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Interview with Steve Amstutz from Tag Heuer

The luxury mobile phone market is now witnessing the rise of another player – Tag Heuer from the world of Swiss-made wristwatches and their brand-new MERIDIIST phone. Natuarally, we couldn’t miss an event of this magnitude, so we came to Basel to talk with Steve Amstutz, the man in charge of this product. Tag Heuer approach this market with standards of their own, and Steve had a lot to say on this matter.

Your company is known for its expertise in luxury goods, rather than technology and electronics, so why did TAG Heuer decide to create a mobile phone in the first place?

I hope I can answer this question in less than an hour! (laughs) I’d like to begin by saying that TAG Heuer is all about technology. For many years we have been putting together automatic, quartz and electronic watches, with a remarkable 1/1000th of a second precision. Besides, not only were we the first watch maker to actually develop the microtimer instrument, we also implemented it in a wristwatch before everyone else. I believe this is enough proof to show that TAG Heuer has always been interested in mastering the technology. TAG Heuer also served as the official time keeper for the Olympic Games – back at the beginning of the twentieth century the Olympic committee was looking for a competent time keeper, so they went to us, however it was more of an honorable position, since they couldn’t pay for it at that time. We also have a 10 year history in Formula 1 and we took our technologies to the limit in the NASCAR series where we managed to reach precision levels of 1/10000th of a second. And I firmly believe that if there’s one company in this entire industry that actually would want to take the challenge of putting together a mobile phone, this has to be Tag Heuer.

Why did you pick ModeLabs for this project?

Obviously we didn’t have all required experience when it came to wireless communications and cell phone design, so we needed someone who understood our needs and someone who was able to put together the values we wanted in a mobile phone: supreme build quality, flawless execution of all features and extreme durability. We looked everywhere, including all major phone makers, but when we approached them with our needs and said we wanted them to produce 6 thousand units of a 3000 Euro phone a year, they told us this production volume was too insignificant to even talk about it. And only ModeLabs were able to meet our requirements – they agreed to give this project a go. The idea of a Tag Heuer-branded mobile phone appeared around 5 years ago and then two years later we started our joint venture with ModeLabs – we developed the phone’s concept and brought our expertise in quality, while they contributed their expertise in electronics and hardware design.

The business is based on the license issued by Tag Heuer – we have given ModeLabs the right to develop and commercialize our product, but our President and CEO also wanted someone from Tag Heuer, someone who understands the brand and its values, to supervise this project from inside ModeLabs, to make sure we are doing the right thing in terms of product, quality, marketing, all in an effort to use the same distribution channels that we are using for our watches. This means that our companies are working very closely with each other.

As far as we know, Tag Heuer’s mobile phone is available exclusively in your boutiques. What are the reasons behind such distribution policy for the MERIDIIST?

The MERIDIIST is a luxury product, whose price tag varies between 3400 Euros and 30000 Euros. So we do believe that all customers who are willing to buy this phone deserve top-notch service delivered by professionals, educated sales assistants, who can offer you a cup of coffee, while introducing you to the MERIDIIST, who know you and your tastes, your preferred colors etc. Needless to say, this level of service can only be found in a boutique. In mobile phone stores shop assistants change every week, so they can’t offer the level of service we demand, they don’t know their customers, don’t know the product all that well, and therefore it’s impossible to sell a 3000 Euro phone through regular distribution channels. Then, there is another reason – local carriers and how they treat branded products. Basically, when you enter the luxury mobile phone market, you have two options – either you do it like Vertu (which implies building your phone from a scratch, and that’s exactly the approach we are exercising), or you follow in Prada’s footsteps, when you basically take someone else’s phone, put your logo on it and increase its price by 300 Euro or so and you are set. This is a very smart approach, since during the first months these phones generate supreme sales, however 3 months later when their advertising support is gone, local carriers come in and say “Well, the Prada phone’s price is no longer 600 Euros, it’s 300 Euros” and 6 months later they drop it down to 159 Euros. But luxury phones can’t be treated like that – basically, you never ask for a discount in a boutique, same rules apply here. It’s all about respecting the product and the people who put it together manually. Therefore we firmly believe that the only right way to distribute the MERIDIIST is through specialized watch and jewelry stores.

