, when ten were ordered. Jewellers pay cash for stock, so it seems foolish not to sell as many watches as possible. Yet for Mr Biver it is an essential strategy. “You only desire what you cannot get,” he says. “People want exclusivity, so you must always keep the customer hungry and frustrated.”
This approach has helped shield Hublot from the downturn in two ways. Cash-strapped retailers who have cut costs by running down stocks of other firms’ watches keep buying his, since they did not have many on hand to begin with. And they have not slashed prices for Hublot’s watches, as they have with those of its rivals (watchmakers get only about a third of the final selling price of a watch). That has helped preserve the brand’s image of luxury and exclusivity.
Rationing inventory happens in many industries and it is just an interesting phenomenon. I have long thought that allocation schemes for tight supplies are an under-appreciated part of the marketing mix. For example, car companies (notably, not American car companies) have been able to put dealers through hoops (e.g., having dealers renovate their showrooms) in return for (among other things) better allocations of hot cars. (I actually have several publications on allocation schemes with my colleague Gerard Cachon, who has his own OM blog.)
What I find interesting about this story is that in most instances, having goods on allocation is a transient phenomenon. A given car maker has a hot model and makes hay while the sun shines. Two years later, consumers are ready to move on and the car is in relatively ample supply. The same thing has happened in, say, packaged goods. Tight supplies of paper towels or liquid detergent eventually get expanded. This setting is just different. Monsieur Biver seems intent on having his watches ALWAYS be in tight supply. One suspects that the scale of the market matters. A hot selling car — even a pricey one — can be north of 50,000 units a year in the US and more around the world. I am not sure how many super expensive watches one firm can sell. It will be interesting to see how long Hublot sticks with this strategy. Their website reports that they have recently (i.e. a few weeks ago) opened a new factory with the potential to greatly increase supply.