Limited editions are a good thing and this is why. AKA, forget all the talk about FOMO or tricking us out of money, limited editions increase consumer and producer surplus

The first photo above is the GS SLGH005, the White Birch.  I know what you’re thinking:  “That watch is hideous!”  I know, I know.  The second photo is the GS SBGC249, which is absolutely stunningly beautiful.  Why is the first watch so ugly and the second so beautiful?  That’s easy.  The first is a regular production GS, while the latter is a limited edition.  And limited edition watches are always better.  Always.  It’s that simple.

@Catskinner, please forgive me for shamelessly ripping off your brilliant post:

 https://www.watchcrunch.com/Catskinner/posts/limited-editions-are-a-bad-thing-and-this-is-why-251755

As @Catskinner pointed out...

Firstly and despite the statement in the title, this is a personal opinion. Therefore anyone who got his hands on a limited edition watch and want to disagree with me is free to do so.

Even though I love you, @Catskinner, I must say that I 100%, completely, and in every way disagree with your post.  Nonetheless, still...  

I am coming at the question of limited editions through an economics and business lens.  And, we can’t get to the bottom of this without first defining our terms and then basing the argument on those definitions.

What is producer surplus?

Like all good models, we must start from first principles.  In this case...

Q:  Why do we buy things?  

A:  We buy goods and services because they bring us benefit.  

I know it sounds obvious, but this is a really deep insight.  Here, let's really hit this home with an example.

We all know that Starbucks is overpriced.  All they do is take inferior coffee and package it up in slick marketing, and then add some sickeningly sweet artificial pumpkin-flavored syrup...

And voila!  $5 has been STOLEN from my wallet!  

Why?  Why has Starbucks so deviously STOLEN $5 out of my wallet?  Well, I think we have some idea:  They make money, those evil, perfidious, corporate hucksters!  

Well, that’s the traditional narrative.  But, let’s dig a little deeper…

In economics-speak, when a company sells us something in a voluntary transaction, they benefit via what’s called “producer surplus.”   In the case of that disgusting $5 Starbucks pumpkin spice latte, Starbucks values the $5 in cash more than they value that cup of disgusting syrupy milk with coffee-like drippings in it.  If they didn’t, they wouldn’t willingly hand over that cup of yuck for the $5 bill!  What this tells us is that all voluntary transactions create benefit for the producer.

Producer surplus is the difference between how much a person would be willing to accept for a given quantity of a good versus how much they can receive by selling the good at the market price. The difference or surplus amount is the benefit the producer receives for selling the good in the market.

This, we understand intuitively.  We know that sellers benefit when they sell us things.  But, how come when it comes to the consumer side of things, we always talk about how consumers are being “duped”?  Consumers are always being tricked out of their money.  Consumers are always sheep, being misled!  Boy, we consumers are apparently really, really dumb, like Lloyd and Harry!

But are we?  Are YOU that dumb?  Really?

What is consumer surplus?

If you see me walk into a Starbucks and pay $5 for an overpriced cup of “coffee” that is really mostly hot milk plus a ton of syrup and whipped cream on top, what my action reveals is that I value that cup of hot milk with ever-so-slight coffee flavoring more than I value $5 in cash.  No matter what I SAY, my ACTIONS actually reveal the truth!  It’s what we call “revealed preference” (truth), and that preference is revealed through my actions, as opposed to “stated preference” (lies), which is just words spoken by forked tongues - after all, humans can and do say anything, and as a result, 99% of what comes out of our mouths is lies.  However, there is no way to lie when it comes to my actions.  What I actually did, is what I actually did, and my actions reveal my real preferences.

And, in the case of me paying $5 for the pumpkin spice latte, my actions revealed that I got benefit out of the transaction, in spite of all my protestations that the drink was “overpriced” - otherwise no transaction would have taken place!  What this tells you is that all voluntary transactions generate benefit for the consumer!  Let me say that again, because this is a truly earth-shattering insight:  ALL VOLUNTARY TRANSACTIONS GENERATE BENEFIT FOR THE CONSUMER!!!

Apparently, consumers are not dumb!  We aren’t being duped!  We aren’t being tricked out of our money when we buy things!  We actually get benefit from our voluntary transactions!

What do cocaine, Gandalf, and voluntary transactions all have in common?

