The Birth of the Swatch 1

Marketing Management, MKT 841

The Birth of the Swatch Case Study

Presented to: Dr. Hossein Eslami Dizeje

By:

Nour Abdul Rahim

Cynthia Melhem

Melissa Gemayel

Vanessa Salem

Sandra Azzi
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I. Summary

Moon (2004) traced the history of the watch industry from 1980 to 1993 to report the rebirth of
Swiss watch industry. His aim was to shed light on Swatch as the best-selling watch in the
history of the watch industry, on the reasons behind its success, on the non-traditional
management and marketing strategies that were used to save the Swiss watch industry from
collapse and on the Swatch extensions to involve distinct and new brands from different fields.

Before 1950, the Swiss were well known for leading the watch industry because of their
Jewellery-making expertise. However, changes in the watch business led to the decline of the
Swiss watch industry. For example, in the US, Timex dominated the watch market in the 1951
because of its low-cost, low price (between 6.95$ and 7.95$) and disposability. In addition, the
introduction of the Quartz technology in 1970 by the Japanese weakened the Swiss watch
industry at a faster pace. The quartz technology imitated the appearance, quality and
sophistication of its counterparts and vended their watches at low price because of their low
cost and massive production.

The Swiss watch Business was monopolized by two large companies. ASUAG started in 1931
and consisted of 100 different companies whereas the private watch company, SSIH, was
founded in the 1980. These companies lost millions of dollars by 1983 and lost their leading role
in the world watchmaking which was taken by the Japanese and Hong Kong watch industry that
was selling cheap quartz watches.

Accordingly, analysts such as Nicolas Hayek and his team joined the two companies and called
it SMH in order to avoid bankruptcy and prevent the Swiss creditor banks from selling their
watch brands to the Japanese. As the CEO of the company, Nicholas Hayek believed that the
SSIH’s problem was due to lack of “strategy, structure, management” etc. He proposed not only
high-end or middle-end product but also a low-end product that is called Swatch, which stands
for “Swiss +Watch”.

Hayek’s used different strategies and target different segments of population to achieve his aim.
SMH launched Swatch in 1983 targeting people from different segments. Few Years later, it was
available in every country and continent because of the following reasons. His team used vertical
integration to assemble the components of Swatch in Switzerland, decentralized marketing to
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promote the brands, and portfolio management to compete with brands in the marketplace. The
firm also targeted young people aged between 15-30 with its low price, attractive unusual
designs, intense colours, and different and constantly new models for every occasion. Swatch
had a unique message because the Swatch team believed that they are not only selling a brand
product but also emotions. Consequently, Swatch customers who were loyal to the brand would
buy more than a Swatch.

Hayek’ team used non-traditional marketing strategies to save the Swiss watch industry from
collapse. SMH’s adopted effective and unique marketing plans and selling locations which
added to the immediate success of Swatch. For example, their ads were endorsed by celebrities
on different media. The company also adopted an unconventional selling approach such as the
veggie swatch line which was sold in fruit and vegetable market places.

Moon concluded that the success of the swatch brand went beyond all expectations. In 1992, the
Swatch became the best-selling watch in history, selling 26 million swatches. The end of the
swatch was predicted many times. However, the brand was always exceeding people’s
expectations. The swatch brand added diving watches and technical watches to its brand and
offered distinct and new brands from different fields such telecommunication and automobile
fields. Eventually, “high quality, low cost, affordability, provocation and joy of life” were the
elements behind the Swatch successful resurgence.

II. In what ways Swatch was different than any watch the industry has ever
seen? How Swatch positioned itself? (Hint: A new way to look at watches)

After Switzerland’s significant drop of the world watch market share in 1983 (to only 15%),
something extraordinary had to be done. SMH took the initiative to redefine the image of Swiss
watches. The design of Swatch is far away from the traditional luxury image of Swiss watches.
Everything about Swatch is different: the design, price, models, promotion, distribution
strategy… The launch of Swatch was a turning point in the history of Swiss watches, and the
watch industry as a whole.

