Swatch a Unique Success Story.docx

Case -Swatch Analysis Submitted By Group 2: Arunava Maity, Firoj Kumar Meher, Parvez Izhar, Pooja Sharma 1940‘s- The Swiss dominated the watch industry because of their centuries-long history of jewelry-making expertise. Prior to the 1950s, watchmaking was a craft that required the skills of a master jewelry maker combined with the expertise of a micromechanical engineer. 1945‘s-By 1945, The Swiss accounted for 80% of the world‘s total watch production and 99% of all U.S. imports. 1951-Emergence of Low Cost Competition. U.S. Time introduced a line of disposable watches bearing the ×Timex brand name. Timex was selling its watches through a variety of low-priced outlets such as drugstores and discount houses. By the end of the 1950s, one out of every three watches bought in the ×United States was a Timex, 1970 –By 1970‘sTimex was selling more watches than any other manufacturer in the world. 1970‘s- During the same time, several ×Japanese companies like Hattori-Seiko and Citizen—had taken over the ×Asian market and were trying to cover up ×Europe and North America. As a result, the ×Swiss share of the global market declined, from 80% in 1946 to just 42% in 1970. The Introduction of Quartz Technology * Made use of quartz and integrated circuits * Provided Accuracy, more sophisticated functionality, more features like day & time·, Digital display, ×Analog watches. * Cheaper in cost of manufacturing. * A wide ×Price range, starting from $8 to $20, today even below $5. * Introduction of analog watches that used gold or silver plating to mimic the traditional appearance of their more expensive, Swiss-made mechanical counterparts * By 1984, more than three-fourths of the watches sold around the world were based on quartz technology. * By 1986, Citizen had become the overall global leader in both movement and finished watch production volumes

The Swiss Watch Industry in Free Fall * Swiss watchmakers had refused to embrace quartz based on the belief that electronic watches were unreliable, unsophisticated, and beneath ×Swiss quality standards. * Due to the common perception that quartz watches were a passing fad, the ×Swissremained committed to producing high-end mechanical watches that required traditional craftsmanship. * As a result, the Japanese watchmakers saturated the global market with quartz watches at rock-bottom prices. SMH: Hayek Takes Over & ―The Swatch‖ Concept Nicolas Hayek, the founder and CEO of a Zurich-based consulting firm called Hayek Engineering and the banks‘ chief advisor on the nation‘s watch industry, recommended the below points. * Take over of SSIH and ASUAG * Hayek‘s low-end product initiative was a quartz watch called Swatch (―Swiss‖ + ―watch‖) build and assembled entirely in Switzerland. * Concentrated on adopting new technology and to create a new range of pricing. * Focused on the Italian Customers who were crazy for fashion and looking for something innovative. * Appointed artists, architects, designers. Proposed more than 3000 designs. Introduced different designs for different segments of customers. * First watch to introduce see-through watch and scented watches * Introduced a new range of price in three price segments. * Created a swatch collectors club for its fans. * Adopted world class distribution strategy. Introduce an unconventional retail approach that created many non-traditional points of purchase. The Swatch ConceptHayek‘s low-end product initiative was a quartz watch called Swatch (―Swiss‖ + ―watch‖),build and assembled entirely in Switzerland.

* The focus was on labor and low production cost to have a strong position at the low end. * The Swatch team decided that the Swatch would have a unique message, one unlike that of any other watch brand in the market. The unique message was, ―We are not selling a selling a consumer product, or even a branded product. We were selling an emotional product‖. * The strategy was to add a genuine emotion to the product, and attack the low end with a strong message, Why Swatch was successful? How is Swatch different from any other watch brand in the industry thus far? The shares of Swiss watches in the world of watch markets had fallen to less than 15 % in 1983 from a level of 80 % in 1946 & 42 % in 1970. The main reason for this was the affordable low cost quart based watches. So, after Nicolas Hayek took over as CEO of the SMH in 1983, he changed the marketing strategy to have a broader market presence. The success of Swatch can be attributed to the following factors: 1. Brand Preference: The preference of consumers worldwide on Swiss made watches than any other country – In Europe this is 75 % to 95 % and in US it is between 51 % to 75 %. 2. Positioning the Swatch brand in the lower price segment of $ 40 per watch. Consumer wanted Swiss watches but at a lower price 3. Product : * Innovation in the design : There were dozens and dozens of models to choose from , models for every occasion, for every whim. Because the collections were replaced so rapidly and so wildly different from one another, new models hit the market on an ongoing basis. So, it became sort of a fashion statement in lower price category. Further, Swatch was constantly producing designs that were youthful, stylish and yet unpredictable giving variety in the same segment. Swatch customers were unlike the buyers of the other watch brand were extremely loyal, however always on the lookout for intriguing new designs.

* Cost Structure: By radically decentralizing marketing and centralizing manufacturing while maintaining synergy between all the nine brands of SMH, the company was able to produce at a lower cost to maintain the same price for 10 years. This strategy also helped in the lifting of other high end brands like Omega. See the table below: Measures/Year | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | Total Revenues | 1,805 | 2,101 | 2,089 | 2,299 | 2,854 | 2,897 | Operating Profit | 142 | 236 | 218 | 296 | 492 | 496 | Cost of production | 1,663 | 1,865 | 1,871 | 2,003 | 2,362 | 2,401 | Operation Cost (as a % of Total Revenues) | 92 | 89 | 90 | 87 | 83 | 83 | * Quartz Technology ; The company had realized that it is the quartz technology which helped its competitors produce low cost watches and take away most of the market share from Switzerland. So, it focused on this technology to build a product at lower cost while still retaining the Swiss made brand, Even after the birth of Swatch in 1983, this fact has been proven by the percentage share of quartz in the global watch production as shown below: Watch/year | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | Mechanical | 134 | 140 | 135 | 157 | 135 | 119 | 127 | 124 | 129 | Quartz | 275 | 333 | 430 | 485 | 547 | 513 | 648 | 704 | 748 | QuartzDigital | 148 | 157 | 228 | 250 | 226 | 204 | 221 | 232 | 246 | QuartzAnalog | 127 | 176 | 202 | 235 | 321 | 309 | 427 | 472 | 502 | Percentage Share of Quart | 0.67 | 0.70 | 0.76 | 0.76 | 0.80 | 0.81 | 0.84 | 0.85 | 0.85 | 4. Price: * The low price tag made it easy for consumers to purchase Swatches on impulse. So, it was not only affordable, it was approachable. * Buying a swatch was an easy decision to make, an easy decision to live with thereby reducing the transaction cost to very low as it does not make one to think too much before buying,

* Swatch sold not only at an affordable price, but also at a simple price, a clean price. In US it sold at $40, in Switzerland, SFr50, in Germany, DM60 , in Japan, Y7,000. Also despite the huge unmet demand, the company never raised the price (1983 – 1993). This sends a unique message to the customer. 5. Promotion: * The name ―Swatch‖ meaning Swiss + Watch itself was sending a unique message to the consumer, * Swatch focused on a different advertisement Strategy. Hayek worked on giving it a unique message . This was absolutely critical as Fashion is about image and emotional products are about message – a strong, exciting, distinct, authentic message that tells people who you are and why you do what you do. * Swatch ad‘s spend was more than double the industry average. * Innovative way of advertising: For example when they launched it in Germany, they built a giant Swatch and suspended it outside the tallest skyscrapers in Frankfurt. All it said was ―Swatch, Swiss, DM60‖. The outrageous display communicated the essence of Swatch message. * In 1990, the company created Swatch Collectors Club. 6. Place : Distribution Strategy: * The company adopted an unconventional retail approach that created many nontraditional points of purchase. They worked on a distribution strategy, which eschewed the jewely story and specialty watch shops favored by most manufacturers. * They moved the Swatch display out of jewelry display and instead pushed for shop-inshop systems or mini boutiques that focused exclusively in the Swatch brand. * The Veggie Swatch line was sold in fruit and vegetable markets. This lead to ease of availability, * Swatch ad‘s spend was more than double the industry average. The below graph show the rise of Swatch sales across the years. The immediate success of Swatch concept increased the unit sales growth rate of 33% in year 1983 to 100% in the year 1985 From Exhibit 1:

Year | Units/Year | Growth Rate | 1983 | 3 | 33% | 1984 | 4 | 33% | 1985 | 8 | 100% | 1986 | 12 | 50% | 1987 | 12.5 | 4% | 1988 | 12.5 | 0% | 1989 | 12.5 | 0% | 1990 | 14 | 12% | 1991 | 17.5 | 25% | 1992 | 26 | 49% | 1993 | 31.5 | 21% | The following graph extracted from the data in Exhibit 2 shows the consistent rise in the sales of low – priced watches over the years. In 1993 the segmentation based on pricing was as given in the graph above. The following graph and Table shows a direct correlation between the net profit over the years with the sale of low priced watches for the years 1983-93. As is evident, there is a positive correlation with low priced segment Segments | Correlation Coefficient | Low Priced | 0.975 | Mid Priced | -0.982 | High Priced | -0.651 |

