Contents

Case overview:......................................................................................................................................1
Core issues............................................................................................................................................2
SWOT ANALYSIS....................................................................................................................................2
7 P’S OF MARKETING............................................................................................................................3
Product Innovation Charter..................................................................................................................5
Porter's five forces:...............................................................................................................................6
The Basic New Product Process............................................................................................................8
Recommendation for future action....................................................................................................11
Case overview:
The watch market has always been dominated by Switzerland, especially the luxury segment.
But what pushes the Swiss to restructure their industry is the middle segment with the advent
of the digital watch's new technologies that cost less to manufacture.

The status of the Swiss market has changed dramatically with the arrival of many companies
in the USA, Japan & Hong Kong that are beginning to gain market share with the digital
watch.

In 1967 Swiss were the first to develop an electronic watch system, but they oppose this
innovation because the entire industry is based on a mechanical design. By around 1978 the
crisis in swiss watch industry started panning out due to the competition from Hong Kong
and japan watch industry. This led to bankruptcy and closing of several swiss watch
company. The market share of swiss companies had fallen from 56% in 1952 to 20% in 1980.

This loss of market share was primarily due to old technology that swiss companies were
using, and there was intense competition from digital and low-price watches from japan and
Hong Kong.

In 1978 Dr. Ernst Thomke has been named CEO of ETA. Which was the subsidiary of
Ebauches sa which in turn was a subsidiary of ASUAG. In the second half of 1970’s ASUAG
suffered from declining profitability, cash flow, poor liquidity and debt.

When Ernst Thomke joined ETA, the morale was all time low due prolonged period of
market share loss and continued dismissal. ETA engineers and managers no longer believed
in their capability of beating the competition from japan and Hong Kong. In 1979 first step
was taken was to revive ETA under a project called “delirium”. The first watch launched
under Derilium movement had a good success rate and ETA had its first success in a long
time. Thomke decided to focus on the top and bottom segments leaving the middle segments
Seiko and citizen.

The manufacturing and construction of watches were fully innovated, and this gave the
company a technological edge over other competitors. The company then positioned it’s
watch as a high fashioned accessory so that it could operate in premium segment also. In low
price segment the company tried to provide better quality products at low price than its
competitors who offered plastic watches. This structural change which was brought in swatch
was strong enough to sustain its position in the market against intense competitors.

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OBJECTIVES

Price: quartz analogue watch retailing for no kore than Sfr. 50

Sales target: 10 million pieces during the first three years.

Manufacturing cost: initially Sfr.15 less than those of any competitor. At a cumulative
volume of 5 million pieces, learning and scale economics would reduce costs to SFr. 10 or
less. Continued expansion would yield long term estimated costs per watch for less than SFr.
7.

Quality: high quality, waterproof, shock resistant, no repair possible, battery only replicable
element, all parts standardized, free choice of material, model variations only in dial and
hands.

Core issues
• In 1980, swiss share of world market was comparatively high when compared to other
watches, which in 1952 had a share of 56% in the world market which saw a drastic fall to a
mere 20% of the finished watch segment in the market, while the total production had grown
up by 61 million to 320 million pieces and movements annually.

• The market share loss of swiss watches was more concentrated on the finished
watches, but the non-assembled movements were not having so much loss when compared to
finished watches.

• Manufacturers of watches were started to grow in that time rapidly. Many competitors
came with the electronical watches. Manufacturers in united states, japan and Hong Kong
started to gain share in the market with their new technology, especially once the introduction
of electronic watches.

• The exchange rate of U S dollar dropped to about US$ 1= SFr. 1.90, which was SFr.
4.30 in the past. The adverse exchange rate of US dollar made swiss watches more expensive
in the united states which is their most important export market.

SWOT ANALYSIS
Strength:

• Dominated in the luxury segment of the market.

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• Dominated the market in lower segment which was of lower price segment.

• The horizontally and vertically fragmented industry structure.

• Specialised in highly qualified labour, flexibility.

• Watches are of high quality and first-class styling at low cost.

• New technology.

