The Birth of Swatch free essay sample

The continuous decline in demand for the prestigious watches made in Switzerland in the 1970s and early 1980s made the time period devastating for the Swiss watch industry. Before the decline, it was master of the watch market, shining with its high-end image. However, with the evolution of technology in watch making, the market began changing rapidly where low-end watches were becoming more accessible and evasive. Nicholas Hayek became the CEO of Societe Suisse de Microelectronique et d’Horlogerie (SMH) when he merged the SSIH and ASUAG. He revived and made the Swiss watch industry flourish through the introduction of Swatch, which became the best-selling watch in history. This success was driven by innovation in product and price strategies, as well as SMH’s attention to the surrounding market. Product and Pricing Strategy – Wise Decisions The unexpected introduction of an affordable and trendy Swiss-made watch – Swatch – took the watch industry by storm in 1983. We will write a custom essay sample on The Birth of Swatch or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page It is believed that the company’s tradition-breaking product and pricing strategies are the factors that led to their phenomenal success, these strategies were highly agreeable for several reasons. First, Swatch’s unique strategic approach to the product design was innovative unlike anything that customers have ever seen. Consequently, this contributed to the regain of a huge portion of SMH’s market share in the watch industry. In order to compete with the fast growing Asian competitors, the birth of Swatch penetrated the stereotypical image of a â€Å"Swiss-made† luxury time-keeping instrument. Introduced with a sense of style, Swatch offered a wide range of collections. Encased in plastic, Swatches featured groundbreaking designs that were â€Å"youthful, provocative, stylish and yet unpredictable†. Like a stream of fresh air, the pioneering designs successfully drew customers’ interest and love for Swatch. Second, Swatch ensured that the designs attracted a broad range of consumers by establishing a specific â€Å"Swatch Design Lab† based in Milan – the world’s fashion capital. This decision was favorable because it met the customer’s demand for continuous innovation. The design lab was responsible for distributing two new collections of styles each year, each collection included 70 different styles. The company invited industrial designers, architects and artists from around the world to help generate exciting and new ideas to present to their customers. Consumers were delighted and fascinated by the new models that rolled out in a fast pace, and found themselves purchasing one Swatch after another due to their attraction towards the different designs. An average Italian Swatch lover possessed around 6 of Swatch’s products and this drove the Swiss company into a highly profitable position. Third, Hayek’s vertically integrated product line management was favorable because it reduced cost and thus increased profits. Their focus on keeping direct labor below 10% of total cost was an essential part of the vertical integration decision. From manufacturing components to assembling parts together, every step of production was done within Switzerland. The â€Å"made in Swiss† label continued to give Swatch a sense of quality and enjoyed a superior image compared to its competitors. Lastly, Swatch’s pricing strategy is agreeable because it kept the product image approachable as well as affordable. Franco Bosisio emphasized the importance of a â€Å"clean price†, meaning it’s simple and unchanging. Swatch forbids dealers to raise the price and they have never increased the price no matter how much the demand grew. This pricing strategy is unique and clever in that it differentiates Swatch from other products. Swatch is endowed with not just an affordable price, but an approachable image that the customers depend on. This also facilitates impulse buying, as customers do not think too much when buying their third, fourth or fifth Swatch for its innovative design. Given the huge demand for Swatches, particularly for certain models, the company did not make a mistake in not raising the price. This decision ensures a positive relationship with the customer, which in turn ensures long term growth. If Swatch increased prices, perhaps the profits would increase in the short run, however, this decision would greatly interfere with Swatch’s image in the long run. Their approachable image becomes inconsistent if customers see that they raise the prices for popular watches, showing that their ultimate goal is to increase profits, as opposed to truly caring about the customers when selling this emotional product. Hayak’s argument Hayak argues that â€Å"We needed at least one profitable, growing, global brand in every segment [of the market] – including the low end†. We agree with this statement, but under certain conditions surrounding SMH – the declining profits due to retreating, the changing market, and the need for different brand images. First, the decision to expand rather than retreat was agreeable. In the early 1980s, watches sold below $100 were selling 450 million units worldwide, with Switzerland having no market share at all. Switzerland continued to persist in producing its high-end watches, selling 8 million units worldwide with 97% market share. In the 1970s when the low-end watches were booming in sales, the Swiss reacted by retreating. The more Swiss retreated, the more the Japanese expanded. Hayak’s decision to retreat no longer is correct because retreating in reaction to competition was driving down the profits as well as company growth. In order to broaden the market presence of SMH’s products, while