Movements & Components | -0.976 | Others | 0.350 | || Which element in Swatch‘s marketing strategy do you think is most important? As detailed in the previous question, it is evident that in the case of Swatch each of the 4 P‘s i.e. Product, Price, Place and Promotion played significant roles, However, looking at the Swatch‘s marketing strategy; we feel that Promotion is the most important component. It is the idea of conceiving of a quartz technology based product in the lower price segment and giving it a brand image of ―Swiss made‖ appealed to the customer instantly given that at that point of time low priced watches had taken a lead in the global market share. It is not the product alone or the price per se that made the difference, because if this was true, the pre-launch tests in US would have been a success. However, these tests only confirmed consumer‘s lack of enthusiasm for the Swatch Concept. As Hayek noted, ―You can build mass-market products in countries like Switzerland, Great Britain, and the United States only if you embrace the fantasy and imagination of your childhood and youth.. People may laugh – the CEO of a huge Swiss company talking of fantasy. But that‘s the real secret behind what we have done.‖ This fact has been further reinforced as stated in the case conclusion, ‖Swatch is really a triumph of imagination. If you combine powerful technology with fantasy, you create something very distinct‖

Swatch a Unique Success Story 1. Swatch is a unique ×Success story. Why has the company been so successful? Was it important that the ×Swiss watch industry company recapture the lower end of the market?why? why not? The outstanding success of a Swiss watch manufacturer during the 1980s was the result of a careful and well-executed marketing plan, brought on by necessity. For years the ×Swiss were world leaders in the watch industry. In 1974 their worldwide market share was 30%. Then the ×Japanese actively began to produce and market quartz watches, which the ×Swiss viewed as a passing fashion. Quartz digital watches were, however, no fad and by 1983 the ×Swiss share of world markets for watches had fallen dramatically to 9%. The Swiss manufacturer SMH carried out extensive research in its watch markets and carefully analysed patterns of consumer behaviour. Marketing experts advised the company that a turnaround was possible if an inexpensive, good-quality quartz analog watch could be developed, since the market was saturated with digitals. Gradually, a marketing plan was devised and implemented resulting in the introduction of the ×Swatchin 1984, which has since revolutionised the world watch industry. Based on their extensive analysis of consumer behaviour and lifestyle, SMH adopted a strategy that completely changed the concept of a wrist watch. Watches were to be a fashion accessory first and a watch second. They would also be analog rather than digital. Product planning developed a distinctive quartz analog watch in a wide range of fashionable colours and designs. New models were introduced rapidly and older ones quickly dropped. Because Swatches were sold as fashion accessories, consumers were encouraged to buy more than one (to match different sets of clothes or lifestyles). The average ×Swatch customer in ×Britain today owns three different models. In Britain, Swatch watches were distributed mainly through department stores and speciality shops. They were not sold in high-street jewellery stores, which the company believed were an inferior point of sale for the product. The marketing strategy was based on carefully controlling distribution to avoid flooding the market, which would have resulted in consumers losing their desire to own a Swatch. Today, Swatch watches sell for a relatively low price which appeals to a large number of consumers and encourage multiple purchases. The watches are highly distinctive. Extensive product promotion, which includes advertising on TV and in magazines, together with sponsorship of various concerts and sporting events, generates further sales.

Successful marketing has greatly increased market share and enabled the company to introduce new product lines, such as clothing and telephones, using the ×Swatch name. It was important that the Swiss watch industry recaptured the lower end of the market. By doing this, sales and the industry of the Swiss watch will not die and it will still be visible and available in different store, and ordinary people with the average income can still experience and use the quality and fashion of Swiss watch, but if we are going to talk about Swatch recapturing the lower end of the market that will be a far cry from now. 2. Do you see the parallels between the declines of the swiss watch industry and other western industry ? Asia is becoming active in manufacturing and export of their products. China that is now involved in the global market and it is beginning to establish and create the image as the World‘s manufacturer. Technology is also part of the expertise of Asia; Japan is now one of the most advance countries in terms of machines and different infrastructures. Most of the products of China are now available in different part of the globe in a very low price almost half of the price of products from other country but the quality is another topic. Example of this is the decline of shoe industry in America in 1992. This is because of the North American Free Trade Area; Mexico can offer a cheaper shoe ware. Because of this the production of shoes in America decline about 2 percent from 182 million pairs a year. Slippers declined by 4 percent to 32.6 million pairs; men‘s footwear by 3 percent to 42.2 million pairs; and women‘s footwear by 3 percent to 59.8 million pairs (Byron, 1992). Because of the low-cost shoe wear from Mexico, the shoe industry of America decline on 1992. This is just like the current situation of the Philippines, because of cheap shoes from Korea and China, the shoe industry is starting to decline. Most of the time, the consequence of low-cost product is low-quality, because most of the raw material use is low-quality. Other examples are the textile and clothing industry, and if not because of the use of technology and marketing strategy, these two industries will never recover. 3. Evaluate the Cultural dimension of the swatch story taking in to account such practices willingness to bring the people from other industries to delegate authority to younger executives and to employ new media such as rock concerts and music videos Swatch is also connected to events that will convince the people specially the youth to be in sport as well as to promote the culture of a certain place and the people in that place. Great example of this is the connection of Swatch to Olympics. Swatch was the official timekeeper of Olympics 1996, 2000 and 2004.

Swatch is also launching new designs of swatch watch every Olympics. This will not only promote the world event, but also promote the culture and the history of the Olympics. This will also show the unity of the world and how the world gathers to promote sport in the world. Swatch is also into entertainment and music, in partnership with MTV, they are giving different contest like the latest one which is the MTV‘s best shows ever; this is a contest for the MTV viewers that will measure the creativity and sense of humor of the viewer to create the craziest and wackiest ping-pong obstacle. The winner will receive a brand new kaleidoscopic Swatch Puzzle Motion watch (Swatch. Available at [http://api.swatch.com/files/local/pdf/19.pdf]. Accessed [27/08/07]). This will not only help the MTV channel to gain more viewer but also help the viewer to see the lighter side of life, by joining in a somewhat useless contest but enjoying it and using their talent on it. Another is the Swatch FIB 2007 World Championship, in partnership with the International Volleyball Federation. Through this project, Swatch supports the growth of public and media interest in media beach volleyball, appreciated worldwide as one of the most rapidly developing summer sports (FIB. Available,athttp://www.beachwm07.ch/page/content/index.asp?MenuID=84&ID=158&M enu= 3&Item=15]. Accessed [27/08/07]). Swatch is also doing alternatives Olympics featuring crazy and unique entertaining sports events against the clock that will take place in three Asian cities at busy citadels (Brand noise. Available at[http://brandnoise.typepad.com/brand noise/2007/04/swacth_and_mtv_.html]. With the help of Swatch to other organization in improving their technological capability, Swatch helps each organization to improve the performance of that organization to do better about the activity or objective and to meet their goal in serving the world. 4. Swatch created a new market can they continue to expand the market? What must they do to defend their position to the market? Swatch was the savior of the Swiss swatch industry and the most successful wristwatch of all time. It had survived from a very difficult economic problem and become the pioneer of the Swiss watch industry in the world again. From 1983, it‘s already 24 years of existence, and the fact that the company is still here, the Swatch watches are still in the collection items of the collectors and still in the wrist of other users, then Swatch will continue to grow and expand. Swatch has diversified its offerings from one kind of watch; it now sells more than a dozen different types of watches, including the Irony series that features metal-bodied

watches; the Scuba series that features diving watches; and the Skin family, thin and flat bodied watches. The company even offer an Internet-connected watch that can download stock quotes, news headlines, weather reports and other data, this is belong to the Paparazzi series (Swatch. Available at [http://api.swatch.com/files/local/pdf/19.pdf]. Accessed [27/08/07]). In addition to that, Swatch is now offering Flick-Flak for children and diamond-decorated Swatches for grown-ups. Swatch must continue their performance and work. They must continue to surprise the customer to maintain the excitement factor that will caught the attention of the customer. The company must continue to research about their target market and must use new and latest technology that will fit the taste, the needs and wants, the climate and other geographical factor of the target customer. They must maintain the quality of the timepieces where they were known before up to now. The company must continue on what they have started and continue to maintain the study of change and the factor that will affect the taste and needs of their target customer. 5. What do you think of swatch chances for the success as a total fashion enterprise do you agree with management extension of swatch brand name to the other products?why?why not? The plan of the Swatch to become a total fashion enterprise is a 50/50 situation. Because swatch was known as a Swiss swatch company for a very long time, it will be hard for the customer to adopt the idea that Swatch is now a total fashion enterprise. There will be questions that will ask if the quality of the new line of products are as good as the watches, because the people was used to the thinking that Swatch is for Swiss watches only. And the competition of the product that they want to plunge to is close, because there are already lots of names that are well known in the sports wear clothes and eyewear. It will be hard to compete with these giant names in that product such as the Adidas. I agree with the management‘s extension of swatch brand because it will only mean that the company is expanding and they are doing this for the satisfaction of their customer. This will also mean improvement to the part of the company and it will add asset and money in-flow to the company. This management‘s extension will also help the company to advertise their timepieces using their planned extension product such as notebooks, pen, eyewear and other sports wear. It will also add publicity because product like this will not cost much, this will serve as a vital leaflet.

