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Javier Fungairino

Spencer Rosen. Javier Fungairino. Antonio “Chuck” Paguio. Guillaume Beck. Sophia Liang. History Swatch Today Industry Analysis Financial Position Our Proposal. Agenda. History. Swatch Today. Industry Analysis. Financial Position. Our Proposal.

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Javier Fungairino

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  1. Spencer Rosen • Javier Fungairino • Antonio “Chuck” Paguio • Guillaume Beck • Sophia Liang

  2. History Swatch Today Industry Analysis Financial Position Our Proposal Agenda History Swatch Today Industry Analysis Financial Position OurProposal

  3. 17th~mid 20th Century: Swiss brands dominate the world market Rolex Traditional Swiss brands Swatch Seiko, Citizen 1984: Launch of Swatch 1950s~1970s: Seiko, Citizen, Casio re-invent the industry: Analog and digital quartz technology Cheap digital quartz watches from Hong Kong Cheap HK brands Development of World Watch Market Prestige, Design, Exclusivity History Swatch Today Industry Analysis Low Price High Price Financial Position OurProposal

  4. 1970s Crisis in the Swiss Watch Industry History World Market = 500 million watches Swatch Today World market Swiss Share (%) (%) Luxury 8 m 1 97 Industry Analysis Middle Range 3 42 m 9 Financial Position Low Range 0 450 m 90 OurProposal Swiss watches = Jewelry = Life time investment

  5. COMPETING ON PRICE History Benefits Swatch Today Price Industry Analysis Fixed Cost Financial Position Variable Cost Swiss JapaneseHong Kong OurProposal Swiss direct labor > 30 % Total cost

  6. Hayek’s 4Strategic Recommendations (1980) History • Technological innovation • Vertical integration • Expansion of production • Compete in all watch segments Swatch Today Industry Analysis • Strategic Intent • compete in high volume market • control quality and costs Financial Position OurProposal

  7. Watch Unit Production Cost History Benefits Swatch Today Price Industry Analysis Fixed Cost Variable Cost Financial Position JapaneseHong Kong Swatch Swiss OurProposal Swatch charged “Swiss-made” premium but operated at similar costs as Japanese and Hong Kong competitors

  8. The Swatch Value Chain THE ONGOING CHALLENGE FOR SWATCH History High quality, high value Margin Mass marketing of individualized products Low costs despite high wages in Switzerland Swatch Today Outbound Logistics Marketing&Sales InboundLogistics Operations Service Margin Industry Analysis Vertically Integrated Fast moving Fashion Watch Seasonal Non-conventional Marketing Olympics, F1 Internet Time Fashion Shows Financial Position All in Switzerland Highly automated Economies of scale OurProposal

  9. Swatch TodayMarketing Mix: The 4 P’s History Swatch Today Industry Analysis Financial Position OurProposal

  10. Price US$ +500k Blancpain Omega Rado 600 Longines Tissot Certina Mido Hamilton 110 Pierre Balmain Swatch Flik Flak 40 PRODUCT & PRICE Swatch groupWatch sales History 44% 60% 10% Swatch Today Industry Analysis 14% Financial Position 42% OurProposal One profitable growing global brand in every segment

  11. PRODUCT: From Low-end to Mid-market • From Plastic to Metal • Unconventional product • Life Cycle Extension • Emotional product“Always new, Always different” History Swatch Today Industry Analysis Financial Position OurProposal

  12. PLACE: Swatch’s distribution network History Swatch Today • Brick & Mortar • Swatch Store • Swatch Megastore • Online Store but only for limited markets • limited customization on Internet Industry Analysis Financial Position OurProposal f A1-Misc-Basic Slide Formats-

  13. PROMOTION • Unconventional promotion • Olympic Games Official Timekeeper • Online expansion SIT (Swatch Internet Time ) • Swatch Club – Customer Loyalty & Following History Swatch Today Industry Analysis Financial Position OurProposal

