Executive Summary

Seiko, a Japanese-based watchmaking company, has been an industrial pioneer in developing

innovative watch technologies and design designs. Despite Seikos advanced technological
capabilities and craftsmanship in making elaborate and fine watches, its brand management
efforts have been piecemeal and unorganized. Hence, this contributed to a confusing and
undesirable brand image, which is generally perceived as cheap in Western markets (as
opposed to the value-for-money and technically refined image). It failed to deliver luxury
cachet and status symbol to customers, whose needs are gradually shifting from functional to
decorative. Therefore, the luxury market remains highly lucrative for Seiko, especially when
the lower-end business faced stagnant growth and increasing cost competition.
This report aims to analyze the internal and external environment, and reveal the underlying
factors facilitating and inhibiting Seikos continuous business growth. This is followed by the
identification of three critical issues facing Seiko nowadays. Internal challenges include lack
of brand focus and the limited international upmarket presence, while another external issue
is the increasingly intense competition with Swiss watchmakers.
Regarding the inconsistent brand identity, Seiko is suggested to consolidate its brand
architecture by merging brands targeting at similar customer segments and offering product
lines at comparable price ranges. Meanwhile, Seiko may also consider establishing a new
distinct brand name offering premium watch lines. By doing so, Seiko could avoid the
cannibalization effect, which would otherwise occur when Seiko deliver new premium
products under its current brand name. Yet, it is important for Seikos new luxury brand to
align its marketing efforts and service and deliver a premium brand experience for Western
customers systematically. For instance, brand endorsement by sports star or limited edition
from reputable designers may be initiated.
Meanwhile, to invade the European upmarket while circumventing competition from the
traditional Swiss watchmakers, I propose that Seiko may test the waters first by entering into
niche market such as sports watch. First, the relatively uncontested sports watch market in
Europe and Seikos previous timekeeping experience in sporting events justified such market
expansion. Meanwhile, as Seiko is well positioned to benefit from its large-scale production
line and economies of scale, niche marketing could create a competitive advantage for Seiko.
It also laid a foundation for Seikos future expansion into the mainstream luxury market.

1. Introduction
Founded in 1877 as a business providing clock repair services, Seiko has been the world
market leader of quartz watches for decades. In Seiko, constant technological innovation was
held in high regard, as exemplified by its multiple innovative and value-adding features (e.g.
waterproofing, automatic winding) introduced back in 1950s. Seiko also developed its own
GS standard in opposition to the Swiss standard for internal watch testing. With an attempt
to consolidate market power and acquire engineering technologies, Seiko carried out several
Merger & Acquisition (M&A) or joint university research. All these tactics allowed Seiko to
amass international attention in the 1990s, with Seikos presence in major sporting events like
World Cup and Olympics.
However, its success does not come without pain. In 1996, the firm recorded declining sales
and net loss for five consecutive years at US$96 million, primarily due to economic recession
and intensifying competition in the global watch industry. To reverse the predicament, Seiko
initiated several restructuring and brand repositioning plans. Not only did it establish a new
subsidiary Seiko Watch Corporation (SWC) focusing on watchmaking, it also revamped its
previous branding model, which focuses on market share than brand preservation; and on
volume rather than value. The management believes that a consistent and clear branding is
crucial for sales expansion in US and European market, and its business ambition in high-end
markets.
Consequently, three questions arose: (i) Can Seiko successfully upgrade its brand perception
in the global market, given its traditionally recognized value-for-money and inexpensive
image? (ii) If Seiko were to enter the upmarket, how would it contend with the upcoming
competition with traditional watchmakers like Rolex and Patek? (iii) How may Seikos
competitive advantage technological know-how and innovativeness assist its brand
refocusing and upmarket expansion strategy? To address the problems, this paper would first
conduct SWOT analysis in understanding Seikos internal and external situations, followed
by identification of different options and the final solution recommended.

2. SWOT Analysis
Capture
Strength

Internal

External

Mitigate
Weakness

Strong brand name as the

Inconsistent

worlds

countries and product lines

Brand misperception in

only

mechatronic

manufacturer
Vertically integrated business
Strong R&D and innovation
capacity
Strong brand awareness
Top three watch brand in unit
& dollar sales
Diversified core business areas

brand

image

across

US

and

European market
Limited high-end presence in non AsiaPacific countries limited growth
potential in luxury watch
Over-reliance in Japan and other Asian
countries

