Swatch and the Global Watch Industry

1. How did Timex succeed the Swiss as world volume leader in the 1950s and 1960s?

Timex toppled the world dominance of the Swiss by streamlining the watch making process therefore also making the process very scaleable. The Swiss had dominated in an era where very little competition existed. This paved the way for the Swiss and their high cost watch producers to remain dominant as consumers really had no alternative to turn to.

Timex introduced watches using a combination of automation, precision tooling, and simpler design then their Swiss rivals. The Timex movements also incorporated new hard alloy bearings rather than expensive jewels used by the Swiss. All this lead to efficient and effective automation of Timex production lines, further lowering already very competitive costs.

The Timex watches were introduced in 1951 and were priced at anywhere between US$6.95-US$7.95. They were disposable and yet also trendy, stylized, and highly durable. Timex provided (for the first time ever) a clear-cut alternative for the masses in the watch industry. No longer were consumers daunted with a very expensive, "life-long" purchase of a watch.

One main reason for the Swiss success around the world was due to their ability to offer their products through retail outlets such as high-end jewelry stores. Timex faced incredible difficulty in penetrating the retail channels used by the Swiss due to the fact that these channels simply were very reluctant to accept their watches. The reasons for this included the fact that the profit margins associated with the Swiss products were much larger than that of Timex's products. Also, due to the fact that Timex was advertising the fact that its watches are disposable, the retail outlets were then also missing out on a highly profitable watch servicing business. Therefore, Timex's pursuit to overtake the Swiss was not a "walk in the park".

Timex had to innovate and rethink its strategy. Timex decided to launch a massive advertising campaign, first starting with television. They decided to recruit brand "ambassadors" as spokespersons in these advertisements.

Also, to further leverage on the watch's disposable nature, Timex decided to distribute its watches in non-conventional channels such as through drug stores, dept stores, catalog showrooms, etc...

By 1970, Timex had established a marketing presence in over 30 countries and had become the world's largest watch manufacturer in terms of units sold.

2. How did Seiko become the industry leader in the mid-1970s?

Seiko began manufacturing watches in a highly concentrated market, similar to that of the US. Their rise to world domination was incubated first by a government tax levy on imported watches which was as much as 70%.

After establishing themselves in Japan and preparing well for their expansion strategy under the protection of government legislation, they decided to embark on their goals to lead the global industry.

After expanding operations and manufacturing plants in low cost Hong Kong, Singapore, and Malaysia - they quickly rose to world leaders. This was mainly attributed to the fact that they were serving a market with hundreds of millions of unserved, untapped consumers. In this virgin market, they were able to grow at an exponential rate and further bolster their existing operations to spread even further; this time into the west and take on their competitors in Europe and the USA.

1. How did Swatch manage to resuscitate the Swiss watch industry?

Swatch addressed the global problem of plummeting market share by taking the simple strategy to begin serving the mass population of the globe in a more effective way. They finally accepted that their business, as it stands, was addressing a very niche segment of high earners/high spenders.

Swatch now began producing a (relatively) cheap quartz based time-piece that was water and shock proof. This watch also carried a 1 year guarantee. Swatch was now finally a competitor again in the mainstream watch industry.

For others to also follow suit and begin producing inexpensive watches in high cost Switzerland, the dynamics of the actual watch need to be refined and streamlined. Swatch slashed the number of individual parts that a watch required from 91 to 51 and began housing them in an easily mass produced plastic case. With this formula, the Swiss made a breakthrough into the global watch industry by producing high quality, inexpensive watch in Switzerland.

Marketing was also a key area which had to be looked at for Swatch to fully resuscitate the overall Swiss watch industry. To do this for them, Swatch decided that to do it right, marketing should be outsourced to specialists. Franz Sprecher, an independent consultant, helped to transition the image of the Swiss watch from a very expensive, traditional timekeeping instrument to an inexpensive lifestyle symbol and fashion accessory. Swatch followed this lead and also did a good job in producing very trendy watches with very colorful designs. There was a Swatch created for every occasion. This new approach in marketing and manufacturing sealed the deal for Swatch and was an instant hit propelling the Swiss watch industry to the forefront of the watch manufacturing industry.

With the success of Swatch and their new alternative approach to marketing and design, media quickly became very interested. Swatch realized that this was a perfect way to embrace free public publicity. Swatch embraced the media. This hand-in-hand cooperation with the media resulted in lots of free media coverage and publicity. Building on this momentum, Swatch also spent heavily on special events and PR activities and celebrity endorsements.

2. What specific course of action would you recommend to Hayek?

As specific courses of action, Hayek can take several actions to take Swatch from a "top three" producer of watches to the world leader in watch production. Swatch has to do analysis on the overall industry and take decisions on current trends being realized in this industry.

There was a downwards trend developing in mechanical watches. At the same time, there was a general increase (by an average of 11% annually) of analogue quartz watches. By 1998, quartz watches accounted for 97% of the overall industry's production volume. Swatch must embrace this as an indicator of where the demand is and run with it. This is where Swatch must devote its efforts and this is where Swatch will gain maximum returns.

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