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Javier Fungairino
Antonio “Chuck” Paguio
Guillaume Beck
Sophia Liang
Spencer Rosen
Agenda
• History
• Swatch Today
• Industry Analysis
• Financial Position
• Our Proposal
OurProposal
History
SwatchToday
IndustryAnalysis
FinancialPosition
Development of World Watch Market
Low Price
High Price
Prestige, Design,
Exclusivity
Rolex
TraditionalSwiss brands
17th~mid 20th Century: Swiss brands dominate the world market
Swatch
1984:Launch of Swatch
Seiko, Citizen
Cheap HK brands
1950s~1970s:Seiko, Citizen, Casio re-invent the industry: Analog and digital quartz technology
Cheap digital quartz watches from Hong Kong
OurProposal
HistoryHistory
SwatchToday
IndustryAnalysis
FinancialPosition
1970s Crisis in the Swiss Watch Industry
Luxury
Middle Range
Low RangeOur
Proposal
HistoryHistory
SwatchToday
IndustryAnalysis
FinancialPosition
1
World market
(%)
9
90
97
Swiss Share
(%)
3
0
World Market = 500 million watches
450 m
42 m
8 m
Swiss watches = Jewelry = Life time investment
COMPETING ON PRICE
Swiss
Benefits
Price
Fixed Cost
Variable Cost
OurProposal
HistoryHistory
SwatchToday
IndustryAnalysis
FinancialPosition
JapaneseHong Kong
Swiss direct labor > 30 % Total cost
Hayek’s 4Strategic Recommendations
(1980)
• Technological innovation
• Vertical integration
• Expansion of production
• Compete in all watch segments
Strategic Intent • compete in high volume market• control quality and costs
OurProposal
HistoryHistory
SwatchToday
IndustryAnalysis
FinancialPosition
Watch Unit Production Cost
Swatch
OurProposal
HistoryHistory
SwatchToday
IndustryAnalysis
FinancialPosition
Swiss JapaneseHong Kong
Benefits
Price
Fixed Cost
Variable Cost
Swatch charged “Swiss-made” premium but operated at similar costs as Japanese and Hong Kong competitors
Vertically Integrated
All in Switzerland
Highly automated
Economies of scale
Fast moving
Fashion WatchSeasonal
Non-conventional Marketing
Olympics, F1
Internet Time
Fashion Shows
The Swatch Value ChainM
argin
Marg
in
InboundLogistics
Operations OutboundLogistics
Marketing&
Sales
Service
High quality, high value
Mass marketing of individualized products
Low costs despite high wages in Switzerland
THE ONGOING CHALLENGE FOR SWATCH
OurProposal
HistoryHistory
SwatchToday
IndustryAnalysis
FinancialPosition
Swatch Today
Marketing Mix: The 4 P’s
OurProposal
History
SwatchSwatchTodayToday
IndustryAnalysis
FinancialPosition
LonginesLongines
TissotTissot
CertinaCertina
MidoMido
HamiltonHamilton
Pierre BalmainPierre BalmainSwatchSwatchFlik FlakFlik Flak
RadoRadoOmegaOmega
BlancpainBlancpain
Swatch groupWatch sales
14%
42%
44%
PRODUCT & PRICE
60%
Price US$
40
110
600
+500k
One profitable growing global brand in every segment
10%
OurProposal
History
SwatchSwatchTodayToday
IndustryAnalysis
FinancialPosition
PRODUCT: From Low-end to Mid-market
• From Plastic to Metal
Unconventional product
• Life Cycle Extension
Emotional product “Always new, Always different”
Swatch Extension of the Product Life Cycle
0
5
10
15
20
25
30
83 84 85 86 87 88 89 90 91 92 93 94
Mill
ion
Uni
ts
Stop Swatch
Automatic
Scuba
Chrono
Pop Swatch
Standard
OurProposal
History
SwatchSwatchTodayToday
IndustryAnalysis
FinancialPosition
A1-Misc-Basic Slide Formats- 12f
PLACE: Swatch’s distribution network
Brick & Mortar
• Swatch Store
• Swatch Megastore
• Online Store but only for limited markets
limited customization on Internet
OurProposal
History
SwatchSwatchTodayToday
IndustryAnalysis
FinancialPosition
• Unconventional promotion
Olympic Games Official Timekeeper
• Online expansion SIT (Swatch Internet Time )
• Swatch Club – Customer Loyalty & Following
PROMOTION
OurProposal
History
SwatchSwatchTodayToday
IndustryAnalysis
FinancialPosition
IndustryAnalysis
OurProposal
History
SwatchToday
IndustryIndustryAnalysisAnalysis
FinancialPosition
Development of World Watch Market
Low Price
High Price
Prestige, Design,
Exclusivity
Followers competing in the same segment as Swatch, (Benetton, Guess, etc.)
Licensed metal sports watches (Adidas, Puma, Fossil, etc.)
