THE BIRTH OF THE SWATCH

1. Prior to the introduction of Swatch, what kinds of watches were popular

among consumers? In what ways was a Rolex different from a Timex, or
from a gold-plated Seiko? How did consumers make buying decisions?

A: The period before introduction of Swatch can be divided broadly into 3 eras having
its own style and characteristics:

 Pre 1950s

Watchmaking in this generation was considered to be an art requiring the skills of a

master jeweler combined with those of a mechanical engineer capable of assembling
100 components with utmost care and precision. Watches contained jewels, rubies,
sapphires, etc. and it was considered to be a financial investment often passed down
through generations. They used to be enclosed in precious casings made of gold or
other costly metals and was sold primarily thorough jewelers. Because of the high
cost, rebuy was seldom heard of; as a result watch repair was also a huge source of
revenue generation for the watch manufacturers. The market was dominated by the
Swiss watches and watches made in Switzerland were considered to be of better
quality than the rest. Some of the well-known brands on this generation were
Beaume & Mercier, Longines, Omega, Piaget, Movado, Rolex etc.

 1950 - 1970

This period was marked with the emergence of disposable watches. Timex was the
flag bearer in this respect. The watches were designed very simply, used cheap
exterior which gave the device a strictly functional appearance. Since the watches
could not be opened, the question of repair didn’t exist. The price was also pretty
low because of the lower quality; as a result jewelers refused to sell them, it got sold
through low priced outlets like drugstores and discount houses. At the same time
several Asian companies like Hattori-Seiko and Citizen had taken over their
respective markets specially Japan.

 Post 1970s

This period was marked with the emergence of quartz technology. Being based on
electronics rather than mechanical movements, they had more sophisticated
functionality than their mechanical counterparts. But their accuracy level was that
high only. Theses watches could be priced significantly lower because their
manufacture demanded more automation than labor which was more costly than
automation. Digital watches also came into existence, but analog still ruled the
market which used gold or silver plating to mimic the appearance of the traditional
more expensive watches.
 ROLEX TIMEX SEIKO
Mechanical Mechanical Quartz
Very Expensive Very Cheap Cheap
Sold through jewelers Sold through discount stores Sold through multiple
and drugstores channels
Repairable Disposable Repairable
Labor intensive production Automated/Semi-automated Highly automated system
system system
Investment oriented buy Functional Multi-functional
Beautiful casings made of Exterior made of cheap Gold or silver plated to
costly metals materials mimic a Rolex

The decisions involved in buying a watch changed drastically from the pre 1950s to the post
1970s. In the pre 1950s, decision of buying a watch was based on the concept of making a
long term investment for the family. Gradually, with the introduction of cheaper watches
factors like fashion and looks became equally important. The number of watches possessed
by one person also grew as time progressed. Also customers started giving a lot of
importance to multi functionality than just sophistication.

2. How did Swatch change industry dynamics? What according to you were
the critical success factors for Swatch (list down only 3 factors in the
sequence of importance and also give reasons for the same).

A: When Nicholas Hayek took over SMH after merging SSIH and ASUAG together, the
Swiss watch industry was in tatters. It was obvious that he had to bring about a
breakthrough change in the industry to make it survive in the face of stiff competition arising
out of competitors especially those from Asia. His methods were totally opposite to the kind
of methods that were adopted so far in the Swiss watch industry. Of course it led to a lot of
resistance, but that did not deter Hayek from implementing those changes and needless to
say it succeeded. Some of the major factors that contributed to this success of SWATCH are:

 Cost leadership through automation: Hayek brought down the cost of making
watches by cutting down on labor and focusing more on automation by introducing
the quartz technology. He engineered a process by virtue of which only 10% of the
total cost was contributed by the labor cost. He concentrated on vertical integration
and managed to get the number of components down from 91 to 51. Also he
changed the materials used to much cheaper alternatives like plastic casing and all.
Mass production of watches by implementing these changes brought down the cost
of watches to such a level that it gave the cheaper Asian watches a run for their
money.
  Uniqueness in design: Swatch was the first Swiss watch to concentrate on designs
and selling it as a fashion accessory. Hayek felt that every watch should contain a
message. Their outlandish designs coupled with the use of brash, intense colors
immediately created a niche for itself. Dozens of models were available for each
collection. For some customers it became a hobby to collect as many watches as
possible. Top designers were hired to design watches for Swatch. The entire
positioning followed by Swiss watches till that time was given the boot and the
watches rather than just being a medium of time keeping became an item of fashion.
They ended up capturing the market and customers who never used to buy watches
started buying in huge numbers. The whacky designs coupled with the low price
really set the market for Swatch.
 Connection with the customers through various initiatives: Swatch spent 30% of its
revenue in advertising. Swiss watches lived in a niche of its own. They never really
advertised for the mass market. The high profile advertising campaigns really caught
the whims and fancy of the customers. They spent close to $15m in 1990 and $28m
in 1992 in advertising alone and got enlisted as one of the top 100 advertisers in
European television. The creation of a giant 500 feet, 13 ton model of a Swatch to
launch the brand in Germany was one of a kind promotion in the watch industry.
People really received it well and the numbers of watches started being sold like hot
cakes. They also created the Swatch Collectors’ Club for its ardent fans where they
used to give one collectors’ model of Swatch for free every year. Hayek wanted every
Swatch watch to tell a story of its own and all these initiatives did manage to achieve
that. Swatch customers were intensely loyal and they were always on the lookout for
newer model. The customers really got involved with the brand.