not damaging the high-end image of other Swiss products, a separate brand should be developed for each segment, including and especially including the low end which is expanding at an accelerating rate. Second, a strong growing company should continue to develop their products and brands to adapt to the changing needs of different customers, instead of continuing to develop their initial product neglecting the changing market. Prior to the 1950s, the Swiss dominated the watch industry because of their centuries-long history of jewelry-making expertise. Also, watches were often considered to be a financial investment or fine heirlooms. They were made from precious metals and thus not accessible to ordinary people. The Swiss excelled in providing to these customers. However, after the emergence of quartz technology, watches were not only affordable by high-class people any longer. The market was beginning to be segmented as the production of watches increased. There were three major price segments for low-end, middle, and high-end watches. If SMH continued to ignore the growing and changing market demand and continued to produce only high-end watches, their loss would have been worsened. By 1983, both ASUAG and SSIH were losing millions of dollars and Switzerland’s unit share of the world watch market fell to less than 15%. Thus, a brand that tailored to each segment of the market would ensure SMH’s growth and profits as the segment that they were focused on (high-end) was beginning to decline in comparison to the growing low-end segments. Lastly, it is important for each brand to be different to ensure different messages. As Hayak stressed in his statement, a different brand would be needed in â€Å"every segment†, where the distinction among them is vital. In the high price sector, SMH offers Longines and Rado, as well as its flagship brand Omega. However, in the early 1970s, Omega aimed to increase its sales and decided to decrease its price. This mixed Omega’s image with the middle price segment watches. Omega was everywhere: high price, medium price, precious metals, cheap gold plating †. Omega lost its original high-end elite brand image with this price adjustment. Thus, this suggests that one brand, once it stands for a certain segment and message, should not try to tap into other segments because the mixed message will confuse the customers and eventually loose them. Instead, if the company wishes to expand into a segment, another brand with a separate and distinct message should be developed to keep each brand image clear. This achieves the company’s goal of expansion to different segments, but ensuring at the same time, the distinctiveness of each brand in the segment. Therefore, given the various conditions that surrounded SMH – the declining profits due to retreating, the changing market, and the need for different brand images – we agree with Hayak’s argument. Swatch and Wii – Changing How People Think Swatch enabled people to think about watches in a way they had never thought of them before. Similar to Swatch, the invention of Wii changed people’s perception of video games in a way never imagined. The video game industry is an industry driven by continuous technological development, which can make or break even the most established developers. Sony, Microsoft, and Nintendo are the three largest competitors in the market. Nintendo’s Wii competes with Sony PlayStation 3 (PS3) and Microsoft Xbox 360. The Wii was first introduced on November 19, 2006, during the seventh generation game console era, which includes consoles released between late 2005 to early 2012. PlayStation 3 and Xbox 360 were designed for â€Å"hardcore† gamers, each product focusing on the intense technological development for people who play video games frequently. Both have inarguably superior technology compared to Wii in terms of graphics and other aspects attractive, as well as vital for the passionate gamer. However, Nintendo examined the market and wanted to change the video game experience. Shigeru Miyamoto, Nintendo’s game designer, envisioned a console that transformed player interaction. He stated in an interview that â€Å"power isn’t everything for a console. Too many powerful consoles can’t coexist. It’s like having only ferocious dinosaurs. They might fight and hasten their own extinction. † Nintendo recognized and accepted the fact that powerful manufacturers, such as Sony and Microsoft, excel at the technology they develop and the people they cater to within the industry. Thus, it decided to examine the broader market, which consists of many people who do not play video games at all, or only casually. Their goal was to penetrate a new market with the untapped broad based audience. Figure 1 shows how each product positions itself within the market. Figure 1: Product Positioning of Game Consoles In order to tap into the casual gamers’ market, the product must have high accessibility, good value and appealing gamer interaction. Wii’s tagline is â€Å"Social and family friendly, Wii has something for everyone†. It places emphasis on its motion-controlled, active play functions. The Wii remote is wireless and can be used as a pointing device which detects movement from three dimensions. This engages the player in a way like never before. For instance, the remote enables someone to play tennis or boxing right in the vicinity of his/her home. It is marketed as the ultimate gaming experience for everyone, whether 95 or 5. It includes everything from fitness, sports, racing to adventures and yoga. Similarly, Swatch had a unique message and it was sold as an emotional product. Wii’s unique message is that it’s social and family friendly, appealing to its customers on an engaging and emotional level. Nintendo Wii also highlights the family fun experience at an amazing value. For a 20GB console, PlayStation 3 is sold for $499 USD and the Xbox 360 is sold at $399 USD. On the other hand, Wii is sold for $249. 