In the end, “surplus" is just a fancy-schmancy word for “happiness.”  Voluntary transactions are like cocaine and Gandalf - they magically create happiness out of thin air!  So, when a watch manufacturer produces a limited edition watch that piques someone’s interest, for whatever reason, and that person buys the watch, total happiness in the universe has increased.  I can think of no better definition for the word “good” than “something that creates greater happiness in the universe.”

“But, @Mr.Dee.Bater, you’re wrong!  And the way I know you’re wrong is that every time we have a thread here on WC about limited editions, every other comment is about how much the commenter hates limited editions, how they just stoke FOMO, and how they’re designed to trick us out of our hard-earned money!”

Well, #1, I go back to stated preference (lies) versus revealed preference (truth).  #2, though, I am willing to concede that perhaps we watch enthusiasts do suffer from FOMO every time a limited edition is released.  Maybe we watch enthusiasts do feel like we're being manipulated into buying something we otherwise wouldn’t buy.  That kinda makes sense.  Whenever GS releases yet another cool limited edition, I do feel slight jitters of panic.  For example, the SBGH331 recently came out…

…  and when I found out that it’s only available in Australia and New Zealand, my reaction was…

And, yet, I suspect the only reason I felt that way is because this is how I approach watch collecting…

But, normal human beings are not watch collectors

I may feel a bit of FOMO with regard to the limited edition SBGH331.  You may feel a bit of FOMO with regard to the limited edition SBGH331.  But, most assuredly, normal human beings do not feel any FOMO whatsoever with regard to the release of the SBGH331.

How do I know this?  Because I saw a normal human being in real life recently!  

I went into a multi-brand boutique with a buddy of mine who didn’t know anything about watches.  He doesn’t collect watches.  He’s never given much thought to watches.  He wears an Apple Watch.  But, he went into this boutique with me, because we’d finished lunch, and we were walking back to our cars, and as we passed by this AD, I wanted to pop in and take a quick look.  

He was fascinated by all the different brands and models.  The only brand he knew of was Rolex, and maybe he’d heard of Breitling, he wasn’t really sure.  He knew of Seiko and Casio - they were the cheap Japanese watches.  His mind was blown when we got to the Glashuette Original counter - he couldn’t get his head around how ugly (but expensive) the asymmetric Panomatics were.  My reaction...

When we got to the Grand Seiko counter, the sales associate went off on how GS focused on intricate dials, the diamond polishing of the hands and indices, etc., etc.  The sales associate pulled the SBGJ261 and the SBGA211 out of the case for my buddy to handle. 

In the case of the Peacock, the sales associate played up the fact that the SBGJ261 was a U.S.-exclusive, with only 500 pieces made worldwide.  My buddy’s reaction…

The Snowflake, on the other hand…

What I witnessed firsthand was that to a normal human being, whether a watch is limited, unlimited…

Craziness!  

What this experience made me realize is that when Seiko and Grand Seiko release yet another unlimited limited edition, normal human beings respond to it the way I respond when Post Consumer Brands releases yet another flavor of Honey Bunches of Oats.  

Let me explain.

Lots and lots of releases are about tailoring products for every conceivable consumer taste

20 years ago, I attended business school in Manhattan, and I met a classmates’ girlfriend, who was the Product Manager in charge of Honey Bunches of Oats!

Maybe you’re not excited by that, but I LOVE Honey Bunches of Oats!!!  I used to eat it every single morning for breakfast, for something like 2 decades on end - unfortunately, age and the need to bring down my blood sugar and triglycerides put an end to that routine.  Nonetheless, at the time, I was still deeply enmeshed in my love affair with Honey Bunches of Oats.  So, of course, the 15 minutes I spent talking with her about the cereal are still a standout memory for me 2 decades on.  And one thing she said was both curious and funny, and very much relevant to our discussion of limited edition watches.  She said, “I know that we get a lot of flack for releasing so many different flavors.  And we’re overwhelming consumers with too much choice.  But, we really just want to be able to give consumers precisely what they want.”  

You have different flavors…  of Honey Bunches of Oats???

