Executive summary

The watch industry is in decline, fact. We put this down specifically to the strong time keeping competition – our competition. This not only comes in the form of other watch manufacturers or clock manufacturers, this is from industries totally separate to either of these, and from companies who do not specialise in time. Our competition in the 21st century is from hand held personal electronic devices such as PDA’s, MP3 players and Mobile phones. All these are bought to complete totally separate tasks to a watch, but include accurate digital clocks. These devices have become crucial to everyday life for the majority of the population and, as such, the consumer does not leave home without them.

This is not the only cause for concern. The largest age group – that which we have targeted throughout the existence of Swatch – is getting older, and the younger age groups are far smaller, as couples have fewer children. Our 15-> 24 year old market is growing up and not providing a large enough generation to follow.

Within this declining market, Swatch is suffering from the proliferation of direct competitors, competing in the same specific segments to ourselves. We believe, however, that this is of little concern compared with the threat of complete extinction of the watch industry from the electronic devices mentioned above.

We do not have the expertise to create a Swatch Mobile phone or Swatch MP3 player, and the technology doesn’t exist for us to put these devices within the small confines of a wrist watch. We cannot compete successfully inside these industries and as such, we must collaborate with them, something our strong brand name allows us the possibility to do.

We believe the wrist watch must change, and with our rich history of advancing the industry, we, as Swatch are the ones to do it.

We give you the Swatch remote. A technology that has the ability to work alongside all our products without permanently affecting their appearance. The Swatch remote utilises two existing technologies in Bluetooth and Floating LCD displays. One allows data to be sent to and received from any other Bluetooth device (mobile phones, PDA’s, MP3 players). The other allows this data to be displayed, apparently floating above the watch face, within the glass cover of the watch case, ensuring the beautiful Swatch face is in no way harmed by this addition of digitalisation.

Initially piggy backing on the successes of the ipod, through a collaboration with Apple, an iSwatch will be released allowing users to read song track information and simple wireless control of the device, such as volume control and skipping ability. Following this, the remote wristSwatch will be released, fully compatible with the majority of leading mobile phones and PDA brands, allowing users to read text messages and screen calls from the comfort of their remote wristSwatch.

Situation Analysis

As a member of the Swatch Group, we make up part of the largest and most successful watch conglomerate in the world, accounting for between 22 and 25% of the global watch market value in 1997. Our incredibly strong brand name has been mainly derived from the continued sponsorship of major sporting events around the world, most notably being the official timekeeper at the past three Olympic Games in Atlanta, Sydney, and most recently Athens. Our Swiss roots have also been maintained, reinforcing that positive brand value, as the official timekeeper of the Swiss established Ski World Cup. This association with events where precision timing is essential has helped sustain the technical and functional associations with the brand.

On the flip side, the sponsorship of extreme sports and active gaming events makes Swatch synonymous with adventure and excitement while being cool and sassy within these youthful sporting markets. Swatch are official sponsors of the annual snowboarding “Boarder-X” event, as well as associations within surfing, wind-surfing, wakeboarding, skateboarding, mountain biking, and kayaking. The company is also the main sponsor of the Federation Internationale de VolleyBall (FIVB), the largest international sporting federation in the world, mobilised through the Swatch FIVB World tour.

As well as sponsoring entire sports and sporting events, Swatch also support specific sporting personalities within these disciplines creating the Swatch ‘ProTeam’ – ambassadors of the Swatch brand.

This strong brand image, created and maintained through the factors outlined above, provides a very valuable asset to the firm and one that is not only recognised by consumers but also by other businesses. Envied by many, the Swatch brand image gives us an advantage over our competitors in the business market as it opens up the possibility of developing relationships with other established brands from other markets, something we believe is crucial in today’s ever-changing, technologically advanced, consumer world.

The size of the Swatch Group empire gifts Swatch the capacity and machinery in place to increase production in any sector. This encourages reduction in unit costs. This coupled with the prestigious production location of Switzerland, the legally protected label, "Swiss made", and the resulting connotations of quality, allow us to maintain the brand philosophy “combining top quality with a highly affordable price”.