Business is a matter of experimenting and learning, the company will never know if this will click if they will not try it. And all of the successful business has all started in slow sales and then bloom. The same way as, it will surely hit the financial status of the company if the extension will be flop, but at least there is always a lesson learned. The company may apply what they have learned in that mistake and apply it for their future decision making and future plan. 6. Swatch is the classic example of the marketing success through creativity what lessons can be learned from their experience? The first lesson that other company can be learned from the example of the Swatch is the quality of the product. The quality of the product is always the main reason of the customers in buying what they need and what they want. That is the basis why most of them are looking and buying their goods and product from a known and trusted name in industry. Just like Swatch that build a quality impression to customers and up to now, their customers are expecting for quality timepieces. Another reason is that the company uses a well planned marketing strategy by grouping well their target market and giving each group different approach. The company also hired talented artist to design their product in accordance to the wants and needs of the target market, also all the designs are up to date and will surely catch the attention of the customers, making it not only a collectible expensive watches but also watches that will match the mood of the customer and the mood of the world. No wonder that it became a fashion hit during 80s up until now. Another is the use of modern technology and art in one. Just like the Internet watch that will be connected to the Internet to get important data like the weather as well as the internet time. This will not only catch the attention of the previous Swatch users but also those computer and Internet enthusiast and technology thirsty individual. The continues change and launching of different product is also one of the most important activity of a company, this is to ensure that the customer is still seeing something new that will urge them to continue to support the products. The advertisement is also one of the factors of success of the Swatch. According to Charles Glenn of Orion Pictures, ―it is the thing you look for, ache for.‖ Advertisement serves as an attention caller of the product. This will help the company to show and introduce the product to the target market. By the use of colorful and animated advertisement of Swatch, it became successful.

―SWATCH CASE STUDY ANALYSIS‖ By Rahul Garhwal ―SWATCH CASE STUDY ANALYSIS‖ How did consumers make buying decisions prior to the introduction of the Swatch? What kinds of watches were popular among customers, and what was their brand positioning? The market was dominated by Timex, Hattori-Seiki, Citizen and ×Swiss manufacturers before the introduction of Swatch. Each brand had their unique brand positioning in the market because of the different product attributes and value proposition offered and thus were popular among different category of customers. Watches above 350$  SWISS COMPANIES  Watches between 50$ - 350$  HATTORI - SEIKO  Watches below 50$  TIMEX Market positioning of various watch brands – Early 1980s SWISS WATCHES Prior to 1950s the meticulously crafted ×Swiss watches with mechanical movement dominated the market. The main value proposition offered to the customers was quality. The watches were high end and attracted rich affluent customers. Swiss watches were considered as financial investments. These were passed from one generation to another in a family and thus created an emotional bond among customers. The target market was global. They accounted for 80% of the global watch production and 99% of all U.S. imports. The competition was primarily among the ×Swissmanufacturers themselves with no major foreign competitor. Swiss watches enjoyed high positioning because of the various products attributes offered by them. Swiss had century‘s long tradition of watch-making and they pioneered the art. Quality was a major point of

difference as they were made of jewels such as rubies. Watches were reliable and highly accurate. It was thus a safe investment to buy a Swiss watch as they could withstand years of wear tear and were also repairable in case of damage. TIMEX In 1951, a company called U.S. Time launched ×Timex into the market which changed the competition completely. It introduced low cost watches to the market which was the major point of difference and lead to their massive popularity among different category of consumers. The reason for cheapness was use of low cost hard alloys and automated production. The design was strictly functional. They were not repairable and thus pitched as disposables. They were available at low priced outlets such as drug stores, discount houses and were positioned in the market by a series of extensive television advertising campaigns. The target market was primarily US. By 1970 Timex was selling more watches with respect to units than any other manufacturer in the world. HATTORI – SEIKO and CITIZEN In 1970, the introduction of quartz technology changed the nature of competition technology and led to the emergence of two ×Japanese companies namely Hattori-Seiko and Citizen. These watches were cheap but gold/silver plating gave them an expensive appearance which attracted consumers of all price ranges. Other major POD was high accuracy of sophisticated electronic circuit. The displays were both digital and analog. The watch also displayed date and day of week. The target market was global. The company initially dominated the ×Japanese and other ×Asian markets and then pushed its products to×Europe and North American markets. By 1979, Hattori-Seiko had become the world`s largest company in terms of revenues and by 1986, Citizen had become the overall global leader in both movement and finished watch production volumes.  Quality Swiss  Price Swiss  Hattori Seiko Timex Timex  Hattori Seiko  Reliability  Accuracy

POSITIONING AND PERCEPTUAL MAPPING Why was ×Swatch so successful, and how did it build brand equity? What were its points of difference and parity, and how were they communicated using the marketing mix? Swatch was successful because of the radical marketing strategy implemented by the new CEO Nicolas Hayek. The plan was to have one profitable, growing, global brand in every segment – including the low end. The management took the following steps for the implementation of the plan:  Compliance of the company to the VERTICAL INTEGRATION (The Company assembled all the watches it sold and built most of the components of the watched it assembled). Brought production costs down to ×Asian Levels by redesigning production techniques and by using cheap plastic as raw material DECENTRALIZED MARKETING (Each of the SMH`s 9 brands had total authority over product designs and marketing) PORTFOLIO MANAGEMENT (SMH`s goal was to have a competitive brand in every price segment in the market) UNIQUE AND STRONG MESSAGE – Selling not a commodity but an emotional product (PERSONAL CULTURE) The company built its brand equity by focussing on the customer based brand equity model. The company focussed on creating the brand awareness and the brand image while launching Swatch into the market. Swatch nullifies competing brands in POPs like affordability, functionality, accuracy, repairable and performance. In quality Swatch leveraged upon the centuries long watchmaking history. They focussed on the unique strengths of the brand which led to creating a strong brand image. They created a leadership position by introducing their PODs. There key PODs were innovativeness and trendiness and were communicated effectively through the marketing mix. The company stressed a lot on its designs. This coupled with efficient production process helped them develop an excellent product. They defied all the conventional time keeping instruments. The company hired best artists and industrial designers from all over the world. All models were designed under Swatch Design Lab. This led to creation of witty, sometimes outlandish designs that no watch brand had one that before. Innovation was at the heart of Swatch. People were rotated regularly inside

the design lab to capture the innovativeness. Employees travelled extensively throughout the world from big fashion shows to exhibitions to capture ideas and then embed them into Swatch. Few of the famous examples include world`s first see-through watch and a scented watch. Price later became a POD as although the product evolved the prices remained same for 10 years. It differentiated Swatch from the rest of the world and gave a strong message ―A Swatch is not just affordable, it`s approachable‖. For promotion Swatch created an aggressive marketing campaign. The spend roughly 30% of the Swatch`s retailing price on th advertising and were ranked as 56 top advertiser on European Television. They did a lot including unorthodox promotional stunts from break-dancing partnerships to celebrity endorsements and creating a Swatch Collectors Club. They followed the Retail Approach for distribution – For Ex Veggie Swatch Line was sold in fruits and vegetable markets. They also opened freestanding mono brand Swatch Stores that excited people to get the latest designs. All these efforts created the following strong brand elements. Swatch became a huge success across the globe not as it was a quality product but because the company created a personal culture with Swatch. People could associate themselves with it and it became a part of their life. In many ways, the Swatch forced people to think differently about watches. Can you think of other products in other product categories that have done the same? Explain your reasoning and discuss what all these examples have in common from a branding point of view. Like Swatch did in watches Bajaj Pulsar redefined motorcycles in India. Before the launch of Pulsar, Indian people never thought of power bikes; it was something that never crossed their mind. Pulsar shifted the preference of Indian consumers,

from stolid scooters to bolder bikes. It was a breakthrough product in the two wheeler category in India. It not only transformed the way Indians commuted, but also changed the DNA of the country's second-largest twowheeler maker that till then had successful but staid models like the M-80, the rear-engine three-wheeler and the scooter. Bajaj Auto had relegated from top dog to the No 4 position, behind Hero Honda, Yamaha and TVS Suzuki. The company had failed in its earlier launches in 110 cc. The 100cc was segmented was ruled by Hero Honda. But Pulsar 150cc and 180cc transformed Bajaj Auto into a respected maker of bikes. Like Swatch from a branding perspective Bajaj Auto focussed on highlighting the PODs. Apart from mileage and price the Pulsar introduced the concept of power bikes and association of fun with biking in India. Another key differentiator was design. The tank and exhaust size were criticized by agencies but the very same became the signature of Pulsar and gave a whole new sporty trendy looks to bikes. Innovation was a major success behind Pulsar. Bajaj Auto transformed the R&D labs and the path-breaking DTS-i technology was developed. The company changes its familial 'Hamara Bajaj' slogan to the brash, individualistic, testosterone-dripping 'Definitely Male‘ which made a strong statement in the masses as till then all bikes was referred as feminine. Bajaj sold around 50 lakh pulsar in the 10 years which eventually changed company‘s fortune completely. Although there are various aspects in Branding but these two examples highlight the importance of innovation, brand image, equity apart from the quality of product itself. As there are various risks attached to buying a product company have to set their communication objectives & tasks from awareness to action carefully. From creating identity to relationships each step in the brand equity pyramid is extremely important. A company has to ensure identification of the brand with customers & an association of the brand in consumer‘s mind with a specific product. Customers should be able to link to tangible & intangible product attributes. Finally the company needs to elicit customer responses to intense, active & loyal relationship to ultimately create a successful brand.

