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The Birth of the Swatch -1-

Case at a Glance
When it comes to electronics, we look for the label ‘Made in Japan’; for wine, ‘Made in
France’; and for watch, ‘Made in Switzerland’. The country where the product was made
gives the perception of quality and value for money for the respective product. For
centuries, Switzerland has been known for its expertise in watchmaking that requires skill
of master jewelry maker combined with artistic micromechanical engineer. Swiss watch
is a global seal that portrays the wearer’s quality, status, and prestige. By 1945, Swiss
watch accounted for 80% of the world’s total watch production and 99% of all U.S.
imports. However, the first wave of turbulence was faced when an American company
U.S. Time introduced a line of disposable watches bearing the Timex brand name. This
was followed by the quartz technology, by which watch companies could reduce their
manufacturing cost and sell at a much lower price. Japanese companies such as Hattori-
Seiko, Citizen, and Casio emerged out of this technology, capturing a greater market
share in Asia and Europe with these low-cost watches. Though the Swiss had pioneered
quartz technology, they paid no heed based on the belief that electronic watches were
unreliable, unsophisticated, and beneath Swiss standards. They were adamant that Swiss
watch had to be made from precious stones, complex mechanical architecture, and very
high priced.

With such skeptical views, the Japanese industries gained more market, while the Swiss’
declined to just 42% in 1970. It was during this time when the two Swiss companies
ASUAG and SSIH merged to form SMH and Nicholas Hayek took over as the CEO.
SMH’s new goal was to capture competitive brand in every price segment in the market.
The strategy was based on vertical integration, decentralized marketing, and portfolio
management. The Swatch was born in 1983 with stylish design, plastic covering, quartz
technology and a very low price of $40. Hayek’s motive was to assign Swatch as an
emotional product with a message – a strong, exiting, distinctive, authentic message that
tells people who they are and why they do what they do. The global success of Swatch
and its brand association revived the sunken Swiss company, and its other products such
as Omega and Rado.

Problems in Swatch and SMH

Even though Hayek was successful to take SMH to greater heights and regain global
market share, Swatch and SMH still faced problems as of 1992, despite its sales of 26
million and cumulative sales surpassing 100 million.

 Swatch Fixed Selling Price of $40: Hayek has considered that Swatch’s 10 years
consistent price of $40 has shown the company’s concern for customer’s value for
money. However, by doing so, SMH has to rely on gross unit sales of Swatch forever.
Though the selling price can remain same, the cost price increases every year. So in
order to achieve a positive net profit, SMH always has to look into increasing volume
sales, or to compensate by increment in price in high-end watches.

 Behind Japan and Hong Kong in Total World Volume: Swiss watches comprise only
18% of total world volume of watches, while Japan has 41% and Hong Kong 20%.
This is primarily due to the fact that most of SMH sales are in Europe and Asia (as

Minesh Rajbhandari [#1311] Marketing Specialization, SAIM, Fall 2009

The Birth of the Swatch -2-

shown in Exhibit 4). It has not been able to capture market in America, Australia, and
Africa, though they have watch designers from these regions.

 Has not Entered Digital Quartz: Though Hayek persisted on using the quartz
technology for the watch, the production has been limited to analog quartz in all low-
end to high-end segments (Exhibit 5). Quartz technology can be used to manufacture
digital watches, which have more functions such as accuracy in milliseconds, alarm,
stopwatches, etc. Japanese companies have heavily invested in digital quartz to
achieve greater market share in total watch volume, while Swiss companies still have
to enter the digital world.

 Swatch Market Share in Single Digit: Swatch had 26 million sales out of world total
of 939 million sales in 1993, giving it a market share of mere 3%. This may have
caused due to SMH’s inability to make significant effect in America, and not entering
the digital quartz watch segment.

 Diversification into Unrelated Areas: Swatch brand has extended to new areas such
as telecommunication devices (pagers and telephones) and automobiles (environment
friendly Swatch concept car). Consumers associate the Swatch brand simply to
wristwatch and nothing else. Just because pagers are wrapped around our wrist and
that has the same quartz technology does not mean they work like watches. Moving
into telecommunication can dilute consumer’s brand association towards Swatch.
Their skills and mastery lies in centuries old craftsmanship of watchmaking and not
automobiles. Here, they will be competing against stable brands such as Toyota and
Honda, who are producing eco-friendly cars as well.

 Increase market share in America: Swiss watch comprised 99% of all U.S. imports in
1945. Their influence decreased with the emergence of U.S. Timex in 1951. Despite
40 years time, they still haven’t gained substantial American market. Most of the
Swatch campaigns were based on European regions only. They should promote such
campaigns in U.S. as well, which is indeed a huge market. The Japanese companies
have marked their presence, but Swiss companies haven’t, thus lagging behind in
terms of percentage of total world sales.

 Move into Digital Quartz: People look for precision in seconds and milliseconds.
Such precision is possible only with digital technology. Japanese companies have
profited from this, while Swiss companies still need to make an entry. Instead of
producing digital pager, they can use the digital technology to produce digital
watches with Swatch brand name.

 Halt Diversification into Unrelated Areas: Diversification into telecommunication

and automobiles under the Swatch flagship should be halted. Otherwise, this will
confuse consumers as to what the brand Swatch should be associated with –
something that tells time, or something that drives us to work?

Minesh Rajbhandari [#1311] Marketing Specialization, SAIM, Fall 2009

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