In today’s highly fashion conscious consumer world self-image is on a par with – if not exceeding – the importance of functionality in everything around us. Watches are no different. Gone are the days when watches were a tool of time keeping, now they are an item of clothing that must fit both the occasion and the rest of the users outfit. As such, consumers, especially females, require and acquire several differently styled watches for different occasions. By focusing on this desire for watches to match outfits, the potential product lines available to Swatch are countless, as is the opportunity for links to be established with various fashion retailers and manufacturers. Unfortunately, the more involved Swatch become with the fashion market, the more risks we face with the volatile nature of the industry.

The watch market is changing with the world, where Swatch once enjoyed market dominance with its range of unique, fashionable, novelty watches, the early 1990s saw sales remaining relatively stable, only increasing by 30% since1986 – there are many reasons for this trend, however, the key issues involve:

•A decrease in the size of Swatch’s target market

•Increased competition – many new firms positioned in direct competition with Swatch

•A general drop in prices

With Swatch moving further along its product life cycle toward maturity, the company relied on an extended product line in order to sustain its growth (producing more than 70 different models per season, with a high variety of limited editions), however, despite the success of these product lines, current trends would suggest that Swatch will begin to see a fall in sales over the next decade as the target market (typical buyers tend to be between 15-29 year olds) decreases.

As the above table demonstrates, the total number of buyers in the European Union market clearly peaks inside Swatch’s target audience of 15-29 year olds in 1993 yet, in contrast, this age bracket sees a dramatic drop in sales projected for 2008. Interestingly, the 2008 curve echoes that of the 1993 curve, with the number of group sales rising to its peak in the 35-39 year old age bracket (the same consumer base from the 20-24 year old bracket in 1993).

The UK market has been singled out in this table to further demonstrate the trend, as is the case with the other countries that make up the EU, the UK’s projected sales for 2008 dip noticeably in comparison to the sales in 1993.

The western world’s aging population must be a concern for Swatch as their main consumer base within the 15-29 year olds age over the next decade, changing their needs, wants, and demands as they do so. The market that remains in the target age group is far less interested in the Swatch brand; they are a text-addicted, internet-loving, technologically aware generation that arguably ‘look down’ on watches given their relatively limited capabilities (why would you need a watch when every electrical device around you tells the time?)

Despite this trend, new firms continue to enter the market. This influx of new competitors, several positioned in directly against Swatch, coupled with the shrinking market are driving down prices significantly. As well as new firms entering the watch market (and current firms expanding), competition also appears in the form of other technological devices, the vast majority of which offer time-management capabilities (such as stopwatches and alarms) as standard. In some respects watches are becoming increasingly redundant as, in the western world at least, there is no real ‘need’ to look at your watch to find out the time – mobile phones, the internet, digital television services and even cars, all allow an individual to find out the time whilst they perform another activity (an ever-present trend in modern society).

As a result of this changing market, it is no wonder Swatch, and its competitors, have had to drop their prices and increase their availability considerably. Swatch have benefited from the large economies of scale they gain with such mass production, as well as the inevitable advancement in technology and production methods – reducing all costs involved in manufacturing. Added to this, they have taken the opportunity to sub-contract machinery to other Swiss watch manufacturers, relieving the pressure on sales.

Key Issues

The most important issues surrounding the future prospects of the Swatch brand name involve that of the increasing level of competition facing the firm, as well the ever changing needs and wants of the target market. Essentially, the Swatch brand name must be evaluated and the key question must be asked – does the brand still hold its unique, novelty appeal?

Whilst the future of the target market does look bleak, Swatch continue to see relatively stable sales, if this trend of stable sales in a declining market continues, Swatch will have effectively been growing in the market – perhaps as a result of other companies leaving, or simply due to the success of the firms own product line extensions. With this in mind, Swatch’s appeal may be as strong as ever, however, as the data above shows, this appeal does not seem to be attracting the younger successors to the current target age bracket with projected sales seeing a decrease of 20% over the next decade.

As European societies move more in line with the wants and needs of an aging population, the current marketing strategy at Swatch will become far less effective. Assuming the current trends in the market are maintained, Swatch may need to re-position itself further away from the wealth of similar competitors, more toward the prosperous metal watch segment (which is only being covered very lightly by the Irony product).

