LIM YU-JIN, WEI RONG,

Swatch and Global Watch Industry

A Report on the Watch Industry From a Marketing Perspective

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Swatch and Global Watch IndustryA Report on the Watch Industry From a Marketing Perspective

Executive Summary

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Table of ContentsEXECUTIVE SUMMARY 1TABLE OF FIGURES 31.0 INTRODUCTION 42.0 HOW DID TIMEX SUCCEED THE SWISS AS WORLD VOLUME LEADER IN THE 1950S AND 1960S?

42.1 TIMEX POSITIONING 42.2 ADVERTISEMENT AND PROMOTION 52.3 PLACEMENT 52.4 PRICING 52.5 PRODUCT 62.6 INSERT COMPETITIVE ADVANTAGE ANALYSIS FROM TEAMMATES 62.7 COMPETITOR RESPONSE 62.8 CONCLUSION 6

3.0 HOW DID SEIKO BECOME THE INDUSTRY LEADER IN THE MID-1970S? 73.1 MARKET CHANGES 73.2 COMPETITIVE ADVANTAGE ANALYSIS: 73.3. MARKET POSITIONING 73.4 PRODUCT 83.5 PROMOTION 83.6 PLACEMENT 83.7 PRICE 83.8 OTHER MARKETING STRATEGY: SUPPLY CHAIN 83.9 RESPONSIVENESS OF MARKET LEADERS93.10 CONCLUSIONS: 9

4.0 HOW DID SWATCH MANAGE TO RESUSCITATE THE SWISS WATCH INDUSTRY? 104.1 MARKET POSITIONING 104.2 PRICE 114.3 PRODUCT 114.4. PROMOTION 114.5 PLACEMENT 114.6 EXPANDING THE MARKET 114.7 CONCLUSION 11

5.0 WHAT SPECIFIC COURSE OF ACTION WOULD YOU RECOMMEND TO HAYEK? 125.1 POTTER’S FIVE FORCE ANALYSIS FOR THE WATCH INDUSTRY 125.2 REINFORCE THE MARKET SHARE 12

6.0 WHAT WOULD SWATCH HAVE TO DO TO SUCCEED IN YOUR COUNTRY? 127.0 WHERE DOES THE WATCH INDUSTRY GO FROM HERE? ANALYSE THE INDUSTRY FROM A GLOBAL, REGIONAL AND LOCAL PERSPECTIVE. SPECIFICALLY, WHERE DOES SWATCH GO FROM HERE?12

1990S TO CURRENT 12CURRENT CHALLENGES 12

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References: 13

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Table of FiguresFigure 1:TimeX Positioning.........................................................................................5Figure 2:Seiko Product Positioning.............................................................................7Figure 3:Swatch Market Position..............................................................................10

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1.0 Introduction

The global watch industry is a huge industry with a rich history of changes. This report seeks to examine the causes of these changes from a marketing perspective, and what the market leaders did to create value for their customers and overtake the market leader. In particular, it will examine the emergence of Timex in the 1950s to 1960s, Seiko in the mid 1970s, and finally Swatch and how these companies make good use of marketing to capture a significant market share.

2.0 How did Timex succeed the Swiss as world volume leader in the 1950s and 1960s?

According to the case study, in 1945, the global watch industry comprise of a huge market for Swiss watches in that by 1945 Swiss watch accounted for 80 per cent of the world’s total watch production, and 99 per cent of all US watch imports (page 3). To understand how Timex succeed the Swiss as world volume leader in the 1950s and 1960s, we will examine how Timex positioned itself. Next, we will examine how Timex use the marketing mix to capture a market share based on its market segment. Also, we will look at the competitive advantage that Timex enjoys. Finally, we will examine the market response to the threat from the industry leaders.

2.1 Timex Positioning

Swiss watches are highly expensive with good quality (page 3). A lower price alternative from US Turnip pocket watch is very cheap but of poor quality (page 3) which was rejected by the mass (anyone who wanted a real watch bought “Swiss”).

Timex position its new product as inexpensive and good quality (Timex introduced in 1951 a line of inexpensive, disposable, yet stylized and highly durable Timex watches, page 4).

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] FIGURE 1:TIMEX POSITIONING

From this, we can see the positioning of Timex is different from that of the Swiss Watch.

Timex then engaged the marketing mix to provide more value for its customers to capture a bigger market share:

2.2 Advertisement and Promotion

To reinforce the image that the product is cheap but of high quality, Timex did a worldwide advertising campaign on television “Took a licking kept on ticking” (page 4). Also they invited celebrity to be featured in commercials that emphasizing the watch’s low cost and incredible durability (page 4) to bring the point of their product position.