Opportunities

Threats

Increasing demand for luxury

Low-cost

and high-margin watch

High market potential in China

shifting to mid-range watch market

Fierce competition in luxury watch

market and from domestic rivals

Shifting
customer
value

functionality to status expression

Constant innovation of competitors
Increasing
standardization
and

production

in

China

is

from

automation of quartz production

Regarding Seikos branding strategy, the firm possesses high brand awareness and strong
identity in hybrid watch production, which means combining both mechanics and electronics
in watchmaking. Also, being a pioneer in incorporating quartz crystal into wristwatches,
Seikos long-standing experience and qualified expertise develop a competitive advantage.
However, the firm still faces several setbacks in terms of customer perception. While Seikos
high-end product lines were all marketed in Asia-Pacific countries, the remaining budgetprice models were distributed worldwide1. Such inconsistent brand image across different
geographical locations and product lines has formed a stumbling block for Seiko to move
upmarket and capture the current market trend favorable for luxury watches. Seikos mid1 In Seikos luxury watch line, 95% was sold in Japan while the remaining 5% was sold in other Asian
countries.

price range also formed a conundrum being not as price competitive as low-end markets but
at the same time not as prestigious as Swiss-produced watches. This is a critical issue for
Seiko to tackle with, as signified by the growing dominance of luxury Swiss watches and the
stagnant market growth for lower- to middle-priced watches.
From the supply chain perspective, Seikos vertically integrated business reduced the reliance
on third-party manufacturing of parts or components and the risk of supply disruption. With
two experienced manufacturing branches (i.e. Epson and Instruments) specializing in
different product lines and microelectronics, Seiko could leverage on their manufacturing
capabilities and economies of scale and achieve cost savings. However, the emergence of
China as a low-cost and efficient production hub has been threatening Seikos automated
watch production, forcing Seiko to relocate its manufacturing plants.
3. Issues Identification

Lack of brand focus

Internal
Seiko
External

Weak upmarket
presence
Fierce competition

3.1 Lack of brand focus

With Seikos sales-oriented strategy, it has developed a diversified business with product
offerings at various price points. For instance, Seiko has multiple sub-brands in different
middle or mass markets, such as Pulsar and Lorus. In response to the resurgent Swiss
mechanical watch business, Seiko also launched two luxury product lines Grand Seiko and
Credor to test the waters in domestic market. Although such diversification strategy allowed
Seiko to capture wide market share and maximize sales, this contributed to Seikos major
weakness inconsistent brand perception. With the high-end line exclusively sold in Japan or

other Asian countries, European customers generally perceive Seiko as cheap and even
low quality, but not value for money as what Seiko has been promoting. Such brand
identity impeded Seikos headway to upmarket, as premium positioning is particularly
important in luxury businesses. Hence, instead of constantly introducing new products in an
unorganized manner, Seiko should seek to reconcile its competitive advantages (CA), such as
technological and design capabilities, with its brand image.
While Seikos recent brand refocusing efforts on innovation and refinement was
acknowledged, it is also crucial that the firm restructure the brand architecture to deliver
clearer brand values and identity.
3.2 Weak upmarket presence
Currently, Seiko is highly reliant on the Japanese market for brands in different price ranges,
as indicated by its 36% domestic value sales in 20122. Overdependence on Asian luxury
market could not only lead to country-specific economic risk like recession, but it also
forfeited the US market potential. In 1960s, the firm attempted to boost overseas sales by
creating TV advertisements and forming exclusive distribution agreements with European
wholesaler. Such initiatives are, however, of minimal effectiveness in altering Western
customers deep-rooted misperception. More coordinated marketing and distribution efforts
are needed for Seikos brand upscaling. Meanwhile, the lackluster projected growth rate of
Seikos net sales (i.e. 0.37%) in 2006 further justified the need for international penetration in
Western countries or other emerging Asian countries like China and India3.
3.3 Fierce competition landscape
Seiko faces intensified competition in both lower- and higher-end, as well as in both domestic
and international markets. Not only has the almost-obsolete Swiss brands regained
momentum in the luxury market, the upsurge of Japanese mid-priced fashion and functional
brands such as Citizen and Casio further eroded Seikos sales. Meanwhile, the highly
fragmented watch market also demonstrated competition from new smaller market entrants
and the possibility of future consolidation by competitors M&S initiatives.
4. Analysis of Options and Recommendations
4.1 Lack of brand focus
4.1.1 Divest low-end product lines
2 Euromonitor. (2013) Seiko Holdings Corp. in Personal Accessories (World). Euromonitor.
3 The growth rate for Seikos net sales was calculated as: (108.0-107.6)/107.6 = 0.371%.