Oh, yeah, apparently, there’s cinnamon and maple & pecan and vanilla, and like 6 others!  I considered myself a true Honey Bunches of Oats aficionado!  And, yet, as far as I knew, there was only 1 flavor…

But, for this product manager, in her little consumer packaged goods echo chamber, she was obsessing over the fact that Post Consumer Brands was “overwhelming consumers with too much choice” and worried about getting “a lot of flack for releasing so many different flavors.”

Normal human beings don’t feel FOMO over whether the maple & pecan variety of Honey Bunches of Oats is a limited run flavor.  And normal human beings don’t feel FOMO over whether the SBGH331 is a limited edition watch either.

Like Post Consumer Brands, watch manufacturers are simply producing more models, some limited, some not, in the hopes that a particular configuration will meet a very particular consumer’s taste, and get that consumer to shell out some dollars.  The SBGJ261 was not to the taste of my buddy, while the Snowflake was, in the same way that I spit on your maple & pecan, but would happily consume your honey roasted, every single morning, for 2 decades.

The econ wonk's objection:  But, price discrimination is bad for consumer surplus!

“Ah, but @Mr.Dee.Bater, I have got you!” the econ wonk, might say.  “We know that producers are always looking to engage in price discrimination, and in the case of watch manufacturers, they’re using limited edition models to better price discriminate, and we know that price discrimination increases producer surplus at the expense of consumer surplus!”

https://edecon.wordpress.com/2011/06/12/price-discrimination/

“Wow, that is an incredibly sophisticated argument, Mr. Straw-man-that-I-just-made-up.  And that chart really does show how these limited edition models might grow producer surplus at the expense of consumer surplus…"

"… there’s only one tiny but incredibly important detail that causes that argument to fall apart completely.  That chart / model relies upon a monopoly engaging in price discrimination.  And, well, Seiko / Grand Seiko, is far from a monopoly.  I think Rolex, alone, generates nearly 5x the revenue of Seiko Watches.  No, in the grand scheme of things, they’re rather small fish in a big pond."

In reality, Seiko and Grand Seiko, who are perhaps the most egregious in the use of “unlimited limited editions,” do so because these limited editions really do help to grow significant net new consumer and producer surplus.

Lean manufacturing and the growth of both consumer and producer surplus

See, Seiko isn’t just a watch manufacturer.  They do all sorts of wacky stuff in their giant conglomerate, including semiconductor manufacturing, which requires absolute mastery over advanced manufacturing techniques.  As one of Japan’s premier manufacturing powerhouses, Seiko long ago mastered Lean Manufacturing, and it is this mastery of Lean Manufacturing that enables Seiko watches to churn out, literally, hundreds of new models each year - 289 new models in 2023 alone…

https://www.plus9time.com/blog/2024/01/01/all-2023-seiko-announcements

… while traditional Swiss manufacturers like Omega and Rolex and IWC each annually come out with... 10?  20?

What is this mythical “Lean Manufacturing”?  Well, check out this video…

https://www.youtube.com/watch?v=AUPji7L9aSs

To the uninitiated, this may not look like much.  But, if you’ve ever spent time in an industrial / manufacturing setting, you’ll recognize that what you’re seeing here is nothing short of astounding.  Let me contrast this video with what I experienced firsthand in a large construction equipment assembly plant many years ago, as I tried to get this plant to actually, you know, produce things efficiently.  

• Our team studied this plant for a week and realized that the entire 200,000 square foot plant’s capacity was being held up by one dude - let’s call him, Carl

• Carl was in charge of machining this one steel tube  

• Every now and then, a cart would drive by and drop off a bin of raw materials for Carl

• Carl would put each raw tube through his machine, flip a few switches here and there, rub a few things here and there, pull a couple of levers, and out would pop the finished tube

• Carl was good at flipping switches, rubbing things, and pulling levers, but what I quickly noticed was that he would get through his bin of raw materials in like 2 hours, and then he would sit idle and smoke a few cigarettes and drink some coffee, and look at a few NSFW magazines once he finished that batch

• “Hey, Carl, uh…  how come you’re sitting around doing nothing?  I mean, the ENTIRE 200,000 square foot facility is being held up by your station’s bottleneck, you lazy piece of…”  I never said those words - I would have said something incredibly diplomatic and nice, but the gist would have been that

• “Well, I put up the flag to tell the materials guys to come pick up the finished batch and to drop off another bin of raw materials.  It ain’t my problem that it takes them an hour to get me another bin.  So *&%$ you!” is what he would have responded with, in a somewhat less diplomatic fashion

• So, I came up with an ingenious solution:  “Hey, Carl, why don't we have 2 bins of raw material sitting here, and when you finish the first bin, you put up the flag to tell the materials guys to pick up the first finished batch, and to drop off another bin of raw materials.  That way, there’s never a stop in the action, and, you know, the ENTIRE 200,000 square foot facility doesn’t grind to a halt waiting on you?”