2.3 Placement

Because traditional jewellers were reluctant to carry the brand (page 4), Timex developed new distribution channels and sells its watch at drugstores, discount houses, department stores, catalogue showrooms, military bases, and sporting goods outlets (page 4). This allows it to reach the mass through other means than a jewellery store.

2.4 Pricing

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Timex offers its watch from US$6.95 to US$7.95 which is considered inexpensive (but not as cheap as Turnip watches). This pricing is to make it affordable to the mass. This low pricing is made possible by various cost cutting measures, such as automating of production lines (page 4).

2.5 Product

Timex watch differentitate itself by having hard alloy bearings instead of traditional and more expensive jewels. This allows it to have a cost advantage over its rivals, and lowers its cost of production.

2.6 Insert competitive advantage analysis from Teammates

2.7 Competitor response

There is little response to the US and Japanese Competitiors in that the Swiss members companies do not really support the initiatives to try to response to Timex. Accordingly to Kolter et al (2001), the market leader should work on 3 fonts to ensure that it continues to the market leader:

1. Expanding the total market: Usually, when the market is expanded, the market leader stand to gain more, but in this case study, this does not applies (a rising worldwide demand for watches did little to slow the steady decline in the Swiss share of the world market).

2. Protect its market share through good defensive and offensive actions: The market leader should try to prevent or fix weakness that allow for opportunities for competitors. Surprisingly the response to Timex is almost non-existant, allowing Timex to capture a bigger market share.

3. Increasing the market share: Swiss could try to increase their market share of the watch industry by using new technology to come up a lower cost product to fight with Timex. However, this was not done.

2.8 Conclusion

Based on the marketing positioning, excellent use of the marketing mix to achieve its desire marketing position, a competitive advantage, and a lack of response to Timex’s entry, Timex was able to successfully capture a large market share in the 1950s to 1960s.

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3.0 How did Seiko become the industry leader in the mid-1970s?

In this section, we will examine how Seiko become the industry leader in the mid 1970s, and capture a huge slice of the market from Timex and Swiss Watch.

3.1 Market changes

From the case study, it should that in 1970s to 1990s, there is a new technology for watches called quartz technology (page 5). Quartz watches used an integrate circuit and are extremely accurate, more sophisticated, and were far less expensive to manufacture. As a result of technology advances, there were new opportunities for Seiko to penetrate the worldwide watch market.

3.2 Competitive advantage analysis:

[Insert from Teammates here]

3.3. Market positioning

FIGURE 2:SEIKO PRODUCT POSITIONING

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The market position adopted by Seiko seems to be of slightly lower quality (quartz watches were build on LED technology that has many flaws (page 5), but is still good quality (they were accurate to less than one second per day). Seiko pricing is slightly higher than Timex – referred from “The timex model was priced at US$125, which was 60 percent below Seiko’s cheapest model at that time (page 7)”.

Having established the market position, we will look at how Seiko use its marketing mix to support its position and differentiate itself from its competitors.

3.4 ProductSeiko watch use Quartz Technology that allows it to differentiate its product from its competitors by providing LED display, and a wide range of functions that traditional watchmakers does not have.

3.5 PromotionSeiko increased its advertising budget (page 6), but it is unclear from the case if this advertising align it with its position. However, from the results that by 1979, Seiko has became the world’s largest watch company in terms of revenues with sales approaching US $1.29 billion (page 6) indicates that advertising is successful.

3.6 PlacementSeiko works with distributors worldwide to get its products to the customer (page 6, in that “relationships with distributors were enforced”). Each distributor usually resells the products to the retailers, who in turn sell it to the customers.

3.7 PriceSeiko seems to be mid-priced and priced more expensively than Timex from “The timex model was priced at US$125, which was 60 percent below Seiko’s cheapest model at that time (page 7)”.

3.8 Other marketing strategy: Supply Chain What is most interesting in the case of Seiko’s strategy for grow is not on marketing, but rather on improving its supply chain management in that “Manufacturing / assembly facilities were set up all around the world”, and that it made “large investments in the plants and equipments for fully automated high-volume production of integrated circuits, batteries and LCD panels (page 6), and that it focus on relationships with distributors “relationships with distributors were enforced (page 6)”. By focusing on the supply chain operations, Seiko is creating value for the customers by ensuring availability of the watches on demand.

