Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How Rolex Prices Scarcity and Brand Prestige
Transcript
- Lucas: Think about the last time you tried to buy a Rolex. Not just any Rolex — say, a steel Daytona with a black dial. The retail price is around fourteen thousand dollars. But if you walk into an authorized dealer tomorrow, they'll probably laugh. The waitlist is years long, if they even take your name. Luna: Right, and if you go to the gray market — Chrono24, jewelers in the Diamond District — that same watch is thirty thousand dollars plus. More than double retail. Lucas: Exactly. And that's the whole point of today's episode. Rolex is one of the most powerful pricing stories in luxury goods. They have near-total control over supply, distribution, and price. And they use that to create a product that actually appreciates. Luna: Most consumer goods lose value the second you open the box. A Rolex is the opposite. Lucas: So how do they do it? First, the supply constraint is intentional. Rolex produces roughly one million watches a year — which sounds like a lot until you realize they have four thousand authorized dealers globally. That's about two hundred and fifty watches per dealer per year. But they don't spread them evenly. Popular models like the Submariner, gmt master, and Daytona are deliberately underproduced. Luna: They create scarcity by limiting production, even though they could easily make more. They leave money on the table — on purpose. Lucas: And that's the key insight. Rolex could double production of steel sports watches tomorrow, sell every single one, and make massive short-term profit. But they don't, because they know scarcity isn't just about sales today — it's about brand value tomorrow. By keeping supply tight, they ensure that demand always exceeds supply. That gives them pricing power. Luna: It also creates a secondary market that reinforces the brand. When a watch trades above retail, it signals to new buyers that the product is valuable. It's free marketing. Lucas: Right. And Rolex also controls the primary price. They raise prices by three to eight percent most years, quietly, without fanfare. A Submariner that cost seven thousand dollars in 2020 is now over ten thousand. They push the price up gradually, and the market absorbs it because the alternative is paying even more on gray market. Luna: So it's a two-tier system: an official retail price that's below market-clearing, and a secondary market price that's the true value. Rolex leaves the upside for the customer — or the speculator. Lucas: Exactly. They sacrifice some immediate profit to keep the brand aura intact. Now, this strategy isn't unique to Rolex. Hermès does the same with Birkin bags. Ferrari limits production of certain models. But watchmaking is especially interesting because the product is more standardized – a Submariner from 2022 is functionally identical to a 2025 model. Luna: Yet people pay a premium for a newer serial number, or a specific dial variation. It's almost like a collectible. Lucas: And Rolex reinforces that by controlling distribution. They decide which dealers get which models. If a dealer plays games — like forcing a customer to buy other watches to get a Daytona — Rolex can revoke their dealership. That keeps the retail channel clean and maintains the illusion that you can get one at list price if you're patient. Luna: Except patience alone doesn't work. You need a relationship. You need to buy other watches, maybe jewelry, before a dealer will put you on the list for the steel Daytona. Lucas: Right. That's a form of bundling — you have to buy less desirable products to get access to the hot one. Rolex doesn't officially endorse that, but they tolerate it because it sells the rest of their catalog. Luna: It's interesting to compare this to a brand like Swatch, which owns brands like Omega and Longines. They have a different approach — more production, more marketing, less scarcity. Omega sells the Speedmaster, but you can walk into a boutique and buy one. Lucas: And Omega doesn't have the same resale value. A ten-year-old Speedmaster is worth maybe half of retail. Rolex vintage models can sell for more than their original price. That's the power of the brand moat. Luna: Honestly, if today's episode made you think differently about how companies create value, that's exactly what this show is about. And if it was worth a coffee to you, there's a link — buy me a coffee dot com slash fexingo. Keeps the podcast ad-free and comes straight from listeners who find it useful. Lucas: Yeah, it's a small gesture that makes a big difference for us. Thanks to everyone who already supports the show. Now, back to Rolex. One of the most fascinating aspects is how they handle price increases on existing models. In 2023, they raised prices on the Daytona by about ten percent in the US. The list price went from roughly $13,500 to $14,800. The gray market barely flinched — those watches were already trading at $35,000. Luna: So the retail price increase just narrows the gap between list and market. It doesn't affect demand. Lucas: Exactly. And that's the hallmark of pricing power: you can raise prices and not lose customers. Rolex's demand is incredibly inelastic. The people who want a Rolex don't balk at a three percent or even ten percent increase. They're buying the status, the craftsmanship, the wait. Luna: But there's a risk. If the economy tanks, luxury goods are often the first to get cut. Rolex saw that in 2020 during the pandemic, when secondary market prices dipped. Lucas: They did, but they recovered quickly. And Rolex has the benefit of a loyal customer base that treats watches as investments. Even during downturns, people hang onto them. They're portable wealth. Luna: Let's talk about the competition. Tudor is Rolex's sister brand, owned by the same parent company, and they use a similar strategy — but at a lower price point. Tudor's Black Bay is around $4,000, and you can often get one without a waitlist. Lucas: Right. Tudor acts as a feeder brand. If you can't afford a Rolex, you buy a Tudor. And if you buy a Tudor, you build a relationship with the dealer, making it easier to get a Rolex later. It's a two-tier loyalty system. Luna: That's clever. They capture the aspirational buyer and the luxury buyer in one ecosystem. Lucas: Now, another angle: Rolex's move into certified pre-owned watches. In 2022, they started a program where authorized dealers could sell pre-owned Rolex watches with a factory certification. That gives them control over the secondary market, ensuring authenticity and keeping prices high. Luna: And they charge a premium for that certification. It's a way to monetize the resale market without losing the brand cachet. Lucas: Exactly. They're capturing value from transactions that previously benefited only private sellers and gray market dealers. It's a smart move. Luna: So what can a regular business learn from Rolex? Most companies can't create that level of scarcity, but they can learn to control distribution and pricing more tightly. Lucas: I think the big lesson is: if you have a product that people truly want, don't be afraid to limit supply. Don't race to the bottom on price. Build a brand that people value beyond function. Rolex sells timekeeping, but really, they sell identity. Luna: And that's the ultimate pricing power — when your product is so desired that customers line up to pay your price, and thank you for the privilege. Lucas: It's a tough game to play, but when it works, it's beautiful. Next time you see someone wearing a Submariner, remember — that watch cost less than its market value, but the price was really the wait, the relationship, and the brand.