First, Swatch is different than other watches by its fashionable and bold designs. It was wrapped
in cheap plastic unlike the usual highest-quality metals and jewels in traditional Swiss watches. It
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was famous for its outlandish designs, intense colors and bold designs that no other watches had
ever thought about. Swatch also produced limited editions of their designs made by prominent
designers like Kiki Picasso and Alessandro Mendini; some of them were shaped like red chili
peppers, cucumbers, and bacon-egg combos, and surprisingly, they were priced exactly the same
as the regular collections. Ultimately, Swatch positioned itself as a fashionable, youthful,
provocative and stylish brand.

Price was the second surprising component of this new watch. It was priced at approximately
USD 60 in the United States. SMH wanted to compete in all market segments, therefore Swatch
was made to serve the low-end segment which was traditionally omitted by other Swiss watch
companies. Further, it was an unchanging price, staying exactly the same for ten years. Swatch is
affordable and approachable, having a low price and higher quality compared to other cheap
watches.

Third, Swatch differentiated itself by its continuous innovation. It was constantly producing new
collections and new models hit the market on an ongoing basis. This strategy made customers
willing to buy many Swatch watches, and it was stated that an average Italian customer
possessed six. Swatch was also known for its whimsical innovation, being the first to introduce a
see-through watch and a scented watch.

Fourth, just as everything else about Swatch, its marketing strategy was also unusual and
different. It was known for unorthodox promotional stunts like break-dancing sponsorships and
celebrity endorsements, unlike the traditional Swiss brands advertising styles that focused on
more classy advertisements targeting a narrow market segment. For instance, in Germany, a
giant Swatch was suspended outside the tallest skyscraper in Frankfurt. It was crazy, yet it
caught the attention of many people and the message of Swatch was clearly delivered: High
quality, low cost, joyful and amusing.

Fifth, Swatch implemented an unconventional distribution strategy, where it displayed the

watches in nontraditional points of purchases: Shop-in-shops systems, miniboutiques focusing
exclusively on Swatch brand, and fruit and vegetable markets for the Veggie Swatch line.
Further, Swatch opened freestanding monobrand Swatch stores located in high-fashion districts;
these stores were amazingly crowded by customers.
The Birth of the Swatch 5

To sum up, Swatch positioned itself as an unconventional Swiss watch brand: A fashionable and
affordable watch.

III. How did Swatch implement its strategy in terms of 4Ps?

In order for Swatch to compete in the global market, several strategies were to be implemented.

Place: Swatch was sold in department stores, watch shops, and mall stores. Plus it was difficult
to highlight its characteristics and its competitiveness because of the variety of watch brands in
the same shop. The company was being competed from different worldwide brands, they already
lost a huge market shares from the US markets. Once they started their new strategies, they made
secret studies in the States.

Once the brand was launched, it was first in Switzerland, Great Britain and the United states.
After the noticeable success the company started integrating first in Europe example Germany
since based on study conducted it was shown that up to 75-90 % of Europeans will prefer to buy
a Swiss watch even for a 10% increase in the price. The company wanted to expand to all
continents. They brought designers, artists, architects from all over the world to create designs
suitable for everyone, every country, every taste. The company had the reputation, according to
Garel, (2015) Design cannot happen without knowledge, and this Swiss brand had high
reputation and expertise. They added the creativity to create a fresh concept.

The company then found itself in almost every countries and continents.

Unlike the old trend in consumer target- that used to target the classy, upper style customers-
Swatch target were more into young fashionable people. The company focused on colors,
outlandish and bold designs for example the see-through watch and scented watches. Old models
were always replaced by new unpredictable collections, and they were always unique, stylish and
youthful so customers would buy from the new collection. According to Cellich (2012) the
success of Swatch over the years reflects sound management dedicated to modern designs. The
average Italian consumer possessed 6.
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Moreover, the company created a group membership so the top and most loyal customers can be
part of it against a 90$ annual fee. They could get the latest news and information about the
company and the new releases.

Not to forget the high fashioned customers, Swatch focused on them by launching up to 27
monobrand swatch stores located in exclusive districts that supply limited designs.

Product: swatch designs were representing dazzling and colorful styles. It fulfills the needs of
youngsters. It launches new product in very high frequency and specific products for special
events; in addition to the limited edition product or the limited number of designs. So swatch
offers fashionable items with high quality and low price plus the wide range of collections of
watches in order to satisfy more different choices for people.

Price: prices are generally lower compared to watches from Swiss and prices are good for
teenager to afford it plus to some limited versions that may cost above $10,000. So it is very
competitive in the market with a fixed and “Clean” price.

