Traditional business model
Before the age of information technology, factories manufacture products. They are then shipped to wholesale agents in the market, before ending up in retail stores. Customers can then only be able buy from retail stores.
Transfer costs and profit margins set for each middleman drives up the final price tag of the product, sometimes more than 1000% of original price. With development of internet, and faster flow of information, many business models are disserting the traditional model of production to lower prices of their products.
Only luxury markets today still maintain the traditional business model, partly because higher price tags gives impressive that products are of higher quality, but higher price does not always mean higher product quality. Isn’t it?
Luxury watch market
Watch market today has intensive competition between different brands at different price levels. This race has led to driving down the previously sky-high prices to more affordable prices, without affecting the profit margin. How did they do that?
They cut out the middlemen from the production chain. While established watch brands like are maintaining traditional model, newer brands are increasingly using the new model. No middleman.
Watches are produced at factories, shipped to their main storage facilities. They mostly sell online, and their watches are shipped from their storage facilities directly to the doors of customers.
Let’s look at an example. High quality watches from Dr.M - London offers Swiss movement, sapphire crystal glass and 316L surgical grade stainless steel case at a cheaper price while competitors are offering watches with Japanese movement, mineral glass and alloy watch case with a higher price tag. Now, you see the difference.
The Class series of Dr.M - London
Dr.M could offer you high quality watches with much better specifications and at cheaper price than their competitors because of their business model. Cut out the middlemen.
Unless you have got a long history in the watchmaking industry or an established brand, fighting the new model would not be easy.
Resistance of tradition
On the other hand, established brands only use traditional business model. They claim that it is the most effective way to counter fake products of their brands. They don’t sell their products online, and they encourage customers to buy only from authorised dealers. This claim also become an effective way to maintain the traditional model with mark-up prices.
Another reason to maintain traditional model is the advantage of having big luxurious stores. Who would dare to think the products in those glamourous stores are of low quality? Needless to say, the stores have big impact on the impression of the brand in the market.
Conclusion: which one is better?
It is hard to conclude which model is better. Both models has pros and cons. However, one can confidently say the new model is definitely better for entrepreneurs. The new model does not need huge amount of investment to start with. The use of it is already booming in the market today.
You can start a business using the new business. It will only costs a couple thousand of dollars compared to the traditional model, which would need up to a million dollar to set up, and many more to spend for promoting your brand.
The conclusion is yours to make!