The research presented to us on Swatch suggests that the brand exists at the low priced end of the watch market, away from the more functional Hong Kong brands and edging closer to the prestigious stylised market where other traditional Swiss brands reside. Although our perception of the Swatch brand was originally one of a more high quality, exclusive brand, it is clear from the novelty, plastic nature of the current product line that Swatch do, in fact, deliberately position themselves in this segment of the market.

Whilst this tactic has proven successful in the past (and arguably continues to succeed as sales remain stable), the dominance of the world market by traditional Swiss brands, coupled with the success of Japanese and Hong Kong imports, as well as the emergence of a new market made up of licensed metal sport watches, illustrates the fact that Swatch could potentially achieve more (in terms of profitability)  if they were to re-position themselves into these markets (perhaps under a new business name to avoid any brand image confliction, following in the footsteps of Timex who cover a much wider area of the watch market by controlling several different brand names aimed at various different market segments).

Research into the product positioning of Swatch in comparison with other major brands in the segment echo the low-price image the firm has established, interestingly however, the study also places the product line very close to the sporty end of the market (with ‘conservative’ being the opposite end of the scale) – a perception we were not aware of. Certainly with the emergence of the new licensed metal sports watch market, within which many of the key global sports market firms (Addidas, Nike, Puma, etc) reside, will increase the level of direct competition on Swatch. Despite the established brand name and previous success, this new market could prove devastating for Swatch, as, not only will the firms entering the market appear more reputable (with regard to sports knowledge and experience), but they will also appeal to the growing metal watch market – a market Swatch has very little involvement in. However, the value of the Swatch name must not be forgotten as it could prove to be the company’s greatest asset following any re-positioning effort.

Whereas firms such as Seiko and Citizen are able to dominate the extreme end of the ‘sports vs. conservative’ positioning scale by providing technological innovations that Swatch can not offer (due to the advent of analogue quartz watches), such brands would find it nigh-on impossible to re-position into this metal watch market without a very effective marketing strategy due to their weaker brand power (Essentially this could be seen as a East Asia vs. Europe issue where East Asia represents the cheap but technologically advanced segment, and Europe represents the traditional, high quality segment)

The strength of the Swatch brand name is partly a result of the many Swatch stores across the world (ranging from the western countries you would expect to find, right across to less economically important countries such as Algeria, Guatemala, and the Republic of Yemen). Having stores solely devoted to the brand immediately provides a certain level of prestige amongst customers and, perhaps, a higher perceived price as a result. These positive associations with the brand contradict the current positioning, gifting the company the scope to re-position quickly and effectively.

Yet it may not be necessary for a full re-positioning strategy as, whilst the European population ages, the Asian market continues to boom with a youthful population. Indeed, the above conflict between East Asian and European brands could benefit Swatch as their original marketing strategy may prove highly successful in these new markets, contrasting the East Asian strategy in those markets, and potentially allowing them to dominate the untapped markets of less developed countries.

Ideas

As we have shown there are several key issues for Swatch to consider with regard to the future of the firm, the following recommendations plan to tackle these issues in order to aid the continued success of the Swatch brand. These recommendations are born from the key issues previously discussed including:

•Paranoia and fear in terms of safety of ones self and family has grown dramatically, meaning people now like to know where their loved ones are at all times

•The largest market age group is growing older – the teen market we built our brand on will be 30 to 39 year olds in 2008

•Global youth market is in decline

•Electronic devices such as PDA’s, MP3 players and mobile phones have become crucial life items and all clearly display the time.

We believe the following to be viable options for the future of Swatch, the opportunities we believe are best for Swatch are discussed in detail further on.

•Move away from the declining youth market in Europe and into the growing East Asian market

•Move out of the consumer goods market and concentrate on the corporate route in two key areas;

oPrecision timing for electronic devices, and CPU’s

oDongle devices, such as electronic keys, taking technology from the ski lift passes incorporated in the Swatch ‘Snowpass’ watch

•Leave everything as it is and milk as much from the declining market as possible to avoid fighting a lost cause

•Investment in new product development

oUtilising Bluetooth to connect devices with watches

oGPS transmitters within watches to allow parents to track children’s whereabouts

•Gain licences to sell under the banner of other brands such as Billabong, as Timex have done successfully with the likes of Timberland

Recommendations

We believe that the mobile phone is our biggest competitor by far as it becomes a universal device removing the need for many other products such diaries and cameras, and includes time-keeping. We believe the watch will die out no matter how attractively it is designed, and as such, fashion issues will ultimately become redundant.