3. SMH was later renamed as ‘The Swatch Group’. What are your views on
this renaming?

A: Under the leadership of Nicolas G. Hayek, the Swatch Group achieved worldwide
renown as the crown jewel of the watchmaking industry. In 1998, SMH (Swiss Corporation
for Microelectronics and Watchmaking Industries Ltd.), founded by Nicolas G. Hayek in 1983
through the merger Swiss watchmakers ASUAG and SSIH, was renamed The Swatch Group.
At the time, both SSIH and ASUAG held a number of well-established Swiss watch brands.
ASUAG had been founded in 1931, SSIH a year earlier through the amalgamation of Omega
and Tissot. SSIH’s principal objective was to market quality Swiss watches. By taking over
companies that produced high-quality movements and a number of lower-end watch
brands, SSIH gradually managed to establish a strong position as a Swiss watch
manufacturer. ASUAG’s mandate was to maintain, improve and develop the Swiss watch
industry.
Neither ASUAG nor SSIH was doing well when Hayek took over. He changed the face of the
company one he took control of its reins. He totally changed the way Swiss watch market
operated. Swiss watches till then catered to only a niche high-end segment. Compared to its
Asian counterparts, Swiss watches were perceived to be of higher quality but of much higher
price. However when Swatch got introduced the entire perception got changed. Swatch
meant ‘Swiss watch’. With breakthrough in technology and automation, Hayek managed to
get the cost down and still maintained the quality of Swiss watches. The newer generation of
consumers could associate themselves more with the kind of watches that Swatch
manufactured and sold. SMH couldn’t generate that perception in the minds of the
customers. The Swiss name in the form of ‘Swatch’ had to stay. Since it was Swatch
specifically that brought about the change while maintaining the quality standards of Swiss
watches, the name got changed to ‘The Swatch Group’ to keep the association alive in the
minds of the customers.

Question – 4

Today the Swatch Group has more than double the number of brands in the
portfolio compared to the 9 brands at the time of the case. How do they
manage to minimize cannibalization between these brands?

Answer-

 Sufficient differentiation has been achieved with respect to each brand on the basis
of Unique Brand Message, Design and Origin.

 Every Watch has a separate TV spot and campaign that reduces possibility of
cannibalization.

 Different brand ambassador for each particular brand because different segments of
customers aspire to align their lifestyles to different celebrities.

 Each Watch owns a separate spot (untouched by any other watch) in the perceptual
map.

 Brand awareness using various Mobile Apps

 Snap Dance
 Swatch Art
 Swatch Collections

 Swatch club helps Swatch fans identify/understand the difference between various
swatch brands. Advantages of being a member of that club are:

 Access to limited Swatch watches

 Invitations to exclusive events and promotions
 Get up close with athletes, artists and Swatch designers
 Access insider news and previews of upcoming launches
 Receive the Swatch Lifestyle Magazine

1. Various collections
  Night Glows Collection
 Deep Shine Collection
 Big Automatic Collection
 Irony Chrono Collection
 New Gent Collection
 The Lady Collection
 Classic Collection
 Lady Plastic Collection
 Dia De Muertos
 Glance Collection
 The Chrono Collection
 Core Collection
2. Novelties

 Chrono Plastic
 New Gent Lacquered
 Swatch Touch

3. Prestige and luxury range

 Breguet – “Symbolizes historical and cultural heritage”

 Blancpain – “Interwoven tradition and innovation”
 Glashütte Original – “German values and quality, Passion and high precision”
 Jaquet Droz – “extraordinary horological masterpieces of Jaquet Droz”
 Léon Hatot –“ express the sentiments and emotions of passionate, free women”
 Omega – “Watch for a successful self-made person”
 Tiffany


4. High range

 Longines – “Elegance: elegance is an attitude”

 Rado - “Trendy- some set trend some follow. Rado is the new direction”
 Union Glashütte – “Philosophy pioneering spirit”

5. Middle range

 Tissot –“ Innovators by Tradition”

 ck watch & jewelry – “Absolute, Contemporary”
 Balmain – “ A world of Elegance”
 Certina – “ Reliability, Precision and Innovation”
 Mido – “A mark of true design”
 Hamilton –“A passion for the sky and the movies”

6. Basic range

 Swatch – “Revolution 51”

 Flik Flak –“Time is Fun”
7. Private label division Endura

Question – 5

In many ways, Swatch forced people to think about watches in a way they
had never thought of before. Can you think of brands in other product
categories that have done the same thing? Bring at least one example to
class.

Answer-

Luxottica World Wide owns 12 Eyewear Brands i.e., Ray Ban, Oakley, Arnette, ESS,
Mosley Tribes, Sferoflex, Persol,Oliver Peoples, Revo, Luxottica, Killer Loop, Vogue.
Almost all of them are market leaders in their particular segments. The way they have
managed to differentiate their brands is almost similar to Swatch. Below are some or
their brands:

 Ray-Ban, the world’s best known sunglasses.

 Oakley, the world’s leading sports optical brand,
 Vogue styles stand out for their innovative design, for the wide variety of colours
and frames and for the fashionable details on the temple of Vogue glasses.
 Killer Loop is a fresh, vital brand for a dynamic young public who are careful
about their look.
 Arnette eyewear of choice, and lifestyle icon, of the 3S generation - surf,
skateboard and snowboard
 Luxottica Titanium, a collection for people who prefer super-lightweight frames
of elegant design.
 Versace is a fashion and lifestyle brand for contemporary men and women who
love glamorous luxury and distinctive personal style.
 Prada “Made in Italy”, Sophisticated, elegant and refined etc.