Weakness:

• Strong dependency on European and American markets.

• Increase in the cost of manufacturing and exporting.

• Low profit margin.

Opportunities:

• Consumers interest towards luxury and collectibles.

• High demand in American markets.

• unique distribution channels.

Threats:

• High competition.

• Supply of cheap and replicas into the market.

• Long maintenance of technological advantage.

• Market saturation.

• Rapid development in technology.

7 P’S OF MARKETING
Product:

• New technology with quartz.

• Unique design.

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• Variants.

• Positioning.

• High quality.

Promotion:

• Unique promotion through huge replica on the skyscraper in Germany.

• Promotion in the Christmas eve in front of tall building in Japan.

• Sponsored in MTV’s new year eve.

• SWISS + WATCH = SWATCH

Price:

• The average model of ASUAG was around $4,700 and top model was $16,000.

• It is said that changes in pricing during the last decade had increased the watch
consumption

• Advertising of Swatch USA was alone $8 Million and sales in USA hit $45

• Million in the year 1985. Sales was only of $18 Million in the year 1984.

Place:

• placed in European market, American market and Japanese market but failed in
Japanese market.

• Production from 12 industries were reduced to 3. Movement models reduced to 250

from 1000.

People:

• Organizational Structure was revamped by scrapping up management levels

and reducing red tape which helped in building up the morale of employees.

• Franz Sprecher, Max Ingrueth and Jacques Iringer and Ernst Thomke were the

important people contributing to the Swatch to regain its former glory.

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Process:

The design of case served as out shell and also as the mounting plate. Precise injection

moulding process is carried out with durable and quality plastic with the integration of

micro motor and electric module.

Physical evidence:

• Welded crystal in the case.

• Rugged design.

• Tear proof strap.

Product Innovation Charter

Background:

SWATCH was known around the globe. When their market was low they introduced a
project called delirium with the objective to create worlds thinnest analogue quartz
movement. They expanded their business into Japan, Hong Kong and Brazil. They were
having control over its distribution channels and they were very good in strategy. Their
hierarchical levels were less. They were known for revolutionary product in medium and
low-price category. They were known for setting high objective with their novel approaches.
In delirium they mounted the moving parts directly on to a moulded case. SWATCH could be
assembled from one sided only.

Focus:

The SWATCH focus was to reduce the price. The other focus was making the worlds thinnest
analogue quartz movement. Also, they focused on producing watch parts made of plastic to
make it light. They focused on developing their own marketing as they did not have a
marketing department and the succeeded. They tried to focus on high- and low-end markets.

They tried to assemble from one sided only and they turned into their advantage and their
focus was to fully automate the watch mounting process. They focused on new design and
also tried to reduce no of parts in the watch. They also tried to tighten the quality.

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Furthermore, ETA was gradually losing their market share and change in market trend –
shifting from analog to digital.

Goals objectives:

The objectives were to increase its current sales in Japan, Hong-Kong and Brazil. Swatch
used Delirium Technology (To create world’s thinnest analogue quartz movement (Seiko
held the thin movement record earlier).”. The products were available in medium and low-
price category. Also, to develop their own marketing team. The company’s other main
objective was to achieve a sales target of 10 million pieces in the first 3 years and to control
more than 50% of the market.

Guidelines

The company follows certain guidelines and they are:

• To provide high quality watch

• To initially launch the product in department stores, jewellery shops etc.

• To position the watch as a high fashion accessory product for fashion conscious
people.

5 industry Forces by Porter: Porter's Five Forces is a model that identifies and analyses five
competitive forces that shape every industry and helps determine an industry's weaknesses
and strengths. Five Forces analysis is frequently used to identify an industry's structure to
determine corporate strategy.