99 USD. The Wii is priced at a level more acceptable for the broader audience who do no wish to spend that much money because they do not need or seek the advanced technology offered in PlayStation 3 and the Xbox. The pricing strategy for Swatch was to give a quality watch at a casual and acceptable price. Wii is similar in that it offers a fun experience at an affordable price for families and individuals. Most importantly, Wii is similar to Swatch because they both changed the way people thought of a product. Wii changed the general audience’s perception of video games. For instance, people never thought that they can bring the outdoor experience of playing tennis into the realm of their own homes. Most families can now enjoy video games as a family activity. The invention of Wii changed the definition of video game playing, where it expanded to incorporate a more broad and interactive experience. As of March 2010, Wii leads the generation with 49% of the total market share, dominating the Xbox 360 and PS3’s market shares. Like Swatch, a product that constantly releases different collections, Wii is continuously expanding and developing its product to meet the different needs of its customers (e. g. Wii Fit and Wii U). Watchit – A New Sub-Category of Watch Swatch has become a fashionable wear amongst people, especially young people, across the world since its release in 1983. The success of Swatch is rooted in its radical innovation and design which met its customer’s needs. Today, customers’ needs and desires are constantly evolving. Consequently, the products must evolve with the changing customers’ needs in order to stay competitive. Our group believes in a brand new category of watch catering to the needs of business people and commerce students. We decided to name the brand â€Å"Watchit†, alluding to its many functions that the user can â€Å"watch† other than the basic time function. In the development of Watchit, we designed a questionnaire (see page 14) to survey the usefulness of 5 potential functions that could be incorporated into Watchit, alongside showing time. The 5 functions are schedule reminders (vibrate to remind), financial market indicators (e. g. stocks information – vibrate when gold drops or rises to a certain point), walkie-talkie, USB, and GPS navigator. Most students who participated in the survey are pursuing a finance specialist (RSM230 and RSM330 are finance courses). This may contribute to the stock function having the highest 5. 826 point. However, 5. 826 is a score that indicates the high appeal of the function to this finance segment, which may be worth implementing into Watchit. The users can check the latest information of the stocks, bonds, futures, options, gold and silver they invest through six small hot keys on the watch and the watch will vibrate to remind them when these financial products and precious metals increase or decrease by a special percentage chosen by the user, such as 1% and 5%. This function is predicted to be very popular among the finance students, bankers, financial advisors, traders and investors. The watch function of checking daily schedule and special events reminders received the second highest score, which indicates its potential for development. It is highly applicable to both students and businessmen. Thus, we decided that it’s a function that should be considered for Watchit. Although the walkie-talkie function received around 4 points, the increasing use of phones may drive the need for walkie-talkie down and more research should be conducted to test this hypothesis before making it a part of Watchit. The GPS navigator function will also not be considered for Watchit because it received the lowest score (1. 913 points), which shows that people do not find that function useful. The high cost of producing a small watch with GPS navigator is another important reason for abandoning this function. The response for the USB function is highly opposing. Nearly 20 people graded more than 5 points and at least 15 people gave less than 2 points. However, due to the risk that arises from this large disagreement in opinion, further research should be conducted before considering this function for launch. After consideration, Watchit would be a new sub-category of watch that targets business students as well as businessmen. It will include 2 functions – the stocks indicators and schedule reminder. (The preliminary design draft of the watch can be found on page 15) As evidenced in the research conducted, Watchit has a high potential of taking the industry by storm, just like Swatch did in 1983. This high potential arises from the fact that the business world is ever-expanding and there is a growing demand for technology to match the needs of these businessmen. For instance, the popularity of Blackberry among businessmen was largely due to its ease of use when sending emails, as well as other functions. The growing financial sector of the economy may find Watchit to be highly useful. The future working people in the business world are mainly current business students, who favor the two functions provided. Therefore, with the expanding financial industry and the concrete evidence provided in the research, it would be highly possible for Watchit to take the industry by storm. Swatch continues to thrive in the watch industry with its innovation and unique designs. Hayek’s bold and innovative vision changed the mentality of the watch industry, and should serve as an example for any other industry. After all, innovation ultimately drives change for the benefit of the future of our society.