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3.9 Responsiveness of Market LeadersSeiko’s ability to capture a major market share is because Timex facilities does not allowed them to easily produce quartz crystals or integrated circuits (page 7) and that Timex technology was rapidly becoming obsolete in light of the new technology (page 7). However, to fight with Seiko and to defend its market share, Timex did enter the Quartz watch market in the mid 1970s (page 7). Unfortunately, the low barrier to entry results in many semiconductor firms seeking to enter the market (page 7). To compete, they engaged in price wars (page 7), that led to decreasing profitability. Strategic alliance to relive Timex market share with Texas Instruments fell short (page 8) as Timex does not wish to cooperate.

As a result of these problems, Seiko overtook Timex in terms of units and total sales.

3.10 Conclusions:Based on these, we can see that Seiko was able to capture a huge market share as a result of innovation – in coming up with a new and better product. This new product gains it significant competitive advantage by lowering costs. In addition, Seiko improved its rapid expansion plans by building on good supply chain network. The slow response from Timex as well as price wars in US market have hurted Timex profitability, and without forming strategic partnerships to combat the new threat, Timex was unable to prevent Seiko capturing a bigger market share.

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4.0 How did Swatch manage to resuscitate the Swiss watch industry?

Swatch resuscitated the Swiss watch industry in the 1980s. This section seek to examine their market positioning, and how they capture a major slice of the watch industry during this period.

4.1 Market positioning

Swiss watchs tends to be positioned in the higher price market segment. Swatch was conceived as an inexpensive, yet good quality watch with quartz accuracy, water and shock resistance as well as a one year guarantee.

FIGURE 3:SWATCH MARKET POSITION

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From the diagram above, it seems that Swatch is positioned in the same segment as Timex, and competes with Timex for the cheap but good quality segment. We will look at how Swatch use the marketing mix to achieve this market positioning.

4.2 PriceSwatch was priced at around USD$40/= (page 9), which is considered affordable.

4.3 ProductSwatch watch does not contain any new technology such as quartz etc. However, it differentiates itself by offering new features in its products such as water and shock resistance, and a one year guarantee (page 9). The product was positioned as a fashion accessory and swatch watches feature several different colors and designs (page 10 – with their trendy and colorful designs, models were created for every occasions). These features allow it to differentiate itself from its competitors.

4.4. PromotionSwatch relied heavily on promotion as a vehicle for success (page 10). In advertising, swatch is positioned as a lifestyle symbol and a fashion accessory instead of a traditional timekeeping instrument. That the media appeared to be mesmerized by Hayek’s approach to marketing resulted in a lot of free media coverage and publicity (page 10). Also, the company also spend on public events and public relations activities, and used celebrity endorsements extensively (page 10) to promote its watches.

4.5 PlacementSwatch choice of placement is the same as Timex – in discounts houses and department stores.

4.6 Expanding the marketSwatch helps to expand the market for watches by positioning it as a fashion accessory and not just a timepiece. This allow it to reach market

4.7 ConclusionSwatch ability to complete with Timex, the giant for the affordable watch category, is a result of its advertising and promotions as well as its ability to differentiate its products from its competitors – it offers swatch in various colors and designs as well as offers features such as shock resistance and water resistances and its guarantee helps Swatch to compete with Timex and successfully capture large market shares in the 1980s.

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5.0 What specific course of action would you recommend to Hayek? Looking at the success factors for each of the market leaders in each era, we can see that each of the market leaders capture a significant market share through innovation that provides a competitive advantage. Also, they managed to capture market share as a result the lack of defense from the current leader. To this, we will examine the competitiveness of the watch industry, innovation, and protecting the market share strategies. Also, we will examine briefly the supply chain operations on marketing.

5.1 Potter’s five force analysis for the watch industry QuickMBA notes that Potter’s five force analysis allows for looking at the environment in which an industry operates. In it, Potter proposed that the industry is characterized by five forces:

1. Bargaining Power of Customers: This refers the power of the customers have in choosing to purchase products. The customers’ power is strong if they have the ability to put the firm under pressure. Considering the amount of competitors’ product that customers can choose from at the same price range (e.g. Timex) and that customers tend to be well informed, Swatch’s customers do have some bargaining power.

2. Bargaining Power of Suppliers: This refers to the power of the suppliers to influence the firm’s profitability. Suppliers have high power if the materials used is only available from them. Considering the high number of organizations providing the quartz (e.g. Texas Instruments etc), we are inclined to believe that the bargaining power of suppliers were small.

3. Threat of New entrants: This refers to how easy is it for new firms to enter the market. As more and more competitors compete, there will less profits for each firm. Based on the case study, we believe that there is a high threat of new entrants as there is low barrier to entry (e.g. Seiko, Timex, Swatch all successfully entered the market).