Since the main focus of the Swatch was to build low-priced quartz watch, the price was an
important factor. The brand was to be operated in Switzerland that incurred a high cost. But the
brand was able to slash up to 40 individual parts resulted in low competitive price. Then they
replaced the old cover- usually made from platinum, titanium, gold, metals, and jewels- in
plastic. They achieved the targeted price which was about 40$ in the US. Another feature in
Swatch was that the price was unchangeable despite the huge and sometimes the unmet demand.
Swatch never raised its price and they forbidden its dealers from increasing the prices. Referring
to Cellich (2012) this strategy allowed a vertical manufacturing process thereby benefiting from
economies of scale, better control over quality, and supply chain efficiencies.

Promotion: Swatch products appear in fashion magazines in order to help in attracting the
attention of teenagers, and in addition to fixed product, it offers a series collection to encourage
customers to collect it. Swatch used unconventional method and it focus on presenting unique,
fashion and trendy style which represent “Joy of life”. Swatch had 30% double the industry
average on advertising.

In this way the company carried a unique, emotional message that Swatch is affordable proactive
and doesn’t need too much thinking to buy. They focused on promotions, but not the advertised
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type, instead the emotional type. They focused on the consumer self-image. The customer was to
hold his watch more than 12 hours a day. 30% of the retail price was spent on advertising. The
numbers were 15% millions in 1989-1990 to 28 million $ in 1992. It was the highest watch brand
in advertising. The advertisement were distinguish and non-traditional from break dancing to
celebrity endorsements; they were youthful similar to their target. They even went to hold a giant
Swiss watch in the tallest skyscraper in Germany. People were astonished and many people
wanted it. Even their retail shops were unpredictable; some line was sold in fruit and vegetables
markets. The swatch was kept away from jewelry displays and was sold in boutiques.

IV. How do you analyze the watch market and Swatch’s standing now? What
would you recommend Swatch marketing managers to do?

The Swatch group has announced in 2018 a 70%

increase in profits after periods of worldwide
slowdown with one of the leading factors attributable
to millennials’ increasing demand for Swiss watches
and innovative products regardless of price segment
(Atkins, 2018).

As such, Swatch has great opportunities for success in

today’s market as it is known for its innovative,
youthful, and stylish image that young people are
looking for today. Also, being part of Swatch group gives swatch a huge advantage as it is able
to learn from this wide group’s experience as it leads the Swiss watches market with the highest
market share amounting to 29.1% according to Morgan Stanley Research.

In 2018, Swatch Group in collaboration with Audemars Piguet has revolutionized the whole
watch-making industry with the introduction of a new
technology called Nivachron that optimizes the
resistance of watches in the magnetism filed. The
Group revealed that the first watch to receive this new
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technology is the Swatch brands with the introduction of a new Swatch Flymagic line making the
Swatch brand a true leader in terms of innovation and new technologies (Markl, 2019).

We recommend Swatch marketing managers to focus on marketing this core competence, the
new paramagnetic technology, as it adds to what distinguishes Swatch from all the watches in the
industry giving it a sustainable competitive advantage. As some might argue that Swatch should
take steps to combat the new trend of smart watches developed by Apple and Android, we
believe that Swatch should focus on the new paramagnetic technology as customers looking for
such smart-watches can find them in other brands falling under the Swatch group umbrella
(Atkins, 2018).
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Refrences:

Atkins, R. (2018). Millennials hand Swatch a timely boost in sales | Financial Times. Retrieved
from https://www.ft.com/content/6dad1d40-8a4f-11e8-bf9e-8771d5404543 [Accessed 1 Apr.
2019].

Cellich, C. (2012). Swatch case Study—Commentary. Thunderbird International Business

Review, 54(5), 763-765. doi:10.1002/tie.21498

Garel, G. (2015). Lessons in creativity from the innovative design of the swatch. Technology
Innovation Management Review, 5(7), 34-40. doi:10.22215/timreview/912

Markl, X. (2019). Swatch Flymagic - Inverted Automatic Movement and First Watch with
Nivachron Hairspring (Hands-On) - Monochrome Watches. Retrieved from https://monochrome-
watches.com/swatch-flymagic-inverted-automatic-movement-and-first-watch-with-nivachron-
hairspring-hands-on/ [Accessed 1 Apr. 2019].