How are you planning to build the customer care network for the MERIDIIST? Most luxury brands offer a very poor quality of customer care in Russia so it's a very important issue. For example, if my phone should develop a fault how fast can you repair it?

Vertu used to send all phones back to the UK for repair and maintenance, but Tag Heuer will do all the work right in Moscow in a very efficient service center, where they have all spare parts, equipment and tools they might need. Plus we designed the MERIDIIST like a watch in that we don’t repair its hardware locally; instead we replace everything inside the phone and give it back to you within a week. Of course we do everything possible to save user data and keep it confident. Then we send all malfunctioning parts back to France, but our users don’t need to worry about that – they get their phones back within days.

How long do you think the MERIDIIST will last on the market and when should we expect another phone from Tag Heuer?

I think we are looking at a lifecycle that’s longer than that of a regular cell phone, no doubt about that - probably three to four years, I’d say. Our goal with the MERIDIIST was to create a great phone with outstanding battery life, sound system and sturdy build quality – and these things are timeless. But I believe we’ll release another phone some time in the future that will be complementary to the MERIDIIST in that it will do things that our original phone can’t, sort of a personal tool, whereas the MERIDIIST is a strictly business phone.

What is your opinion about other luxury brands that are now coming into this business, such as Ulysse Nardin?

Well, I’m glad that others are coming as well - it only shows that other people have the same reflections and they understand the same things we saw five years ago. And I believe together we will bring more value to the luxury mobile phone segment. So I think they are not our rivals per se, on the contrary, these companies bring more attention and credibility to the business we are in.

Let me try to give you some numbers –last year we saw 1.2 billion phones sold world-wide, 90% of them were feature phones (like the MERIDIIST), and only 10% were smarthphones. There were only 100 000 units sold in the luxury segment “3000 Euros and above”, or 0.01% of the total volume. None of other markets show such a small ratio of ordinary\luxury goods. For wristwatches it’s around 3-5%, for pens – 2% and so on. By and large, in most industries it floats around 0.5-2%.

On top of that, in some regions, the penetration has already reached 100%, meaning that people are beginning to buy two phones per person. That’s exactly the time when we need to introduce further segmentation. If it wasn’t for the crisis, it’d have happened much faster. Let me make it very clear: at “1000 Euro” price point there are some players here and there, then at “1000 to 2000 Euro” there are some strong brands out there, such as Nokia, Porsche Design, but when we get to “2000 to 3000 Euro” – it’s no man’s land, and someone needs to fill this gap. Then again, in “over 3000 Euro” segment there are three major names as well as some smaller players. I believe that sooner or later all manufacturers will realize that now is the right time to seize this opportunity to grab a piece of this business.

How the MERIDIIST will affect Tag Heuer’s brand integrity? Are you planning to use the phone as a link that will bring its users closer to the values of Tag Heuer?

At Tag Heuer we do believe that our customers are very loyal. Although I can’t speak for our Russian consumers here, since we entered this market very late, but in regions where Tag Heuer’s positions are quite strong, we offer top-notch Swiss made wristwatches that are usually presented to young people on some memorable occasions. So our consumers form the evolution of the brand, because most of them value the things that constitute Tag Heuer’s philosophy: technology and design. And we are proud to have Louis Hamilton, Tiger Woods and other notable figures among our customers. Our brand offers consumers a lot of value, especially to men, who now constitute over 60 percent of our business.

So we truly believe that we can convince a customer who has been happy with his Tag Heuer watch for his all life to give our latest offering a try. And I’m most positive some of our consumers will definitely buy the MERIDIIST. And then there is another category of people who don’t own a Tag Heuer watch, but who will be drawn towards the brand by this mobile phone, and maybe they’ll come to like it and buy some of our other products.

Actually, this is our ultimate goal – to turn our brand into a lifestyle brand. I’m really sorry that I don’t have a pair of Tag Heuer branded glasses with me, but I assure you, when you put all three pieces together (watch, phone, eyeglasses) they make a very coherent picture. Basically, you can also imagine 4th and 5th products in our portfolio on this table that will mix the same ingredients.