With an attempt to reduce reliance on lower-end products, Seiko has reduced sales
contribution from low-end product lines from 41% to 26% from 2003 to 2005. Along with the
current luxury trend and the rising average selling price (ASP) in the watch market, one of
the options for Seiko is to divest the ill-fitting and less competitive low-end brands so that
Seiko could concentrate its resources and marketing efforts on high-end market. By
eliminating the weaker brands, Seiko might avoid diseconomies of scale by reducing
marketing complexity and operating cost for each sub-brand.
4.1.2

Consolidating similar sub-brands

For brand repositioning, Seiko might also consider reconfiguring its brand architecture, and
consolidating its currently uncoordinated sub-brands portfolio. For instance, under its
multiple sub-brands, Alba and Lorus are both selling budget-priced watches. Since they are
both competing for price-sensitive customers, Seiko may consider merging the two brands
and leveraging on their brand commonalities like market segments and production
capabilities to achieve synergy.
4.1.3

Open up new premium brand name

To address the brand confusion problem, the third solution is that Seiko develop a new highend brand completely disconnected from Seikos brand identity. With Seikos long firm
history in producing inexpensive quartz watches, Western countries usually associate its
brand with cheap and low quality. This explains why the previous Grand Seiko line did
not work well in European and US markets. Although Seiko possess extensive R&D
capabilities and craftsmanship, as shown by the sophisticated Spring Dive series, its
perceived low-end image still hinders the firms ability to charge high margins. This is
because customers might regard Seikos new product release as less affordable but not
technologically upgraded.
4.1.4

Recommendation

In view of Seikos relatively mature sub-brands (i.e. operating for over two decades), these
brand already gain considerable market share and presence, and are contributing to Seikos
operating profits. Therefore, in order to sustain the market growth and sales level, it would be
more desirable for Seiko to merge, but not kill the similar brand names. By grouping brands
with similar target market and product categories together, Seiko could develop a more
systematic brand portfolio with brands with different price ranges and features. This could

better suit the fragmented customer needs in the watch market. Meanwhile, it is also
suggested that Seiko launch new premium products with a brand completely detached from
Seiko. It is true that it might require extensive efforts to rebuild brand equity from scratch.
However, such strategy could avoid the negative halo problem, cannibalization people
opting for the lower-priced version of Seikos product line, as well as potential sales loss
from Seikos brand.
4.2 Weak upmarket presence & fierce competition landscape
4.2.1 Exploiting niche market in Europe and US
To avoid head-to-head competition with Swiss watchmakers, Seiko might seek greater
foothold in the Western market by introducing a unique product catering to the niche market.
As the competition for luxury mechanical watches became increasingly fierce, it might be
risky competing at mainstream and being perceived as the customers second choice after
Swiss high-grade watches. Therefore, niche markets such as sports or dress watches, which
are not targeted by Swiss watchmakers, might serve as springboard for Seiko to penetrate its
high-end markets in Europe and US markets. Seiko could also capitalize on its existing
production facilities and economies of scale to produce small quantity at lower cost.
4.2.2

Exploring other Asia-Pacific countries

Another option for Seiko is to enter the emerging markets in Asia Pacific, including China.
With the growing middle class and purchasing power, China serves as a Blue Ocean for Seiko
to exploit. While other competitors are still basing their production plants in China for cost
advantage, Seiko could gain first-mover advantage if it opens up the high-end luxury watch
market in China.
4.2.3

Recommendation

In short term, Seiko is suggested to penetrate into European and US markets, in which Seiko
has higher market presence and operating experience. Their niche market development
strategy could be complemented by effective marketing activities like brand endorser to
speed up the brand recognition process. In Seikos case, owing to its previous experience in
time keeping for major sporting events, it would be favorable that it repositions itself as
professional sports watch with multiple value-adding functions like waterproofing and heart
rate measurement. By doing so, Seiko could integrate its core competence (i.e. technological
and design capabilities) with the brand name. However, since the Chinese market is highly

fragmented and regulated, it would require extensive marketing research before entry. Seiko
may consider Chinese expansion through licensing, acquisition or Joint venture of a Chinese
watchmaker.
5. Conclusion
Since its establishment in 1877, Seiko has been leading the technological innovation and
R&D investment in the watch industry, as exemplified by its original watch designs with
quartz crystal. However, its competitive advantage has been fading as the industry matured.
With constant advancement of production technology, production of quartz has become more
standardized, requiring less precision and allowing higher degree of automation. This
indicates the need for Seiko to shift focus from technology to brand differentiation in order to
survive in the highly competitive market. Hence, it is suggested that to tackle this major
obstacle, Seiko should develop a new premium brand separated from Seikos current brand
name, targeting at Europeans niche market and bypassing the Swiss domination in upmarket.
This serves as a stopping stone for Seikos new brand to enter the mainstream luxury market
in the future as well. With all these strategies combined, it is believed that Seiko could
successfully make a turnaround in the high-end watch market.