The Swatch Group Case Resolution Team 4: Key Information • There are a series brands aimed at different market segments at low, medium, high and luxury. • Market share in ×Europe and China over a third of it and competing in every segment in which ×Swatch Group with its brands. • Distribution via retail channels and own stores. • Investment and development in new technology. • Successful plan of positioning their products as generators of emotions. • Rolex and other competing brands are perceived and maintain better image in the market, which makes them a very strong and complex competitors. Problems or Challenges • Develop a successful and effective strategy that improves positioning the ×Group to raise the prestige of their brand (Omega) and their profitability. • Prevent the problem that existing customers would not be willing to pay more if prices raise. • If the brand replaces ×Rolex as a symbol of luxury in a mass market, avoid existing customers react adversely, as well as make that new customers receive the message of the brand value. Solution • Maximize our product strategy focused in "Generate emotions" in the advertising of the brand. • Win market share to ×Rolex as a luxury and exclusiveness brand. • High focus on adding value to the product. • Strong advertising marketing campaign. • Improve the image of Distribution Strategies (Stores). Implementation Plan • Maximize full product strategy to "Generating emotions" to customers, using the following segmentation categories: Income, Behavior, Psychograph and with high emphasis on ×Social Class and Life Style. •

Increasing the price of ×Omega to reduce the price gap with ×Rolex and work hard to become a very luxurious and exclusive brand. • Add value to the product with the highest technology and quality. • Strong advertising campaign with emphasis on luxury, distinction, desire, status of the brand, as well as the message and value of it. • Improve distribution strategies (Stores and events) in order to the customers can perceive more exclusiveness about the brand. • Create a loyalty program in which customers receive benefits, exclusivity and brand distinction to them. Control Sales metrics. Market share by segment. Customer retention levels and growth rate of new customers. Satisfaction and perception of marks, separated by those loyalty program clients and new customers.

Swatch Harvard Business School 9-400-087 June 12, 2000 Rebirth of the Swiss Watch Industry, 1980–1992 (A) ―Time is fast running out for the ailing ×Swiss watch industry.‖—The Globe and Mail By the end of 1983, Hayek Engineering, a Swiss consulting firm founded by chairman and CEO Nicolas Hayek, was becoming increasingly involved in solving the mounting problems facing the Swiss watch industry, which was on the brink of disaster. Hayek Engineering had initially been recruited by the creditors of the two largest ×Swiss watchmakers, ASUAG (Allgemeine Schweizerische Uhrenindustrie AG) and SSIH (Societe Suisse pour L‘Industrie Horlogere), to formulate a strategy to deal with changing market conditions in 1981. Since then the firm‘s involvement with the industry had grown steadily. The firm‘s influence had also been increasing since earlier that year, when the banks had agreed with its recommendation that SSIH and ASUAG merge. Although Hayek Engineering was acting as a consultant, ×Nicolas Hayek, its CEO, would come to have a significant role in supervising the merger and in helping to lead the newly-formed company forward.With the formalities of the merger completed, in December 1983, the new company and its consultants were confronted with a number of new issues. The company faced restructuring challenges and management shifts. But more importantly, it still faced the foreign competition that had decimated the ×Swiss presence in the inexpensive and middle-range watch segments—the Swiss no longer accounted for any of the inexpensive segment and continued to lose what remained of their share in the midrange—now less than 10% of the world market.

The consultants‘ comeback strategy hinged on two things: first, on a revitalization of flagship brands like ×Omega, which were being used to prop up the ×Swiss position in the middle-range market segment. Second, the ×Swiss needed to succeed with a new, low-priced plastic watch that had been developed under the direction of ×Ernst Thomke at ASUAG. The firm would have to decide how the new product should fit into the overall strategy—a test market of the new watch in the United States,the largest export market for watches, had failed to attract the attention its manufacturers had expected. The challenge for the consultants and for the management of the newly merged organization was to find a way to keep the business ticking through 1984 and beyond.Swiss watchmakers had dominated the industry for over 100 years, but by the 1970s a number of factors coalesced to threaten their very existence. The consolidation of the industry into two large consortia, which had helped to stave off disaster during the Great Depression, served in later years to reduce the competition that Swiss watchmakers faced. This did not always stifle new inventions, but it did tend to delay their introduction. Although the Swiss invented the quartz movement, they did not move quickly to take advantage of the new technology. The lack of an independent microelectronics industry, which other countries possessed, led the Swiss to overlook the potential of the inexpensive watch market, as did their conception of the watch as a finely crafted piece of functional jewelry. By 1980 Swiss watchmakers had effectively disappeared from the ranks of firms producing the least expensive watches. Hong Kong had become the center for inexpensive digital quartz timepieces, and the number of units produced there soared. Hong Kong manufacturers had only entered the market in 1976, but by 1980 they were putting together 126 million units annually. Firms had sprung up quickly because of low barriers to entry, and prices declined dramatically, putting pressures on costs. Switzerland could not compete with Hong Kong‘s inexpensive labor pool. (SeeExhibit 1 for the decline in Swiss share of the global watch market.)

The Swiss had also lost much of their share of the mid-priced watch market to Japanese watchmakers. In 1980 Japan was second in the world in number of watches produced, trailing only Hong Kong. Seiko, Japan‘s largest watchmaker, produced 42 million units in a range of price categories, focusing primarily on the middle range. Citizen also targeted the middle segment, but lagged behind Seiko. Citizen, along with Casio (which concentrated on lower-end watches) accounted for the bulk of the remaining 25 million units produced in Japan in 1980. All three Japanese firms were vertically integrated, and produced far fewer brands than the Swiss manufacturers, which for historical reasons were still quite fragmented. The watchmaking industry in Switzerland included three classes of firms. In the first group were privately held companies like Rolex, Patek Philippe, Blancpain, Piaget, and Audemars Piguet. These firms crafted and sold relatively small numbers of high-quality, luxury mechanical watches.They tended to be vertically integrated, both to ensure high quality and to minimize the markup applied by suppliers and distributors. The luxury appeal of their brands allowed them to prosper during the rise of the quartz watch because, at least initially, they were not competing for the same markets. The remaining two classes of Swiss watchmakers were much less integrated than the successful luxury firms. In the second group were a large number of small firms that produced watch components—including faces, bracelets, parts, and assembled movements—for assorted Swiss and foreign watchmakers. These firms were the direct descendents of the highly decentralized Swiss watch industry of the 18 and 19 centuries. Through the beginning of the 1980s, the production of a watch in Switzerland often involved the parts and services of up to 30 different companies. This decentralization drove up total costs and final prices as each manufacturer sought to extract margins from its own contribution. Even the larger firms were extremely fragmented, with profits taken by each unit along the production and sales chain. Many of these firms were being forced out of business by heightened foreign competition. (See Exhibit 2 for the number of firms in the Swiss industry.)

Finally, the bulk of the movements and finished watches made in Switzerland were produced by two large consortia, ASUAG and SSIH. The two giants were the result of earlier mergers by many of the smaller Swiss watchmakers during the Great Depression. Both firms manufactured a wide variety of watches in most price segments, from mid-priced to high-end. Like the independent component makers, ASUAG and SSIH suffered from the fragmentation that was the industry‘s historical legacy, and both were feeling pressure from their Asian competitors, which were able to produce watches at much lower cost using quartz technology. In 1980 ASUAG was the largest Swiss watchmaker and the third largest global watchmaker, after Japan‘s Seiko and Citizen.The group employed 14,500 people in an assortment of different companies, which came largely from German-Swiss watchmaking firms. ASUAG was known for its quality production, but its marketing was weak. Although Rado and Longines were highly regarded ASUAG brands, the company was primarily known as the manufacturer that provided the Swiss industry with the bulk of its movements and components. Over the difficult years of the 1970s, ASUAG had slowly acquired a collection of failing Swiss watch firms that were being pinched by the increasing competition from the Asian producers. As one top executive characterized it, ―ASUAG was the rich uncle‖ to which these companies appealed for help. By the end of the decade, ASUAG had accumulated over 100 companies. At many of these companies, ASUAG left existing managers in place—often these were members of the old families that had founded the firms. Most of the firms did their own marketing and assembly, and many conducted their own R&D. Although ASUAG was the largest manufacturer of watches and components in Switzerland in 1980, SSIH was the country‘s largest finished watch producer. SSIH had been formed from watchmakers with primarily French-Swiss backgrounds. And whereas ASUAG had a reputation for production quality, SSIH was better known for its marketing and for the strength of its brands.