Porter's five forces:

Intensity of rivalry among existing competitors

The main incumbents in order of market share are Citizen (3.9%), Seiko (3.4%) and Casio
(2.1%). Cultivated by the quickly developing interest in the Asian markets of Japan, Hong
Kong and USA the business is relied upon to grow in future. The Five Forces in the business
apply distinctively to top notch Swiss brands and Asian producers who decrease costs
through less expensive work and item showcases 0.9 out of 1.2 billion watches created yearly
originate from ease Asian markets, however, are sold at costs extensively lower than Swiss
watches. The business is exceptionally affected by falsifying that corrupts brand esteem

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gauges report a yearly harm of 800 million Swiss francs. Since little separation is conceivable
in the key characteristics of the item.

Since little distinction is achievable in the product's key attributes, major brands are mainly
competing on custom design and prototype. In both Asian and European industries, dynamic
production models are applied to reduce development time and meet fluctuating diversified
demand Different strategies apply to premium and low-cost segments: luxury brands are
vertically integrated to ensure quality production, while low-cost watchmakers focus only on
watch assembly to reduce production costs.

Threat of entry: The first of the five forces refers to the number of competitors and their
ability to undercut a company. The larger the number of competitors, along with the number
of equivalent products and services they offer, the lesser the power of a company. Suppliers
and buyers seek out a company's competition if they can offer a better deal or lower prices.

Diverse section hindrances apply for minimal effort and premium fragments. Gigantic
creation of minimal effort watches requires a fundamental expertise (the quartz system was
presented during the 70s and is for the most part appreciated) and access to wares. In the
exceptional section it is hard to construct a notable brand. Indeed, even settled Asian
producers like Seiko thought that it was hard to enter this portion. Access to circulation is
hard for newcomers, given that enormous combinations utilize their own dispersion channels
and approved affiliates. Built up Swiss organizations profit by government motivators and
participation from their national affiliation, which gives legitimate and business assistance,
coordinates arrangement making and aides in making good business conditions. Because of
vertical joining, section in the Swiss market is troublesome as large combinations have
control on the greater part of segment and product supply. Section hindrances are low for the
minimal effort section and high for the superior portion of the market.

Pressure of the Substitute product:

Complements include jewellery, fashion accessories and clothes. Substitutes include

smartphones in the low-cost and mid-range segments, since they serve the same basic
purpose of telling time, and other luxury goods fulfilling the need of self-satisfaction in the
premium segment. Smartwatches are considered close substitutes for watches for two
reasons. First, their main purpose to provide aid in daily tasks is quite different from the
purpose of traditional watches. Second, despite their relevant impact on the watch market,

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they are considered a separate category in watch-selling statistics. The threat of substitution
has been historically low, yet the impact of smartwatches is unclear.

Bargaining power of suppliers:

The two main categories of suppliers in the watch industry are commodity suppliers and
component manufacturers. The supply industry is highly concentrated; for example, SG's
subsidiaries produce components for 80% of independent Swiss manufacturers and 60% of
the overall Swiss market. These subsidiaries act as external business units for the main
holding. Since luxury watches account for 38% of the Swiss generated sales revenue, the
Swiss industry is sensible to fluctuations in price of precious metals not extracted by
watchmakers. However, the Asian market is subject to commodity prices and raw material
price volatility. Consequently, supply power is high in the Swiss market and moderate in the
Asian markets.

Bargaining power of buyers:

The buyers of watches are customers or authorized retailers with low bargaining power.
Generally, customers do not invest an excessive share of their income on watches, purchase
infrequently, cannot contract the price offered by watch-making firms and can switch easily
among watch brands. Elasticity of demand is moderate for low-cost watches due to
counterfeiting and customer sensibility to price, whereas premium watches face lower price
elasticity due to hardly comparable and unique features. Independent watch retailers have a
greater bargaining power than customers: they purchase in bulk and invest in few selected
suppliers. Although they often have their own laboratories, they do not have capital to
integrate backwards and thus depend on watchmakers. Buyer power is low although buyers
do not have high switching costs.

The Basic New Product Process

Opportunity Identification: from 1970 the watch segment below SFr 200 had experienced
the highest growth rate. This was the segment the swiss had ceded to competitors from japan
and Hong-Kong. Since, this was the price segment with highest growth percentage there was
the good opportunity for the company to operate in this price range. The company also
noticed that there was high growth in upper and lower segments, and the growth rate in

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medium segment was low so that the company tried to concentrate on lower segment which it
had lost to competitors from japan and Hong-Kong.

