CODE41 explores the advantages of an affiliation marketing model between watch brands and retailers, and how retailers can maximize their competitive advantage by becoming business contributors.
Until not so long ago, the distribution system for watchmaking products was well-oiled and unchanging: the brands produced, the retailers sold. Territories were well-defined and each defended their rights jealously.
And yet, for a few years now, the system has been falling apart, little by little, as a result of the digital transformation and the gradual integration of watchmaking into eCommerce. This change, however, seems to be of benefit only to the watchmaking brands, plunging the retailers into an unprecedented crisis.
To survive, retailers have to rapidly adapt their business model, and again become an important player in the relationship between customers and watchmaking brands. In fact, they hold a unique advantage: the street and physical contact with potential customers.
Today, CODE41 is exploring the advantages of an affiliate-based marketing model between watchmaking brands and retailers, and how the latter can maximize their competitive advantage by transforming themselves into business facilitators.
Retailers' eCommerce nightmare
Having long ignored the eCommerce revolution, watchmaking brands are finally waking up to digital transformation. They're discovering the numerous advantages of reaching their end customer directly, and especially enjoying a full profit margin on their products (in particular by absorbing the mark-up traditionally allocated to retailers).
eCommerce is often seen by retailers as the threat of becoming official showrooms. In fact, it's not uncommon for a potential customer to come to try out their coveted watch then "escape" with an "I'll think about it" before finally making their purchase online for a lower price.
Many retailers therefore feel isolated by the digitalization of watchmaking brands, having spent decades promoting them. Small watchmakers are disappearing one by one, without being replaced.
The crisis retailers are experiencing puts their very existence at risk, and it's vital that these traditional players in the watchmaking market find their own place in the eCommerce industry.
Watch retailers: a unique competitive advantage
Above all, strategic repositioning requires reflection on the evolution of the market (or industry) in which we find ourselves, as well as an analysis of one's own capacity for business, in order to gain a proper understanding of our competitive advantage in said market.
While the majority of transactions involving the purchase of goods and services were performed through physical channels (e.g. stores, supermarkets, etc...) before the 2000s, the digital revolution absorbed a significant amount of the demand for watchmaking into the digital world, and this evolution is exponential. It's one of the reasons for the repositioning of watchmaking brands in eCommerce, and also the main cause of the retailers' crisis.
In this new reality for the market, what competitive advantage do the retailers hold?
Despite the fall in demand, it's highly unlikely that purchase transactions will disappear from physical channels completely. In fact, urban and commercial centers remain at the heart of human social activities.
Therefore, retailers still hold their unique advantage over watchmaking brands: exclusivity in terms of the channel of promotion and physical acquisition. It's a very powerful channel that relies on 3 aspects missing from the digital world:
- physical contact with the product
- the sales force
- the possibility of impulse buying
But how can this competitive advantage be allowed to grow in the heart of the eCommerce revolution?
From retailer to affiliate: strategic repositioning
The viability of the traditional business model of watch retailers is increasingly difficult to maintain with the migration of demand to digital channels. In fact, this model is based on significant investments:
- Stock: the models on display must all be available for immediate sale
- Infrastructure: the stock present in the store requires an advanced and generally costly security system
A fall in demand and the profitability of the retailer collapses: the current situation has just confirmed this scenario.
It's illusory to count on the return of watchmaking demand to physical points of sale: eCommerce is a one-way journey, an irreversible societal change. The challenge for retailers is therefore adapting their business model to this new reality, and maximizing their profitability. The affiliate model of marketing is the digital transformation that retailers could adopt.
The principle of affiliate marketing is similar to a network of business facilitators: partners recommend products instead of brands, and take a commission (a percentage) when they bring in a customer. It's a system that works on performance, and one in which monetary reward is based above all on the overall market value of the customer, not solely on the value of the purchased product.
It was Jeff Bezos, founder of Amazon, who first implemented this economic model online in 1996. Today, affiliate marketing is widely used by big brands such as Fnac and Cdiscount, and in the digital product sector (like the sale of ebooks).
Until now, retailers only received a profit margin on watches that they sold in store. And yet, they often bring much more to watchmaking brands than just the sale of a product: the acquisition of a new client whose market value will increase with each future purchase. Indeed, who doesn't regularly buy products from a brand that they like?
So the affiliate model of marketing is one which allows retailers to transform themselves into business facilitators. It offsets the current downturn in their revenue with more significant commissions based on the overall volume of sales generated by their customers for watchmaking brands.
Thanks to digital technology, it's now possible to implement this model easily: once registered with the store, the affiliate has real time access to the total market value that their customer generates for the brand, even if their future purchases take place online.
CODE41: the first affiliate program for watch retailers?
Since the very beginning of the CODE41 project, we've wanted to keep the retail price of our watches as close as possible to their production cost. For that reason, we've opted for the digital route for reaching our members, and limiting the sale of our watches exclusively to our website.
Now we want to strengthen this model by including retailers in our success. We believe that digital technology is a fabulous opportunity to perpetuate the association between watchmaking brands and retailers.
Between now and Autumn 2019, we're going to trial a pilot affiliate marketing project with selected partners. The aim is to test the acquisition of new members by the brand through affiliates, with the public able to try out our models before completing the purchase online.
This program offers unique advantages for retailers:
- Zero investment in stock required: a single demonstration set is required. The customer makes their order online and it is delivered directly to their home, while the retailer receives their commission immediately.
- Zero risk of unsold stock and minimal security: With no stock, there's no risk of unsold items and no need to keep merchandise secure.
- Marketing power: thanks to our digital technology, we're able to refer our members to the closest affiliate store to them if they want to see what the watch looks like on their wrist.
- Regular commission: as a business facilitator, the affiliate receives commission on any purchase of CODE41 products by their client during a certain period of time.
Our vision is helping with the repositioning of watch retailers within the eCommerce industry, and developing their competitive advantage as business facilitators. More than just a simple sale, our affiliates convert their customer base to the CODE41 project, so it's normal that they be compensated on a regular basis for the new members introduced to the brand.
Retailer? Join our pilot project!
Are you a watch retailer? Would you like to take part in the CODE41 adventure? Join our pilot affiliate marketing project now! We'll be selecting around ten retailers to test and develop this innovative program alongside us.