Recently, however, the group‘s flagship luxury brand, Omega, had started to experience problems.The Swiss had been losing market share in the middle range, and Omega‘s management believed that they could use the strong demand for their brand to reclaim some of the middle segment. They introduced new, lower-priced models and increased production. They contracted with outside manufacturers to produce some of the additional volume for these less expensive models. There were some indications of declining quality in the new models.As the industry continued to suffer, local governments became alarmed at the rise in unemployment in the watchmaking Jura region. (Exhibit 2 charts the decline of the watch industry‘s labor force.) Banks in Switzerland that financed watchmakers were also becoming concerned about the health of the industry as more and more firms recorded losses and went out of business. SSIH lost around SFr 130 million in 1980. In 1981 Swiss banks put together a SFr 300 million rescue package to keep the firm afloat.15 ASUAG also suffered losses. The banks were increasingly worried, as they were forced to write off old loans and invest new capital, effectively buying majority stakes in both companies and taking over their Boards of Directors. The companies, in turn, were under pressure from the banks to reverse the losses, if not by improving sales, then by selling off some of their brands to Japanese competitors. Among the challenges facing the Swiss was their inability to match the costs of competitors in Hong Kong and Japan in the low and mid-price segments. In addition, the watch market had shifted in the late 1970s so that the production of movements—an area traditionally dominated by the Swiss—no longer added significant value to the product. Instead, value was added in the final assembly of finished watches and cases, and in the distribution of finished pieces. These were areas at which Hong Kong and Japanese firms excelled. Despite the difficulties faced by the Swiss firms, there were still some glimmers of hope. The Swiss still dominated the high-end and luxury markets, where foreign competitors had been unable to make much headway. In addition, the Japanese market for luxury watches looked ready to expand. Japan had been relatively difficult to penetrate in the past

because of tariffs and because of the structure of distribution networks in the country. During the 1980s these barriers started to be relaxed, and Swiss luxury watches began to stream into the country. Finally, the Swiss still had a healthy research budget, which they had augmented as they recognized the threat posed by the new quartz watches. From 1974 to 1980, the Swiss spent around SFr 1 billion on investment in new technology. ASUAG accounted for approximately SFr 500 million of this total. In the late 1970s ASUAG and SSIH began cooperating to standardize component design and cut costs.In addition, in 1978, when competition was threatening the existence of the Swiss industry, the Swiss government established a joint research program with a consortium of major watchmakers, including ASUAG and SSIH, to explore watch technology. The joint efforts eventually produced 37 patents, including new lithium batteries, LCDs, the development of mass production techniques, and facilities for quartz movements and analog systems. These last two involved the use of new computer aided design (CAD), itself an advance over previous design methods. Consulting Nicolas Hayek With no relief in sight for SSIH or ASUAG, the banks funding the two companies called on Nicolas Hayek, founder and CEO of the consulting firm Hayek Engineering, to help them assess the ailing businesses‘ prospects. Hayek was born in Beirut in 1928, the son of a Lebanese mother and an American father. His family moved to Switzerland when Hayek was seven years old. Since founding Hayek Engineering in 1957, Hayek had developed a reputation as a keen strategic thinker who was able to pull off what many had deemed impossible. Hayek prided himself on the fact that he still had 14 Shuster, William George. ―Watches…Those Incredible Years.‖ Jewelers Circular Keystone, 1 September 1989. Between 19801985, the Swiss Franc fell from $0.60 to less than $0.40. After 1985, its value rose to as high as $0.80 in 1987, before falling back to around $0.60 by 1990. ―the fantasy of a six year-old child.‖ His consulting firm had advised, among others, Philip Morris, Dow Chemical, Volkswagen, the city of Zurich, and the Chinese government.

Many within the industry still thought that the only way Switzerland could compete with Japan and Hong Kong for the low-end segment would be to shift production out of Switzerland. Hayek, on the other hand, believed that his country‘s higher labor costs could be minimized through automation. Hayek thought that ASUAG and SSIH had a duty to remain Swiss firms that carried on the tradition of Swiss watchmaking. In an interview, Hayek observed, ―We are all global companies competing in global markets. But that does not mean we owe no allegiance to our own societies and cultures.‖ Hayek Engineering found solid strategic justification for Hayek‘s commitment to Switzerland. In 1981, the firm conducted a market study and found that the ―Swiss-made‖ mark on a low to mid-priced watch raised its value 10% above that of an identical watch made in Japan. The Swiss mark gave a 20% premium over the value of an identical watch made in Hong Kong. Hayek reckoned that if the Swiss firms could reduce labor costs to 10% of their total costs, then they would be able to compete with Japan and Hong Kong, regardless of labor costs.The consultants also looked at the positioning of some of the existing Swiss brands in the higher market segments. SSIH‘s Omega, for example, had been struggling as it attempted to expand down-market. Increasing the supply of the brand had made consumers less interested. As it began to lose its luxury image, revenues dropped. Hayek discussed the options for the faltering stalwart with top managers at SSIH. ―Some of the people suggested that we sell Omega to the Japanese, who had offered to buy it. It was still a powerful brand despite the problems, and it would fetch a lot of money. Of course, that would have been tragic for Switzerland.‖ In one interview, Hayek described the conflicts between the consultants and managers who wanted either to sell the brands or to boost volumes and revenues by using Omega to compete directly with mid-range Seiko and Citizen. The disagreements between the consulting team and the managers were often fierce—Hayek recalled that at one point the Omega team refused to let the consultants on the Omega premises.

The overall strategy suggested by Hayek Engineering to revitalize the Swiss watchmakers embraced a number of goals. First, it pushed for technological innovation and lower costs across the entire Swiss industry. As he explained in interviews, Hayek was convinced that forcing his country to compete with Hong Kong and Japan would ultimately be good for the Swiss, because it would force costs to come down. Costs had been rising because the Swiss had given up on the volume production that characterized the low-end market. If they did not seek to regain the volume markets, costs would continue to rise and would bleed into the higher-end segments, even as costs in Japan and Hong Kong continued to fall. A second pillar of the consultants‘ strategy was vertical integration. Integration would serve two interconnected ends: it would further reduce costs, and would give the Swiss strategic independence from foreign component manufacturers. Producing their own low-cost movements, for example, would free the Swiss from dependence on Japanese manufacturers. Hayek‘s nightmare scenario was one in which the Swiss simply could not compete on cost, and therefore had to outsource all of their movement production. From Hayek‘s perspective, such a situation would truly be the death-knell for the Swiss industry, which would be forced to make larger and larger concessions to its foreign suppliers. Hayek wanted to increase Swiss shipments of movements to Hong Kong, in part to diminish the control that the Japanese firms exercised over the Hong Kong outfits. This vertical integration would extend to the development of a worldwide distribution network. By establishing their own network, the Swiss could both reduce distribution costs and keep in closer contact with market trends. Hayek Engineering also advocated an expansion into semiconductors and integrated circuits. In the 1980s, Japanese firms dominated the market for the chips used in electronic watches. Hayek was wary of the close relationships these firms had with Japanese watchmakers because of potential strategic conflicts, particularly in the event of a chip shortage. The production of the necessary microelectronic equipment at the desired cost required substantial investment—in effect, it required the creation of a Swiss microelectronics industry. ASUAG, SSIH, and other watchmakers collaborated with the Swiss government to establish the Swiss Center for Electronics and Microtechnology. To keep volumes high enough to restrain costs, the embryonic manufacturers sought to produce not only circuits for watches, but also other consumer electronic goods.

