is the apple watch killing the swiss watch industry? · apple watch has been successfully taken a...

Is the Apple Watch Killing the Swiss Watch Industry?

BROCK UNIVERSITY – CASE ONE

GSB Consul�ng Group – Afra, Mithra, Hanna, KaranPresent to: Mr. Nick Hayek and management team of Swatch

Case 1; “Is the Apple Watch killing the Swiss watch industry?’ The Apple Watch – a threat or an opportunity for the Swatch group ltd?” is based on IMD Case: IMD-7-1844available from the case centre at www.thecasecentre.org, copyright © 2017 by IMD, Lausanne, Switzerland (www.imd.ch)

AgendaCurrent Situations

Problem identification

Recommendation

Analysis

Decision Criteria

Alternatives and Evaluation

Financial Analysis

Implementation, Contingency

Key Take Away

Current Situation

Apple Watch has been successfully taken a piece of cake from the watch market from 2015.

Smart watch is gaining more and more attentions.

Swatch Group’s sales in 2015 declined by 3% (0.9% of selling, 2.1% of currency situation)

The targeted segmentation of Swatch Group is somehow different from smartwatch firms.

Problem Analysis Alternatives Recommendation Conclusion

Problem Identification

• Is smartwatch a threat or opportunity?• Should Swatch compete in this market and how?

Immediate problems

• What’s Swatch’s sustainable growth strategy giving the interruptive technology?

Long-term problems


Recommendation


Swatch should catch the opportunity from smart watch market,

Invest in product development and produce luxury smart watch,

Keep positioning the new product under the luxury brand umbrella.

External Analysis - PEST


Political factor:Support from Swiss

government

Economic factors:

Exchange rate fluctuation

Social factors:1) Awareness trend in watches is increasing;2) Clear distinguishing between mechanical and smart watches

Technologies factors:Disruptive

technology from smart watches

External Analysis – Porter’s Five ForcesSmartwatch market

Consumer Barging Power

• More choice• Brand loyalty

among luxury watch consumers

Competition among rivals

• Concentrated competitor group

• Apple’s dominance

Supplier Barging Power

• Limited amount of technical suppliers

Threats from new entry

• Many start-up technical firms

• High initial investment

Threats from Substitutes

• Different types of wearable devices


High Medium HighLowHigh

The competition in smartwatch market is intensive.

Consumer AnalysisEmotional preference:Hedonic vs FunctionalityPleasurable aspects of luxury watchStatus symbol in the societyAppreciation of craftsmanship and timelessnessSuperior design featuresLoyalty: 27% of luxury watch consumers preferred Apple Watch15% considered apple Watch as a potential substitute


Competitive Analysis

Apple1) Superior technology

2) Market leader in smart watches3) Innovativeness

Swatch1) Leader in luxury watch markets

2) Technological expertise in mechanical watches

3) Value proposition to consumer


Core competency of Swatch lies in the luxury segment.

Ansoff’s Matrix

Market development Diversification

Market penetration

Product development

New markets

Existing markets

Existing product

New product


SWOT MatrixStrength:1> Current top player in luxury watch2> Capable to over come crisis3> High brand equity4> Operational efficiency

Weakness:1> Traditional function in designs2> Lack of technology capability

Opportunities:1> Growth in smartwatch market2> Potential growth in US mechanical watch market

SO: Product Development

Positioning luxury smart watches

WO: Diversification

Diversity into smart watch category

Threat:1> Emerging substitutes2> Economic fluctuation

ST: Market Penetration

Heavy marketing investment in mechanical watch market

WT: Market Development

Focusing on US mechanical watch market development


Decision CriteriaLeveraging

core competency

Profitability

Risk Growth Sustainability


Alternatives - ASO: Product Development

Positioning luxury smart watches


Pros

• Leverage our core competency in luxury market

• Add new value in brand awareness to get sustainability growth

Cons

• High risk in investing new technology

Alternatives - BWO: Diversification

Diversity into smart watch category


Pros

• Product category diversity

• Improve the defense ability of market fluctuation

Cons

• Lack of leveraging core competency

• High risk in entering new market

Alternatives - CST: Market Penetration

Heavy marketing investment in mechanical watch market


Pros

• Lower investment requirement

• Easy to using existing product

Cons

• Limited space to growth

Alternatives - DWT: Market Development

Focusing on US mechanical watch market development


Pros

• Easy to get profit with existing product cetology

Cons

•Highly depend on the market change

• Limited space to growth

Alternatives EvaluationCriteria A - SO B - WO C - ST D - WT

Leveraging core competency(30%) ++ - - ++ -

Profitability(30%) ++ + + +

Risk(20%) - - - + -

Growth Sustainability(20%) ++ ++ + -


-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

2011 2012 2013 2014 2015

Percentage change in Net Sales

-16.00%

-14.00%

-12.00%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%2016 2017 2018 2019 2020

Projected Percentage change in Net Sales

StatusQuo


Forecasting Demand for smartwatches

• Total forecasted units Apple will sell in 2016: 23.8 million units• Percentage of market share: 66.6%• Total number of units: 35.7 million units• Growth rate for 2016: 70%• Total number of units based on the

industry growth rate: 60.7 million units

Financial Analysis


2016 2017 2018 2019 2020

Annual Demand (In million units) 60.70 84.98 123.22 184.83 277.25

Percentage of luxury smart watches 10% 10% 10% 10% 10%

Total Annual demand 6.07 8.50 12.32 18.48 27.72

Total Percentage Share 7.50% 12.50% 20.00% 27.50% 35.00%

Total sales (in million units) 0.46 1.06 2.46 5.08 9.70

Total Sales ($million) 56.90 132.78 308.05 635.35 1212.95

Projected luxury smart watches saleFinancial Analysis


Cost and NPV Analysis

2016 2017 2018 2019 2020

Total Cost ($million) 120 106.2 231 413 727.8

Discounting factor 0.909 0.826 0.751 0.683 0.621

PVCI 51.73 109.74 231.44 433.96 753.15

PVCO 109.09 87.79 173.58 282.07 451.89

Discounted cash flows -57.36 21.95 57.86 151.89 301.26

NPV 475.60


Licencing cost Independent app developersMarketing and promotion Research of Design & Deveopment

Cost Breakdown

Initial Investment: $120 million


Assumptions:

1) Annual demand for smart watches will grow by more than 40%

2) Price of a luxury smart watch: $12503) Market share will grow at an increasing rate4) Cost of capital is assumed to be 10%

Financial AnalysisProblem Analysis Alternatives Recommendation Conclusion

RecommendationSwatch should catch the opportunity from smart watch market,

Invest in product development and produce luxury smart watch,

Keep positioning the new product under the luxury brand umbrella.


ImplementationsFirst 6 months

>Partnering with Google>Build up the team for new product>Ready for production>Marketing planning:

6 months to 2 years

>Trigger the production>Launch the new product into market>Intensive promotion to extend the brand association

2-5 years

>Focus on R&D and innovation of products


Risks and ContingencyRisk: Apple’s unpredictable initiatives into the smartwatch market, giving the company is really innovative!

We will trigger our contingency plan at stage 2 (6 months to 2 years) if we didn’t meet our target revenue at $M 132 if Apple take over much more markets.

Contingency plan:Focus on US with mechanical watches market.


Key Take Away

Leveraging our core competency

Seizing new opportunity in smart watch

Partnering with technical giant to win the battle!

With 120 $M investment we are going to generate more than $2 Billion in 5 year!


Thank You !

is the apple watch killing the swiss watch industry? · apple watch has been successfully taken a...

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