Price category 1970 sales 1980 sales Growth (%)

(Million pieces) (Million pieces)
Less than 100 SFr. 110 290 264
100 to200 SFr. 33 50 52
200 to 500 SFr. 20 20 0
More than 500SFr 7 10 43

Concept Generation: The concept of high value low cost was implemented to attract the
customers. The company tried to give better quality compared to its competitors at a lower
price. The first product concept was under project called delirium. There was good response
for this project from the customers and it was successful. The company tried to get product in
medium or low-price category to attract both end of the spectrum.
The swatch differed both with regards with construction as well as the manufacturing process
which was of much higher quality compared to its competitors. The company came up with
unique design which helped it differentiate from competitors.

Concept Evaluation: They evaluated the concept of low cost and high quality by designing
the watch by the plastic materials that made the production of the watch cheaper. That had
reduced the overall cost cutting of the company, the watch also had got new option water
resistant and the shock resistant. The company tried to make the slimmest watch to mark
itself in the record book, Seiko was the first company to do that and marked up their
achievement in record book.

Development: a conventional design consisted of case in which the movement was mounted.
The case was closed with a glass or crystal

First: the case was not only outer shell, it was also served as mounting plate.

The case itself was produced a new, a very precise injection moulding process which was
special developed for this purpose.

The case was made extremely durable compared to the plastic ones manufactured by the
competitors.

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Second: the number of components was reduced significantly from 91 parts to 51 parts.

The electronic model and motor model were assembled in sub group.

This made the manufacturing process simpler and cost effective.

Third: the method of construction differed in that parts were no longer attached with screw.

The components were riveted and welded together ultrasonically.

The elimination of screws reduced the complexity of watch and reduction in assembly cost.

The crystal was also welded to the case, the watch was guaranteed water resistance up to
100feet.

Fourth: the tear proof strap was integrated into the case with the new, Patented hinge system
which improved wearing comfort.

This unique strap design differentiated the company product from rest of the competitors.

Fifth: The battery which was the only part with only limited life expectancy.

The battery was inserted into the bottom of the case and closed with the cover.

Production: the swatch watch had an advantage because it could be assembled from only
one side.

Due to this it is possible to fully automated the watch mounting process

Unlike swatch the ordinary watches were assembled in two separate operations: the mounting
of movement and the finishing

Swatch used advanced CAD and CAM technology and robotics which reduce the cost of
production and deprecations

Due to the new design the number of parts were significantly reduced, this reduced the time
required to assemble the watches

Launch

After the production the product must be launched. This consists of various steps

1. Product Positioning:

• High-fashion accessory for fashion conscious people

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• They emphasized on brand name rather than styling and technical value

2. Pricing:

• Even though they set their watch price at low, yet they achieved higher margins as
customers purchased spontaneously

3. Distribution:

• The Swatch was not sold through drug stores and mass retailers. Instead department
stores and jewellery shops were introduced as distribution channels.

• Attractive distributor margins and extensive trainings were done.

Recommendation for future action

 To solve imitation issues, the organization must establish brand loyalty among
customers by offering better customer service, maintaining high quality, building
confidence in consumer feedback, keeping a close eye on your competitors and
following current trends.
 Creating brand awareness through frequent advertising, strategic marketing. These
methods can help the company to position itself in the minds of consumers as a good
brand, which in turn helps the company to maintain a better brand value on the
market.
 Come up with more innovative product to meet the changing trend in market and to
maintain the market share.
 Because of the fragility of the technological advantage in that market: the positioning
of the brand of swatch should become a life style, fashion phenomena.
 The product must be me designed both for low-and high-end customer so that the
company can make profit from volume business and luxury business
 To reinforce the image of exclusivity, madden by a historical success of Switzerland,
madding it a must have like the famous knife.
 Collaboration with other fashion accessory brand to give better design option for
customer and attract new customer

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