Finally, Hayek and his firm believed the Swiss should compete in all segments of the watch market. The Swiss should aim to market their brands aggressively to carve out niches across the-range. By cultivating brands across price-categories, Hayek hoped to strengthen the entire Swiss industry. Hayek believed, for example, that focusing on quality control and mass-production in the low-end segment would improve quality and reduce costs for more expensive watches.The hope was that these four strategic goals, would yield a Swiss industry that was leaner through consolidation and integration, that rewarded innovation, and that competed in all segments to restore Switzerland‘s proud horological history. Although the unwieldy organizations that made up SSIH and ASUAG had a long way to go before they realized this vision, at least one of ASUAG‘s units had already been heading in the direction that Hayek and his team advocated. Ernst Thomke—Innovation and New Technologies at ETA The core manufacturing arm of ASUAG was Ebauches S.A. Ebauches was further divided into a number of different manufacturing companies, among them ETA. (See Exhibit 5 for an organization chart.) In 1978 ETA had hired a new managing director, former ETA engineer Ernst Thomke, who had returned to the company after a nearly 20-year absence. In the intervening period, Thomke had studied chemistry and medicine and gone on to work at British pharmaceutical company Beecham. Before coming to ETA, he had been managing director of Beecham‘s subsidiary in Switzerland. A ―burly 45 year-old polymath‖ with ―a taste for fast cars,‖36 Thomke was recruited to help revive ETA in 1978. Thomke quickly acquired a reputation among his colleagues at ASUAG as a tough, iron-willed negotiator.37 At the time, morale at the company mirrored the low morale in the entire Swiss industry. ETA‘s primary customer was ASUAG and its subsidiaries, and the manufacturer also sold its components to other Swiss, German, and French watchmakers. As internal and external orders declined, ETA‘s profits shrank, and it had been forced to cut personnel significantly. When Thomke arrived he instituted a series of changes to cut costs. He closed older facilities, centralized production, and reduced the number of different movements that ETA produced by 75%—from 1000 to around 250. After implementing these difficult measures, Thomke knew he needed to give the organization a goal

to work towards. First, he negotiated with internal customers to allow ETA to play more of a role in the strategy and marketing of watches using the company‘s movements. He then challenged his engineers to design the world‘s thinnest analogue quartz movement. The project, known as ―Delirium,‖ was nicknamed ―Delirium Tremens‖ by ETA engineers who doubted that it was possible. Nevertheless, in 1979 the first Delirium watch was unveiled. Delirium used new assembly techniques that bonded parts to the watch case first, rather than building the mechanism first and then assembling it inside the case. It also used a new ultra-thin battery. The final movement was less than 1.98 millimeters thick. The next year, ETA released the Ladies‘ Delirium, which measured only 0.98 millimeters, breaking Seiko‘s standing record for thinnest movement. Delirium was sold in the high-end segment of the market. In its first year, it sold more than 5,000 units, at an average price of around SFr 8,000. As Thomke had hoped, it was ETA‘s first big success in years, and morale at the company improved significantly. Delirium‘s success encouraged ETA to increase production of the new movement, in part because by taking advantage of the lower costs that accompanied higher volumes, the firm could maintain the technological edge it had recently seized. Unfortunately, with the Swiss industry still on the verge of collapse, ETA‘s internal and domestic customers could not provide the demand that Thomke needed. Ebauches opted to expand ETA‘s production anyway and sell the movement outside the small circle of Swiss, German, and French customers that ETA had traditionally served. Thomke believed that the new design had the potential to help ETA regain some of the ground that it had lost to low-cost producers from abroad. To compete in these markets, ETA would have to produce lower-cost movements than the ones they were accustomed to producing. In the past, the Swiss had been reluctant to focus on the low-price segment, in part because they feared that doing so would damage the Swiss reputation for quality. The Swiss consumer‘s preference for higher quality watches also biased them against the lowerend market segments. Many doubted that there was any profit to be made in selling inexpensive watches. Analysts, for example, had been lauding the Swiss watchmakers‘ discipline in staying with the high-end luxury watches, after their more medium- and low-priced brands had been eroded. Thus even though Swiss engineers had pioneered revolutionary electronic technologies, they had not pursued them once they went down-market.

According to Thomke, ―The Swiss engineers were waiting for definite orders to start the production of the electronic watches. But the orders never came.‖ The start of the 1980s presented ETA with a window of opportunity to get back into the market. Low barriers to entry in the digital watch industry had led to fierce competition, and the market had been flooded. Now the industry faced a glut of digital watches. Desperate watchmakers from Hong Kong and elsewhere were looking for ways to relieve the competitive pressures.Thomke and ETA were able to capitalize on these circumstances. Although the demand for quartz digitals had peaked, the demand for quartz analog watches was rising. And analog quartz watches had enough in common with traditional watches to give established watchmakers like ETA an advantage. Thomke‘s strategy was to regain a foothold in the low-end segment by supplying Hong Kong manufacturers looking for ways to pull themselves out of the digital slump. Thomke gave the order to design the low-cost watch in 1980. Ultimately, he aimed to sell the watch to around 1% of the world‘s population—around 40 million people. He wanted a highquality watch that cost only SFr 15 to manufacture initially, and whose cost, with economies of scale, would fall to SFr 7 per unit. A quick calculation showed that using conventional technologies and processes, the cost of the unassembled components alone would be SFr 20. Assembly would push the cost up considerably. To produce a low-cost, quartz analogue watch at the necessary level of quality, ETA would need radically new technologies. To encourage experimentation Thomke instituted a flatter organization structure. Taking inspiration—and ideas—from Delirium, ETA engineers spearheaded the design of a low-cost movement. One of the central obstacles to reducing costs was Switzerland‘s high prevailing wage, which was much greater than that in either Japan or Hong Kong. One way to cut total labor costs was to automate the assembly process. With automation as one of its primary goals, the design team strove to make the assembly process less complex by reducing the number of parts used in the watch. Two years and SFr 11 million later, ETA‘s engineers had designed a watch that contained only 51 parts, down from between 90-150 for a conventional analogue quartz watch. (See Exhibit 1 for a simplified schematic.) The

reduction in parts allowed ETA to automate nearly all of the assembly process, using CAD systems to create what Swiss watch manufacturers claimed were some of the most advanced robotic assembly lines in the world. The design used precise injection-molded plastic technology to create the case. This allowed engineers to extend one of the key innovations from Delirium: traditionally, the case had been built around the watch after the movement was assembled, but now, engineers could mount movements and other parts directly into the watch case. The plastics innovation facilitated automation by eliminating the need to access both sides of the watch during assembly. Finally, the design did away with the screws traditionally used to seal watches. Instead, the engineers opted to seal the case with ultrasonic welding. The welded seal meant that the new watches could not be opened for repair, and this added a further constraint to the design: quality would have to be higher than with conventional watches. Fortunately, the reduced number of parts made quality control significantly easier. Marketing Choices at ETA The market analysis done by Hayek Engineering supported ETA‘s move into the inexpensive watch segment. Managers at ETA and Ebauches believed that to be successful the new initiative would require its own dedicated marketing department. Thomke was reluctant to cede control of the new project to another ASUAG subsidiary, particularly given the parent company‘s continuing marketing difficulties. Accordingly, he began advocating that ETA expand its role in aggressively marketing the product. At ETA, Thomke put together a group to assess the marketing options and develop a strategy for the new movement and the watches that would contain it. The group determined that they would emphasize the watch‘s high quality, which went hand in glove with its Swiss origin. They also wanted to stress the idea that the new watch was fashionable, innovative, and fun, unlike other inexpensive watches. The watch would be priced low enough to encourage ―spontaneous purchases,‖ but would also be kept expensive enough to support aggressive marketing and avoid the perception that it was cheap. It would not be distributed through drug-stores and other massretailers, as were Timex or Casio. Instead, the new watch would be sold through jewelers and fashionable department stores.In 1981,

when the new watch design was still in development, Thomke enlisted the help of marketing consultant Franz Sprecher to analyze distribution options for the new watch.Sprecher focused primarily on the United States, which remained the largest export market for watches. American consumers tended to be more sensitive to watch prices than their European and Japanese counterparts, who favored watches in the midrange segments. (The Swiss, perhaps unsurprisingly, were among the most discriminating consumers, favoring the higher-end segments.) Sprecher made a number of trips to the United States to gauge interest among potential partners, beginning with jewelers. Sprecher spoke to the managers of Zales, a large retail jewelry chain, who seemed interested in the new watch but felt it was too early to discuss partnerships. Zales management believed that the best way to launch the new watch would be an all-out marketing blitz. Another American jewelry wholesaler, Gluck & Co., was less interested in aggressive advertising, and suggested that the watch be priced very cheaply, under SFr 40.55 Sprecher also spoke to a number of independent watch manufacturers to determine if there was a market for the new ETA movements. Bulova, the American watch company that had pioneered the first electronic watch, but which now confined itself to the American market, was impressed with the concept. Bulova expressed an interest in a joint venture, and suggested that the watch should be marketed with a large budget as a fashion watch. Sprecher also met with executives from Timex, once the undisputed champion of the inexpensive watch, but whose performance had recently declined. Timex boasted a wide distribution network, but the terms they proposed offered the Swiss very little. They also had a bureaucratic, old-fashioned management style that did not fit well with ETA‘s new culture. Moreover, although their distribution network was wide, it was inefficient, involving a number of intermediaries that would have reduced ETA‘s profits. Finally, Sprecher met with representatives of Duracell, the global battery maker. Duracell‘s distribution dwarfed that of other potential partners, even Timex. Duracell was looking to expand its product line and saw watches as a useful extension of the watch batteries they produced. ETA would function as a supplier of movements and watches to Duracell, which would