Swatch has always tried to lead the market in terms of technological advances and we believe it is this tradition that will allow Swatch to remain profitable despite the extinction of many other watch companies in the dying watch market.

Picture the scene, a young professional has left the confines of the office for the warmth of the summer sun to enjoy a lunch made up of a Pret A Manger Turkey, Sausage, Sage & Onion Baguette with a Starbucks cup of Decaf Mocca Java. Just as she is queuing to pay for the coffee she receives a text message to her mobile phone, deeply lodged within her handbag. With the bagged baguette and coffee in one hand and purse in the other she fumbles through her handbag to find the elusive mobile, but, devastatingly, as she digs deeper within the bag she looses concentration and spills some of the boiling hot Decaf Mocca Java down her skirt and onto her suede Prada boots.

Or at least this used to be the case, as we pick up the story as the text message arrives…

With the bagged baguette and coffee in one hand, she rotates her purse laden hand and watches as the message is slowly scrolled through on an LCD display floating above the traditional looking chronometric Swatch clock face.

We at Swatch don’t do mobile phones, we have no experience in the market place, and the market place has no room for us. Equally, mobile phones have no experience of being anywhere near as compact as a simple wrist watch, so how can our visionary scene become an ever present event?

Our new Swatch does not do away with the mobile phone, people have become too attached to them and the technology cannot accommodate anywhere near such a small device. Instead we see the Swatch becoming the middleman between user and device, a Universal Personal Remote Control, harnessing the ability of the wireless data transmission technology of Bluetooth. This allows the swatch to stay highly compact whilst bringing the main functions of the devices to the user – the swatch is simply a Bluetooth receiver and display.

The display unit will be hidden when not in use allowing the user to appreciate the Swatch design how they always have. This is achieved by using a floating LCD which appears in the glass above the traditional watch face and hands. This technology was first implemented by Casio in their 1995 watch Twincept, but since then has apparently not been used. The technology is ideal for our purposes as it will only affect the aesthetics of the watch when the “remote” function is ‘awoken’.

Our vision is not limited to mobile phones. And it is the Apple ipod which we believe is crucial in the launch of this new technology.

The Swatch remote would allow for only basic track navigation in order to maintain the small size and appearance people expect of watches and therefore only a maximum of three buttons is recommended. These would operate as

1.Skip forward one track

2.Skip backward one track

3.Play/ pause

In keeping with the ipod system, we believe that replicating the highly innovative scroll wheel through a rotating bezel to control volume (and possibly, in the future, a far more sophisticated track navigation) would be a very useful addition, although this may initially cause problems with waterproofing.

The strong brand name of Swatch gives us the edge over many competitors, especially in terms of innovation. We believe our history and philosophy match similarly with those of Apple - both strive for top quality products whilst maintaining low competitive prices and both are highly innovative and ambitious in terms of design. With such a powerful brand image, our well established name will undoubtedly allow us to approach Apple with a realistic hope of securing a contract to be an official partner to the ipod.

We recommend this collaboration should have a greater priority than with mobile phones, and should be seen as the initial phase of the new Swatch strategy. In the present market, the success, strength, image and exclusivity of the ipod are so enormous that this association will significantly help in the release of our product. Piggy-backing on the ipod will help gain credibility for a device being released from the already trusted name of Swatch. We will also benefit from the technology enthusiasts and visionaries that make up the majority of ipod owners, whose personality traits encourage early adoption of new products and technologies.

Following this strong introduction, we can begin to realise our mobile phone aims. The ipod collaboration will introduce the possibilities into the consciousness of the consumer and will make the release of mobile phone compatibility accepted with little to no concerns or reservations from consumers.

Our Swatch remote addresses the two main threats and problems we have become aware of. It is an idea which, rather than challenging the competition within the watch industry, accepts defeat and works alongside these challengers, totally rejuvenating and revolutionising the concept of the wrist watch. We also resist cannibalising our product range as the floating LCD technology can be incorporated into any standard watch without affecting the designs Swatch creates. We maintain everything Swatch has built up and everything it stands for whilst ensuring the firm continues trading for many years to come – at the centre of the consumers’ electronic world.