• This one tiny change?  It would increase the entire 200,000 square foot plant’s output by 30%

• His reaction, this time sans diplomacy…

In fact, he directed a great deal of profanity my way and threw in a few slurs, and then told me to talk to his union representative.  I rolled off that study shortly thereafter, and to this day, I’m not sure if that fix was ever implemented!  Probably not.  Carl was a pretty eloquent and persuasive guy.

Anyway, given that example, that video is only SUPER IMPRESSIVE when you contrast it with the efficiency (or lack thereof) of the rest of the manufacturing world.

Now, if we go back to this chart…

What Seiko’s Lean Manufacturing mastery does is it drives down the MC (marginal cost) curve.  There are no Carl’s in Seiko’s factories - if there are any Carl’s, they take them out to the back shed and shoot them.

“Aha!  @mr.dee.bater, I’ve got you now!  As I said before, they’re just increasing producer surplus!” Mr. Straw-man-that-I-just-made-up would say.  

Well, yes, Seiko does capture more producer surplus.  But, at the same time, because they’re in an incredibly competitive market, the market competition also forces them to use some of those manufacturing efficiencies to also lower price, relative to what price would be in the absence of the Lean Manufacturing.  And, in so doing, consumer surplus increases as well!  It ends up being a win-win.  Lean manufacturing leads to the growth of both consumer AND producer surplus at the same time!

Why we never see fake Grand Seiko's

You ever wonder why we never see Chinese super reps of Grand Seiko’s?  Like, this Watchfinder video has over 6.6M views, and of course the super rep is a Rolex, and not a GS…

https://www.youtube.com/watch?v=P_ZTqC2Yxxs

A big part of the reason is…

... because of Lean Manufacturing!   Lean enables Grand Seiko to come out with so many different new models each year that it NEVER makes sense for a Chinese super rep manufacturer to put in the time and money into fixed cost R&D to fake a GS.  The reason that by some estimates there are more fake Rolexes sold each year than genuine Rolexes, is because the Submariner and the Daytona and the Datejust are relatively easy to replicate and they sell in such high volumes that it makes sense for the Chinese super rep manufacturers to invest in fixed cost R&D to fake them.  In any given year, the Chinese super rep manufacturers might sell hundreds of thousands of Submariners alone!

Meanwhile, GS comes out with sooooooooooooooooooo many unlimited limited edition watches, due to their Lean Manufacturing prowess, that even their very best-selling model, the SBGA413, might sell 2,000 examples in any given year?  If you were a Chinese super rep manufacturer, would you spend $100K of fixed cost to set up a manufacturing line to produce and sell 200,000 Submariners or spend that money to produce and sell 2,000 SBGA413’s?  Obviously the former.

Beyond that, the materials science that goes into GS dials and the diamond polishing on the indices, etc., etc., make it cost prohibitive, when paired with the sheer number of models, for the Chinese super rep guys to make money trying to fake GS.

Kinda like Porsche

You know who else has mastered Lean Manufacturing?  Porsche.  

https://www.nytimes.com/1996/01/20/business/putting-porsche-in-the-pink.html

There’s a reason that Porsche has the highest net margin of any car manufacturer.  Consumers value choice, and consumers derive significant surplus from having a “unique” or “limited” model.  

https://www.thedrive.com/news/28958/no-more-than-two-identical-porsche-911-sports-cars-are-built-every-year-report

The same goes for watches.  For whatever reason, human beings get significant utility from having “limited” editions of whatever it is they like…  I guess that applies even to maple & pecan flavored Honey Bunches of Oats.  

So, yes, yell it from the rooftops:  Limited edition watches are not only a good thing, but an unalloyed wondrous thing!!!  They increase consumer and producer surplus out of thin air…  like cocaine and Gandalf!!!