then market and distribute the watches around the world. Duracell seemed interested in ETA‘s new product, but was moving slowly to research its market potential. In addition to partnerships, ETA also investigated the possibility of marketing and distributing the watch itself. Thomke‘s team consulted with advertiser McCann-Erickson to assess the possibility of distribution via direct mail order. On a later trip to the United States, Thomke himself met with former Seiko distributor Ben Hammond, who had been recommended to Sprecher by the managers at Zales. Hammond was enthusiastic about ETA‘s watch—which had recently been dubbed the ―Swatch,‖ thanks to Sprecher—and suggested to Thomke that they could expect sales above a million units as early as the second year. Hammond proposed the establishment of a new subsidiary to distribute the watch in the US.62 In March 1983, ETA rolled out the first Swatches in Switzerland. Apart from their plastic cases and analogue displays, they did not appear dramatically different from existing watches (see Exhibit 2). The new watch sold adequately, but was not an immediate blockbuster. The ETA team decided to conduct a test market in the United States to see which of the distribution options there would be most successful. The watch was carried at Zales in Dallas and at Macy‘s in New York in December 1983. Sales from the test markets were flat. According to Max Imgrüth, the SUNY Fashion Institute of Technology graduate in charge of Hammond‘s Swiss Watch Distribution Center, the Swatch looked too traditional to succeed in the American market.Hayek Takes the Helm Despite its slow initial start, it was clear that the Swatch had potential. Unfortunately, Thomke and his division were relatively far down in the organization of ASUAG. And ASUAG, along with SSIH, continued to have serious problems. In 1983, Hayek Engineering, which was still consulting the industry for the banks, concluded that the best course of action for the Swiss giants would be a merger. Merging would streamline production and R&D, which were already intertwined because of the collaboration between the two companies. It would also reduce administration costs. Since the banks were still very worried about the two companies, they agreed with the consultants‘ assessment, and put pressure on the two firms to cooperate. In 1983, as part of an additional SFr 600 million bail-out package, SSIH and ASUAG merged to form a new

company, provisionally named ASUAG-SSIH. The merger was completed in December 1983. The banks expected Hayek Engineering to play a significant role planning the restructuring that would be required following the merger. The firm would have to make sense of the collection of separate divisions that made up the two watch organizations and develop an operational and organizational strategy for making the new company run smoothly. The organization would somehow have to take advantage of the benefits of consolidation while at the same time boldly innovating across its brands. The consultants would also have a hand in selecting a new senior team to make the turnaround real. This team would have to craft a strategy that made the most of existing brands like Omega, and that developed the new Swatch and associated technologies to reestablish the Swiss presence across the watch market. Ultimately, the goal was to create a Swiss watch industry that could compete with strong independent brands in all price segments—particularly the low end. The consultants knew that time was of the essence—the question was where to begin. SWATCH WATCH U.S.A.: CREATIVE MARKETING STRATEGY ABSTRACT Switzerland was an industry leader in the watch market up until the 1970's when the digital watch was introduces to consumers. The digital watch was inexpensive to manufacture and could be produced in mass. It created a whole new market by making watches inexpensive enough for all classes of people. The Swiss did not respond to this new competition and began to lose their market share. The Swiss watchmakers still produced high end watches for the wealthy, but did not compete for the lower end market. In the 1980's the ×Swiss watchmakers began to realize they needed to change their business model to fit in to the new global market place. They needed to not only change their views of the market but the infrastructure of watch manufacturing.

In order to compete on a global level they needed to improve their technology, design products that would appeal to new markets and be able to compete with other companies both in quality and cost. The development of Swatch® allowed one company, the ×Swiss Corporation for Microelectronics and Watchmaking Industries (SMN), to do just that. SMN developed a product that was appealing to a younger target market. Their new design, distribution and production strategies created a niche market that became popular worldwide. The company developed an advertising campaign that was new to the watch industry and was strongly directed at a younger audience. SMN was extremely successful in entering the new watch market. Their creative design was durable, attractive and priced competitively. They employed successful strategies and actually created a market within a market by advertising Swatch® as a fashion accessory. In expanding their product they employed the same strategies that had worked for Swatch®, targeted the same market and were again creative in their marketing techniques. By limiting their products in both quantity and location they did not flood the market and were able to keep their customers interested in the products. 4. In order to continue their success they will need to find new innovative ideas, changing their products as the market changes and in this way stay ahead of the competition. By researching different countries and learning the needs of different cultures they may need to develop country/culturally specific product lines in order to expand their market further. Another consideration is to research expanding their market in regards to their targeted age group. As their customers mature, SMN could expand their product line to include fashions that while still trendy, are designed more for the professional setting. In addition they need to insure that their value to cost ratio is equal to or better than their competition. Developing alliances with global companies would enable SMN to enter new markets by using the other company‘s trademark. For example, Swatch® could develop an alliance with a major shoe manufacturer like Nike® or even a soft drink company such as Coke® and joint advertising would benefit both companies and allow them greater access to world markets. The main goal would be to develop alliances with companies that

had the same overall feel. Swatch® is fun and hip therefore an alliance with a company that produces fax machines would not be mutually beneficial. By implementing new strategies and continuing to produce quality merchandise at reasonable prices Swatch® will continue to be a frontrunner in the fashion accessory and apparel industry.

1. Why was the ×Swatch so successful? In what ways was the ×Swatch different than any other watch the industry had ever seen? Switzerland, which had absolute advantage over watches, continuously lost their occupation over the market by ×Japan and Hong Kong which emerged with low-cost item strategy. To cope with this crisis, SMH which had considerable portion in watch of market in ×Switzerland made new brand that have novel strategy, and that is ×Swatch, leading brand of watch market these days. We will now look about SMH through SWOT, and find out why SMH had to make the brand ×Swatch and through which strategy we will find out the reason how ×Swatch became successful in the market. [Picture 1] By looking at SMH through SWOT analysis (Picture 1), even though the SMH of those days had brand of luxuries, and had advantage of having know-how to make high quality watches, it had weakness of having problems of high prices and had troubles of business at managing, strategies, and structure. But the point that they could create portfolio by merging two brands, and the ×Nicholas Hiek became the new CEO was the chance for SMH. Lastly, the fact that ×Hong Kong and Japan came up with low price strategies was the threatening thing for SMH. The counterstrategy SMH came up with for the low price strategy of competitiors was to keep their high qualities, keeping their advantagies but reducing prices, and using their chance of making portfolio by merging two companies and create Swatch. Then what were the factors of the success of ×Swatch, which was the substitution of the situation? We can come up with three factors. – Price, Message, Promotion 1. Price Swatch used low-price strategies even though during the situations when the buyers of the product made in Switzerland had high WTP(Willingness To Pay). By selling the products at the low prices even though the buyers had will to pay at high prices, they were able to increase their hostility. In order to make the low-price strategies happen, they made the production progress simpler and automatic. This made Swatch still keep the premium ―Made in Switzerland‖, and have the competitiveness of price at the Asian corporations, making Swatch more and more competitive. By making the

case of the watch from plastic made it able for them to stand at the upper hand at the side of price and quality. 2. Message By entering the low-price watch market, Swatch starts to look for ways to communicate with the consumers in order to have the specialized advantages. Swatch concentrated at the point that the watch market was not the competition ground of only qualities. Therefore they inserted new kind of values to the watches in order to give the messages to the consumers. Specifically, the new value is ―Watch is the tool to tell the selfimage and personal culture of user.‖ That is the thing which shows oneself by telling topic like ―Who am I?‖, ―What do I do?‖ with making another ego. Especially, the view point of price to plastic case is good tool for containing these messages. So, various designs and colors help the individuality and values happen. 3. Promotion Despite of such price competitiveness and specialized messaging, consumers of the early times did not have enough recognition of the Swatch‘s concept. At this point Swatch wanted to this problem solving. So, Swatch‘s general approach to promotion was to spend roughly 30% of the Swatch‘s retail price on advertising. This promotion strategy was very opposite concept from original watch industry. It was very special and unorthodox promotional strategy. For example, Swatch created a Swatch Collectors Club for its most ardent fans. 2-1. What elements of the original Swatch marketing plan were most critical to the brand‘s success? Do you agree with the original product strategy, channel strategy, and the promotional strategy? Price. This case is adapted last marketing class studied 4Ps theory. (Product, Price, Promotion, Place) Among them, the biggest success factor is Price. First of all, low-cost strategy is very important. This strategy was provoking a majority consumer of interest and consumption. Price becomes a mirror for the other attributes Swatch‘s try to communicate. Finally, Swatch sold limited edition by normal price. It was make training of loyal customers and lead to impulse buying.

