Creating a Black Market for Your Own Company’s Products (or How NOT to Create Artificial Demand)

For this week’s Stupid Business Decisions Case Study, we look at the watch maker Swatch and their botched attempt to make themselves seem more high-end than they really are.  The only thing they DID succeed in was creating a black market for their own products.

At first, it seemed like a cool idea — Swatch decided to partner up with a legit high-end watchmaker, Omega, producing a collaboration called MoonSwatch.  In theory, you get the look of an Omega, but for a fraction of the price.  The $260 USD selling point is quite a step up for Swatch, who’s previous best sellers were typically in the $50-100 range.  (Of course, compared to $6,000 or more for a real Omega, it’s a bargain.)

Swatch did a great job creating “buzz” on social media.  Demand for these new watches was already quite high by the time they launched.  Crazy long lines formed outside the Swatch stores which had been selected to carry the new series.

Demand was so great, in fact, that Swatch couldn’t fill their shelves fast enough.  As a business, that’s a great problem to have.  Unfortunately, Swatch decided to handle the intense demand in the worst way possible.  They practically asked for a black market to be created.  How, you ask?  First, let’s look at this notice Swatch posted on their own website:

“Due to overwhelming demand from Swatch fans all over the globe, there is currently not enough stock of the Bioceramic MoonSwatch Collection. We’re working around the clock behind the scenes to make the 11 unique watches and are replenishing our selected Swatch stores… While these are definitely special, they aren’t part of a limited edition, so you should indeed be able to get your hands on one.”

Okay, I get it, manufacturing and supply chains around the world are in tough shape right now.  I can sympathize with that.  I’ll just place a backorder through the Swatch website and wait until they come in — oh, you don’t take backorders?  You don’t sell them online at all?  Okay, fine, I’ll go to the Swatch store…

I waited until a couple months after the release date, allowing time for the long lines to die down.  Sadly only a small number of “selected Swatch stores” even carry the new series.  For me, the “closest” was the one in Las Vegas, Nevada.  So, I waited until the next time I was in Vegas and then popped in to have a look.

Now, let me preface by saying I know Swatch is not a high-end brand.  I don’t expect the same experience as you get at the Omega store, where they greet you, serve you champagne*, and cater to your every need. (*They do this at the New York Omega store, at least, I don’t know about other ones…)  All I really expected from a Swatch store was that I’d be able to buy the watch I want.

Well, at the Swatch store, they didn’t have any of the MoonSwatch series in stock.  Not a single one.  Okay, no problem, I ask the sales girl when they are expecting some more.  “I can’t tell you that”, she says.  “We could get a delivery any day, but we can’t say in advance.”  Okay.  “Can you take down my name and number and let me know when some more arrive?”, I ask.  “No, we can’t do that.”  Ooookay.  “You’re not making it easy for me to buy one of your watches” I remark lightheartedly.  “I know, it’s not us, it’s the company”, she explains, “you just have to come in each day and check, as they’re first-come-first-serve”.

I don’t know about you, but I’m not driving to their silly store every day, just on the off chance they might have a watch in stock.  I don’t have that kind of free time on my hands.  But I figured there are probably people out there — scalpers — who DO have a lot of free time, and can sense a good opportunity when they see one.  So, I went home and logged on to eBay.

Indeed there were many MoonSwatches available on eBay, selling for anywhere from 3-4 times their retail price.  Clearly, the scalpers are doing a great business. And why not?  By making their watches so hard to buy, Swatch is practically encouraging this kind of behavior.  But worse, how do you know that these watches being sold on eBay are not fakes?  Searching the internet revealed there is already a thriving business for counterfeit MoonSwatches.  Amazing how the counterfeiters can produce fakes faster than Swatch can produce the real ones!

Which brings me to the crux of the story — How many people who were unable to buy directly from Swatch will turn to eBay and other platforms?  How many will unwittingly end up with fakes?  How is any of this good for Swatch’s bottom line?

If Swatch were smart, they would simply accept backorders on their website.  As they said, it’s not a limited edition, so they could easily capture 100% of the demand via backorders.  All they have to do is communicate approximately how long the manufacturing lead time will be, and I’m sure most people would be just fine waiting.

Unfortunately, it seems Swatch made a conscious decision to create long lines by limiting sales to only a select few stores.  Probably they want long lines so they can say “look at us, how exclusive we are!”  Well, certainly that’s a strategy, but if that’s the case then I would expect a little bit better customer service when I go to their store. The sales people should be at least better than worthless.  You know, maybe they could at least handle a waitlist.  If you want to become more high-end, you have to walk the walk.