Speaking of lifestyle brands, I can’t ignore Apple – they are doing a very similar thing, becoming a lifestyle brand, although not for everyone, but rather for a certain category of people who can afford these products intellectually and financially, and then become Apple addicted. Same is happening here, although our ambitions are more modest.

Could you give us your vision of a MERIDIIST owner? Who is he or she?

It’s definitely “he” - even the phone’s design hints at who its more likely owner will be, with it sharp lines, blocky footprint and overall heavy feel. Also, this man has succeeded in whatever he has been doing during his life; he has accumulated enough money to live his life the way he wants. So the phone becomes some sort of a reward for the lifetime of work. This is the category of people who are positioned very high in the social ladder. Although I guess there will be some 20-25 year olds among the users of the MERIDIIST, the vast majority of our consumers will be in their mid thirties or older. On top of that, the UI is very easy to use, so we are still targeting the older portion of the audience as well, people who don’t necessarily know much about technology. At a certain point in their lives, some people lose the will and the need to learn. With this in mind, we designed the UI to be very efficient, so that you won’t even need any manual to move around the menus, it’s very convenient. Plus all other aspects of the phone are very standardized, and we also tried to make our phone very capable in the areas it really needs to excel in: battery time, easy of use, call quality, durability etc. Basically, we took all the essentials and elevated them to a much higher level of quality

Where in Europe does Tag Heuer excel? In other words, where do you expect the MERIDIIST to sell better?

Well I’d say we enjoy extremely good brand awareness in the UK, as well as Australia, Singapore and the US. Unfortunately, we got to Russia, India and China much later than most other brands, so we don’t have similar recognition levels there. Speaking about Russians, I think they’ll love the MERIDIIST simply because it’s a brand-new phone that no one has ever seen before. Believe it or not, our boutique in Moscow sold out its entire inventory in less than a week.

Could you outline Tag Heuer’s ambitions with the MERIDIIST for 2009?

I can’t disclose any figures, but in 2009 our target and ambition for the “3000 Euro and above” segment will be 10% of its total volume.

What about the US market? As far as we know, it’s a disaster for all luxury brands.

I spent six years in the US, including two years in New York, so I know this market very well. In a word, it’s been blooming over the past years. As far as Tag Heuer is concerned, world-wide we are the 4th largest watch brand, while in the US we are second only to Rolex. So I doubt we’ll experience any difficulties there.

Where can one purchase a MERIDIIST in the U.S.?

As of today – New York and Los Angeles, but we’ll expand to Las Vegas and Miami next month. They’ll be over four retail points there in 2009, I believe the MERIDIIST will be available in 5-10% of our watch stores over there.

What is your opinion on online sales of luxury goods and whether or not this business model is applicable to the MERIDIIST in particular?

We are working on some online store projects, and we are really intending to implement them. Louis Vuitton along with some other brands have already proven that e-commerce is possible for luxury goods, if it’s done by the brand itself, there a strict pricing policy and a certain extra service behind it. This means that if we are going to sell the MERIDIIST over the Internet, we won’t alter its price tag, however we will definitely offer a special treat – for example, we could engrave its owner’s name on the back.

Undoubtedly, the price tag is the centerpiece of any luxury product, and in this respect how do you think the secondary market for the MERIDIIST will develop?

Honestly, I think if we reach some semblance of the secondary market for this phone, it’ll be a huge milestone for Tag Heuer, because it’ll mean that that this phone will still hold some value when the original owner loses all interest in it. I doubt there will be any difficulties with people selling their used phones to others – new owners will be fully aware that their phones aren’t brand new, so the phone’s image won’t suffer in any way.

Is there anything you'd like to say to our readers?

Yes, I really encourage your readers to look through your articles, you’re asking the right questions, you know what you are talking about, so whatever you’re going to write about this or any other topic, they should definitely read it.

Thank you for the interview

Thank you.

Eldar Murtazin ([email protected])
Translated by Oleg Kononosov ([email protected])

Published — 21 April 2009

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