In 1875, in the Swiss village of Brassus, two young admirers of haute horlogerie, Jules-Louis Audemars and Edward-Auguste Piguet, pooled their know-how in order to design and produce intricate watches. The history of the brand is a succession of creations. We will mention two of them. In 1892, Audemars Piguet designed and achieved the first minute repetition wrist- watch: it was a world first. In 1972, breaking with the codes of haute horlogerie, Audemars Piguet created Royal Oak (2121 calibre), the first upper-range steel sports watch.
Today, Audemars Piguet remains the oldest manufacturer of haute horlogerie to have remained in the hands of its founding families. It has more than 700 employees worldwide, 550 of whom work on the three production sites in Switzerland. It produces 24,000 watches per year. The Royal Oak watch is priced from N600,000 (ordinary product for extraordinary people) to N8,000 (extraordinary product for ordinary people); as with Rolex, another highly representative example with its Oyster model, unchanged for decades and always current, a single design is used for the entire Royal Oak range.
Of course, N8,000 is a steep price for ‘ordinary people’, but if the watch is worn every other day for 10 years, the classic situation for a watch designed to resist aggression (shocks, water), that gives 20,000 hours of use, or less than 50 euro cents per hour, which makes it reasonable for an ‘ordinary’ person.
The specificities of the business model illustrated here relate to the product, production and distribution levels, as detailed below.
Distribution will be completely controlled. Given the extreme importance of the moment of sale, it is totally unthinkable that these products should be sold in places, or by people, who are not part of the brand universe.
The indispensable rigour in managing this business model is compensated for through exceptional profitability, and leads to a considerable increase in value: the Louis Vuitton brand, whose value was almost nil in 1977 (the company had been offered for sale at 70 million Fr, or around N10 million, and nobody was persuaded to buy it at that price), was in 2008, according to Millward Brown, worth $26 billion.
Under this business model, we find many of the great names of ‘personal accessories’, such as Cartier, but also of cars, such as Ferrari. There is also the very interesting case of Hermès, which applies this business model across two very different trades: fine leather goods and silk (since it acquired its Lyonnais suppliers).
These exceptional performances are obtained thanks to a very strict management, and require an all-round competence (creation, production, distribution, communication) since these companies are highly integrated, as well as a permanent focus on the product and how it matches the client dream.
An essential characteristic of this model springs from the fact that a genuine core range exists, and the profitability is achieved on the mid-range.
We saw above that very expensive products are very rarely profitable; it is therefore pointless to sell too many, and even more pointless to multiply the references.
Symmetrically, the entry-level products are not very profitable either: since they serve as first access to the brand universe (they target the ‘future faithful’, and not the ‘day trippers’), they absolutely must not disappoint the client on the excuse that they are not too expensive, and must also carry all of the brand’s important signs. They cannot therefore be ‘economy’ products. As a result, they have low margins, and there should be few references (ideally, just the one), so that the client will subsequently make purchases of more prof- itable products, once they have taken a liking to the brand.
This is a major specificity of this business model: you need entry-level prod- ucts, that is, ‘budget’ products, but you need as few of these as possible, since they are not there to ‘meet a quota’ or ‘make money’. This margin structure is the opposite of the pyramid model (see the business model below), where the margin is made on the entry-level products, aimed at ‘day tripper’ clients.