4. Threat of Substitute products: This refers to other products that can substitute as a watch. In today’s world, most PDAs, handphones, laptop, computers, clock etc. all have a date and time function that can be used as a substitute for watch (as a timepiece). Therefore this industry has several substitute products.

5. Competitive Rivalry within the industry: This refers to the fierceness of competition within the industry. We are inclined to think that the watch industry is highly competitive due to the high number of competitors.

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FIGURE 4: MICHAEL E PORTER FIVE FORCE MODEL

Base on the analysis above, it seems that the watch industry are characterized by high bargaining power of customers, threat of new entrants / substitute products, and have high competitive rivalry within the industry. While it is not possible for Swatch to control substitute products or bargaining power of customers, it is possible for Swatch to control the threat of new entrance and competitive rivalry within the industry by having patents on new watch designs, or coming up with a new technology that is better than quartz watch and then patenting the design. With patents protection, Swatch group can reduce the threat of new entrances by not allowing them to use the patent design, and force rivals to pay Swatch licensing fees for using the patented design or technology. This is only possible through the use of innovation.

5.2 InnovationBased on the analysis of market trends and how market shares were captured, we find that each of the previous leaders captured the market share by innovation: Timex was able to capture the market share by innovating a new way of creating watches that are cheaper than the industry standard at that time. Seiko was able to capture a big market share by innovating the quartz technology. Swatch was able to capture the market share by finding innovative uses of watches (as a fashion accessory instead of a time piece). Therefore, Swatch would do well to innovate and

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come up with new uses for watch, or having new designs, or come up with better watches based on new technologies. After which, Swatch can patent its design and technology to reduce the treat of new entrants, and reduce the competitive rivalry.

One other way in which Swatch can further grow is to protect its market share.

5.3 Protecting the market Share As a market leader, Swatch could do more on protecting its market share. Accordingly to Kolter et al (2001), the market leader should work on 3 fonts to ensure that it continues to the market leader:

1. Expanding the total market: Usually, when the market is expanded, the market leader stand to gain more. This is what Swatch did in 1980s when it launches Swatch as a fashion accessory instead of just a timepiece. If Swatch can expand the total market for watches, it can capture a bigger market share.

2. Protect its market share through good defensive and offensive actions: The market leader should try to prevent or fix weakness that allow for opportunities for competitors. Swatch could engage in advertising, loyalty rewards programs, provide free watch cleaning services etc to encourage people to purchase from Swatch and to encourage brand loyalty.

3. Increasing the market share: Swatch could try to increase their market share of the watch industry by introducing new products that appeal to different market segments. From the case study, it seems that Swatch has done just that, with Omega brand targeting higher end segment and swatch watches targeting lower end segments. I am unsure if Swatch has a product that target mid price segment etc.

5.4 Supply chain ManagementSeiko rise in the watch industry is due largely to its innovation (in innovating the quartz watch), but it is also partially also due to its excellent supply chain management strategies. As cost increases in Switzerland and companies seek to outsource watch making to cheaper countries, Swatch will find that it could not produce watches that are as low cost as its competitors, and it may result in loss of profits. To this end, it maybe possible for Swatch to outsource some parts of its operations to reduce cost, and examine which operations could be outsourced to countries with cheaper labour costs. This will ensure that Swatch group will not be left out when other firms strive to achieve a competitive advantage by lowering the cost of production.

5.5 Recommendations

Based on this, we will recommend that Swatch focus on innovation, and patenting its designs as well as new technology breakthroughs in watch making technologies. This will allow it to sustain a competitive advantage.

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Also, Swatch will need to protect its market share or expand its market share. Swatch can do so by:

Finally, Swatch should consider its supply chain management operations and seek to achieve a competitive advantage by lowering the cost of production.

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6.0 What would SWATCH have to do to succeed in your country?

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7.0 Where does the watch industry go from here? Analyse the industry from a global, regional and local perspective. Specifically, where does SWATCH go from here?

This section will look at the industry trends from a global perspective. Also, it will look at trends in the regional (Asia market). Finally, it will examine from a local (Indian) perspective.

7.1 1990s to current

7.2 Current Challenges

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References:

Kolter, Brown, Adam, Armstrong (2001) Marketing 5th Edition, Prentice Hall, Australia

QuickMBA.com Potter’s Five Force – A model for Industry analysis, [Online],[Available], Accessed on 28 Oct 2008 http://www.quickmba.com/strategy/porter.shtml

Richard Ivey School of Business (1999), Swatch and the Global Watch industry, [Online], Restricted Access