We of course agree with the success of the rest of 4Ps – Product(Product strategy), Place(Channel strategy), and Promotion(Promotion strategy). First of all, in case of Product strategy, Swatch has operated ‗Design Lap Center‘ so that they could accept customers‘ emotional need according to their whim and taste. With design center‘s offering, Swatch prepares four times the number of models they supply and doesn‘t sell the repeated product. All of them are as part of an effort for lowering the cost. It is agreed that these kinds of efforts could give a wide choice of products to customers and improve the value of company Swatch. Second, Channel Strategy could convey some messages to customers in a most effective way. There are some persuasive examples that prove this effect. In case of Veggi Line, Swatch sold their product in particular place like vegetable or fruit store unlike usual competitive companies. In addition they made exclusive shop-in-shop system to receive intensive attention. They had same effect to deliver messages to customers that Swatch has ―cultural products‘. Last, Promotion Strategy is significant because it didn‘t keep the bounds that they give advertisement. They open market with suppliers and consumers to communicate with each other. They carried out assertive strategies to inform ‗Swatch way‘. 2-2. What about the pricing strategy – what does Franco Bosisio mean when he says that the Swatch is sold at a ―Clean Price‖? Given the huge demand for Swatches (particularly for certain models), did the company make a mistake in not raising the price for some of its styles? And the price policy of Swatch is also reasonable in the long term. Of course, if the demands are increasing while the supply is fixed, it is an absolutely reasonable way to raise the price and maximize the sales in the short term. However, in the long term, it is certain that the price policy which Swatch has taken is more reasonable. The reason is, if Swatch drops their low-cost policy and raises the price, they can expect a certain amount of increasing sales but they have to give up their low price watch market share which they have accumulated in a hard way. Like this, if the market share is decreasing, the demands of Swatch in low price watch market will be also decreased and naturally the revenue of Swatch will be

decreased. And in the case of Swatch, they are charging of the low segment market in 9 portfolios which are planned by SMH for maximizing their own profit. But if Swatch rushes into the market with raising the price, they have to compete with another brand which is above Swatch in portfolio rank. And then, eventually it will be likely to happen that two brands which are included in same affiliate will do so called ‗Chicken Game‘. To sum up, keeping the low price policy of Swatch is a reasonable policy for obtaining the market share of SMH's low segment watch market, at the same time, corresponding to the portfolio of maximizing the profit of SMH. 3. More than 15 years have gone by since the time of the case(1993). How has the watch category changed since 1993? Are there any new or different sub-categories of watches? What are they? Before 1993, there were largely two categories in Swatch. The first one is the original line introduced in 1983. They are plastic cased watches in various sizes, shapes and designs. The originals have sub-families as well such as pop, standard gents, standard ladies, maxi, and so on. The second one is the special line. In 1985, Swatch started to make limited edition watches. Then, Swatch has been creating limited editions from artists such as Kiki Picasso, Yoko Ono, and Keith Haring. They also have made special watches for the Olympic Games, which were sold worldwide. It was the start of the collecting craze. Still there are many collectors that only collect watches in this category. After 1993, Swatch has been aggressively expanding their categories like Skin, Irony, Beat, Pass, Bijoux. First, Skin line contains two sub families Original Skin and Skin Chronograph. The original skin was introduced 1997 as a thinner version of the original swatch watch. It is ultra thin hence the name Swatch Skin. The swatch skin went on to enter the Guinness World Book of Records as the world's thinnest plastic watch. The Swatch Chronograph is just the swatch skin with a chronograph function. It has two additional buttons on the side of the watch. Skin watches feel like they are part of your skin, because they are very flat. In 1994 Swatch launched the first collection of stainless steel gent and medium size Ironies in the USA. It was an instant success. The designs are timeless and classic, opposed to the plastic collection which is

more colorful and pointed toward the world of fast fashion. Among these Irony lines, Swatch has brought plastic and metal together in one watch. This is absolutely revolutionary as these two ground products have never been successfully merged together in the watch industry. And thirdly, Swatch Beat watches were introduced in 1999. It is the first Swatch with a digital display. Swatch goes digital and comes with a funny designs and great functionality. Swatch Beat is the digital line and integrate Internet time. A day is cut in 1,000 Beats. In Practice it means the same time all over the world at the same moment. This watch has a lot of extra features: two different time zones , a timer, a stop function, an alarm function, a small animation , and a countdown function. Fourthly, there is an Access Line. A Swatch Access is a Swatch with a great revolutionary technology. This Swatch contains a chip that can carry certain unique information. There are two types of Swatch access-watches: the first ones, which were made with a chip for a Ski-pass , and the rest, which were made to pay all kinds of things like drinks, museums, tickets, etc. There is an online list with ski resorts where the Access can be used. And the last one is Bijoux Line. It is the jewelry line that Swatch released in the new millennium. A company that is known for innovations and fashion it went the next step. It partnered with Swarovski to encrust their Bijoux line and watches. Swatch Bijoux rings, bracelets, necklaces and earrings are fashioned from today's kind of materials, such as silicon, nylon, or resin combined with stainless steel - the perfect match for futuristic lines. Swatch Bijoux brings an intimacy and passion that intrigues: the emotional connection comes from the imaginative combination of materials. It is clearly for those individuals who are secure with their sense of fashion are able to successfully portray their current mood through decoration and know how to accessorize their true personality. 4. In many ways, the Swatch forced people to think about watches in a way they had never thought of before. Can you think of other products in other categories that have done the same thing? Bright at least one example to class. The example can be from any category - the mjore broadly you think about this question the better. What do these examples have in common?

Swatch: The One to Watch Every serious entrepreneur endeavors to create a product or service that will revolutionize the known world. Ingenuity ignites the flame and perseverance fuels the fire while mogul-hopefuls anticipate consumer satisfaction. Nevertheless, strategic efforts are an unrivaled asset no matter how great the idea. Since the boom of modern-day business, industry experts have refined how-to-make-a-buck to a complex science that analyzes the who, what, why, when, where, and how of ensuring profitability. A concept known as ―The 4 Ps‖: sums up a snapshot of their findings: Product, Price, Place, and Promotion (insert textbook reference here, i.e, Norris, 2010). Successful companies apply these principles with a finesse that can lead to products whose market shelf life is timeless. Such is the case with Swatch. The following is an analysis that examines how the effective employment of this marketing mix (The 4 Ps) revitalized this company and helped it reclaim its place as a formidable contender. Product The most basic element of supply and demand first begins with a product (or service). The Swatch company‘s central component is quite simply a timepiece, also known as a wristwatch. Created in the 1980s, this product‘s appeal entailed a watch that was lighter in weight, mirroring the functionality of its contemporaries, distinguished by boldness, fun, and flair (Swatch, 2010). However, among several factors that contributed to its broad consumer appeal was its intense aesthetic product modifications (Ferrell and Price, 2007). Specifically, marketing expert, ×Franz Sprecher, led a full-fledged campaign, depicting the watches as accessories laden with uniqueness from seasonal fanatics to tech-savvy trendsetters (Lury, 2004). This eye-opener transitioned their product from the mundane status quo to the envy of the expressionist. Price Yet another salient success indicator is price. Its economical design also lent itself to remarkable competitiveness in pricing: ―Swatch is an example of minimalism by using only 51 components. Compare that with a traditional watch which has a least 100 …Swatch watch has a cost making which is 5 time smaller than that of a traditional watch‖ (Swiss Watch, 2010,

para. 3). Consistent with its product predecessors, most ×Swatch watches are moderately priced in categories spanning ―less than $50, $50 – 100, $100 - $150, and $150 or more‖ (Swatch, 2010). As a result, the company was able to outpace its competitors with quality, quantity, affordability, and fashionable appeal, thereby increasing its chances for brand loyalty (Swiss Watches, 2010). Place Rapid advances in technology have clearly worked toward Swatch‘s advantage. The advent of the ×Internet and digitally astute consumers has maximized opportunities for the company to parallel the delivery of products to meet its continued demand while strengthening its motif of intrigue (Ferrell and Pride, 2007). Artistically provocative web pages invite users to peruse its diverse line extensions and latest news and rub electronic elbows with celebrity ×Swatch enthusiasts, while still offering the option to visit brick-and-mortar locales summoned at the click of a mouse. With a global presence on both the world-wide-web and internationally throughout 600 stores, its ability to move from product to patron is impeccable and has established it as an leader irrespective of its popularity decline as compared to the 80s pop-era (Swatch, 2010). Promotion As with any organization that has earned a trailblazing badge, ×Swatch continues to keep its hands on the pulse of the market. Carefully orchestrated campaigns span a multimedia milieu that includes items like ×Swatch and Art, Shoot My Ride, TV, and the Swatch Club. Their persona is drenched with internationally recognized pulsating music, edgy spokespersons, sleek models, and plenty of positive PR. There have also been match-made-in-heaven marriages to athletic phenomena like ×Beach Volleyball and the ever-increasing (in popularity) Snowboarding. In both instances, they evidence their prominence by backing events with sizeable sponsorships, merchandising, and product linkage (Ferrell and Price, 2007). Ultimately, they have ensured visibility, lengthened their life cycle, and continued to thrive on innovation (Lury, 2004). While it is highly unlikely that any company could prove it has mastered the art of business to the hundredth percentile, it is obvious that there are organizations that have honed their expertise, fortified by profitability coupled with longevity. Their success is even more notable when accented

by what maybe a downturn that morphs into reemergence as a leader. Swatch‘s continued growth and solid footing in its rapidly changing industry is indicative of how understanding and effectively applying the underlying principles of product, price, place, and promotion can markedly improve sustainability. Their continued achievements have withstood the tests of time – and that certainly makes them ×One to Watch.