  14. IndustryAnalysis History Swatch Today Industry Analysis Financial Position OurProposal

  15. Followers competing in the same segment as Swatch, (Benetton, Guess, etc.) Rolex Licensed metal sports watches (Adidas, Puma, Fossil, etc.) Traditional Swiss brands Seiko, Citizen More local brands in emerging markets, i.e. China and India Cheap HK brands Development of World Watch Market Prestige, Design, Exclusivity History Swatch Today Swatch Industry Analysis Low Price High Price Financial Position OurProposal

  16. Swatch Group sales revenue in China is high but volume is low Top 10 Brands in China (unit) Top 10 Brands in China (value) History Swatch Today Industry Analysis Financial Position Domestic Brands The Swatch Group OurProposal Source: China National Commercial Information Center, 2001

  17. Major Competitors in the Global Mass Market History Swatch Today Industry Analysis Financial Position 73% of Swatch Group’s total sales come from watch sales OurProposal

  18. Emphasizing TECHNOLOGY Fossil MSN Direct Fossil WritstPDA Casio GPS Pathfinder Timex Bodylink Citizen Eco-Drive Trends • Emphasizing FASHION • - Swatch: Calvin Klein • - Seiko: Nike • - Timex: Nautica, Guess? • Fossil: Burberry, Emporio Armani, Diesel, DKNY History Swatch Today Industry Analysis Financial Position OurProposal

  19. IncreasingADVERTISING • - Brand ambassador • - Sports event sponsorship Trends (cont’d) • Swiss target HIGH END/ LUXURYMARKET • Average unit price of export watch by country (in CHF), 2003 History Swatch Today Industry Analysis Financial Position OurProposal

  20. SWOT of The Swatch Group • Expertise in core technology • Vertical integration • Brand equity • Distinctive segmentation • Economies of scale • Low market share in mid-market • Marketing not localized enough • Lack of IT-converged products History Swatch Today S W Industry Analysis T O • Competitors produce in low-cost countries • Oversupply of watches in the global economy • Mid-range market • Super low-end market for developing countries Financial Position OurProposal

  21. FinancialPosition History Swatch Today Industry Analysis Financial Position OurProposal

  22. Swatch ROE is Superior History Swatch Today Industry Analysis Financial Position OurProposal

  23. Margins are superior History Swatch Today Industry Analysis Financial Position OurProposal

  24. Rebound & Recovery Market shows signs of recovery History Swatch Today Industry Analysis Financial Position OurProposal

  25. -7% Group Sales have slowed down History Swatch Today Industry Analysis Financial Position OurProposal

  26. History Our Proposal Swatch Today Industry Analysis Financial Position OurProposal

  27. Recommendations History 1. Target the Mid-Market Segment Swatch Today COMPETITION 2. Create “Super Low-End” Brand Industry Analysis CHINA INDIA BRAZIL Financial Position OurProposal

  28. Target the Mid-Market Segment History • Create mass customization via the Internet • - localize sites • - design your own watch online • - purchase watches online Swatch Today 2. Change “Swatch The Club” to promote loyalty - strategic alliancewith airlines: frequent flyer miles - link with ClubMed and resorts - award Swatch points, e.g.- thru Olympics Industry Analysis 3. Invest more heavily in R&D, IT convergence - memory stick watches - GPS watches - watches with cameras - PDA watches Financial Position OurProposal

  29. Research Creating “Super Low-End” Product History • Develop cost reducing operations improvements Swatch Today 2. Explore producing outside Switzerland, e.g.- China, India 3. Research cost reductions in raw materials Industry Analysis Nearly 5 billion people of the world’s 6 billion population are considered poor, earning less than US$20,000 per year. The key to success in these markets, such as India and China, is providing super low cost products in high volumes. - C.K. Prahalad Financial Position OurProposal

  30. Forecast for the Future 1. Target the Mid-Market Segment History 2. Create “Super Low-End” Brand Swatch Today Forecast +2% year over year in watches Forecast -0.5% year over year in movements Industry Analysis Financial Position OurProposal

  31. Q & A “Time is what you make of it.”

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