The Birth of Swatch

The Birth of the Swatch 1

Time - 1983 Place - Switzerland Company - SMH ; Swatch (Swiss + watch) Industry - Watch Industry Case summary

The Swiss with a long experience and a national pride of watch making, dominated the global watch industry for a very long time, for quality, status and prestige (80% of the world's total production and 99% of all US imports). It was 1970 when Japanese companies(Hattori-Seiko and Citizen) gained more global market share, as a result of low prices and the quartz technology, declining the Swiss global share from 80% in 1946 to 42% in 1970, forcing the Swiss to introduce a low-end product initiative called Swatch, which rebuilt the good reputation and gave the Swiss watchmakers 16% market share and 55% of the global total value. Problem Identification In 1970,despite an increase in worldwide watch demand, the Swiss watch industry lost half of its market share. Japanese manufactures applying the quartz technology, offered their products with lower prices, occupying the global market. The causes that lead the Swiss Watch Industry in loosing global market share (less than 15% market share in 1983) were: - The Swiss were focused only on high-end mechanical watches and refused to embrace the quartz technology as unreliable and beneath Swiss quality standards. -Their prices were higher than those of competitors.(no watch below $100, while the competitors offered watches lower than $50.) -The Swiss Industry was facing strategy, structure and management problems.(No strategy, no discipline, a real mess. One of the Swiss companies, ASUAG, owned more than 100 companies of different sizes, with their own marketing, R&D, assembly, creating a image of a chaos. Solutions * Increase the global market share and create a strong position in the low-end market. Objective -Use the quartz technology and offer a new high quality and affordable price product. Objective-Create the image of an emotional product (dozens of models for every occasion, for every whim, intense colors and bold designs.) Objective- Focus on innovation and choose the best designers (Paladino, Houfkunst, etc.) Objective- Spend more in advertising (television, journal, from $15M in '90 to $28M in'92), display giant Swatch (500feet high, placed in Frankfurt) and open stores in high fashion districts. * Restructure the Swiss Watch Industry Objective - Apply the vertical integration (build and assemble the low-priced watch entirely in Switzerland) *Decrease the cost of production (down than Asian levels) Objective - Focus on labor(accounts for < 10% of total cost); use cheap plastic to encase watches and decrease the number of components (from 91 to 51).

1. Why was the Swatch so successful? In what ways was the Swatch different from any watch the industry had ever seen?

ANS-According to Hayek, they are not selling a consumer product or even a branded product, they are selling a emotional products. That way he said "Why cannot we design a striking low cost, high qualify watch and build it in Switzerland" and that was his innovation ideas to produce a unique watch. So those factors make Swatch different form the any other watch such as

High quality- they produce a good quality of product.

Build in Switzerland- Switzerland has hundreds of years of experience in the technology and techniques of watch making. Workers are master at working with parts, so Switzerland is well-known in the world about quality and prestige.

Very low cost- Hayek used cheap plastic in watch , and labor cost was less than 10% of total cost. They maintain production cost of under 10 Swiss francs (SFr) per unit, by using automated production line.

Hayek applied some strategies that make the swatch become more successful competitively in global watch market, such as:

-Strict commitment to vertical integration-they emphasize on mechanical movement to be master

-Intricate micromechanics and old art of matchmaking technique.

-Decentralized marketing and unconventional retail approach that also increased sales volume from nontraditional sales points likes fruit and vegetable market, beside jewelry stores.

-Portfolio management-they provide different massages for different brands. Different price segment base on rang low to high. They provide distinct advertisement for different brands and they follow up every new communications campaign for every single brand.

2. What elements of the original Swatch marketing plan were most critical to the brand's success? Do you agree with the original product strategy? The channel strategy? The promotional strategy? What about the pricing strategy - what does Franco Bosisio