Rolex
TraditionalSwiss brands
SwatchSeiko, Citizen
Cheap HK brands
More local brands in emerging markets, i.e. China and India Our
Proposal
History
SwatchToday
IndustryIndustryAnalysisAnalysis
FinancialPosition
Swatch Group sales revenue in China is high but volume is low
Brand Market Share
1. Tianwang 4.32%
2. Fiyta 4.09%
3. Rossini 4.09%
4. Citizen 4.02%
5. Everbright 3.77%
6. Casio 2.64%
7. Tianba&Harpo 1.83%
8. Enicar 1.75%
9. Seiko 1.66%
10. Xinhuang 1.34%
Domestic Brands
Top 10 Brands in China (unit)
Source: China National Commercial Information Center, 2001
Brand Market Share
1. Omega 13.68%
2. Rado 9.26%
3. Longines 5.34%
4. Rolex 3.92%
4. Titoni 3.81%
5. Enicar 3.26%
6. Fiyta 3.24%
8. Citizen 3.13%
9. Tissot 2.86%
10. Tudor 2.78%
Top 10 Brands in China (value)
The Swatch GroupOur
Proposal
History
SwatchToday
IndustryIndustryAnalysisAnalysis
FinancialPosition
Major Competitors in the Global Mass Market
Swatch
$ 2173 m
73%/ Group
• Watch
• Watch & components mfg
• Electronic systems
Citizen
$ 1153 m
40%/ Group
• Watch
• Info& electronic equipment & devices
• Industrial machinery & equip.
Seiko
$ 921 m
47%/ Group
• Watch
• Clock and precision pr.
• Optical pr.
• Sports & toiletry pr.
Timex
N/A (private)
N/A (private)
• Watch
• Clock
• Eyewear
•Thermostat
• Healthcare
• Audio
Fossil
$ 781 m*
N/A
• Watch•Accessories (leather goods, belts, handbags, sunglasses, etc.)
OurProposal
History
SwatchToday
IndustryIndustryAnalysisAnalysis
FinancialPosition
73% of Swatch Group’s total sales come from watch sales
Trends
• Emphasizing FASHION
- Swatch: Calvin Klein
- Seiko: Nike
- Timex: Nautica, Guess?
- Fossil: Burberry, Emporio Armani, Diesel, DKNY
Fossil WritstPDA
Fossil MSN Direct
CitizenEco-Drive Timex
Bodylink
CasioGPS Pathfinder
• Emphasizing TECHNOLOGY
OurProposal
History
SwatchToday
IndustryIndustryAnalysisAnalysis
FinancialPosition
Trends (cont’d)• Swiss target HIGH END/ LUXURY MARKET
Average unit price of export watch by country (in CHF), 2003
• Increasing ADVERTISING- Brand ambassador- Sports event sponsorship
OurProposal
History
SwatchToday
IndustryIndustryAnalysisAnalysis
FinancialPosition
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
• Competitors produce in low-cost countries
• Oversupply of watches in the global economy
• Mid-range market
• Super low-end market for developing countries
S W
T O
OurProposal
History
SwatchToday
IndustryIndustryAnalysisAnalysis
FinancialPosition
FinancialPosition
OurProposal
History
SwatchToday
IndustryAnalysis
FinancialFinancialPositionPosition
Swatch ROE is Superior
Swatch vs. CitizenROE
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
1996 1997 1998 1999 2000 2001 2002 2003
Swatch Group ROE
Citizen ROE
OurProposal
History
SwatchToday
IndustryAnalysis
FinancialFinancialPositionPosition
Margins are superior
Margin (Net Income as a % of Sales)
-5%
0%
5%
10%
15%
20%
1996 1997 1998 1999 2000 2001 2002 2003
Swatch Group
Citizen
OurProposal
History
SwatchToday
IndustryAnalysis
FinancialFinancialPositionPosition
Market shows signs of recovery
Rebound & Recovery
OurProposal
History
SwatchToday
IndustryAnalysis
FinancialFinancialPositionPosition
Group Sales have slowed down
Sales Breakdown (million CHF)
2,3852,729
3,120 3,034 2,980 2,921
327377
468 422 508 511557
520
675 726 575 551
0
500
1000
1500
2000
2500
3000
3500
4000
4500
1997 1998 1999 2000 2001 2002 2003
Others
Electornic Systems
Watches
-7%
OurProposal
History
SwatchToday
IndustryAnalysis
FinancialFinancialPositionPosition
OurOurProposalProposal
History
SwatchToday
IndustryAnalysis
FinancialPosition
Our Proposal
Recommendations
2. Create “Super Low-End” Brand
1. Target the Mid-Market Segment
INDIA
COMPETITION
CHINA BRAZIL
OurOurProposalProposal
History
SwatchToday
IndustryAnalysis
FinancialPosition
Target the Mid-Market Segment
1. Create mass customization via the Internet- localize sites- design your own watch online- purchase watches online
2. Change “Swatch The Club” to promote loyalty - strategic alliance with airlines: frequent flyer miles - link with ClubMed and resorts - award Swatch points, e.g.- thru Olympics
3. Invest more heavily in R&D, IT convergence - memory stick watches - GPS watches - watches with cameras - PDA watchesOurOur
ProposalProposal
History
SwatchToday
IndustryAnalysis
FinancialPosition
Research Creating “Super Low-End” Product
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
1. Develop cost reducing operations improvements
2. Explore producing outside Switzerland, e.g.- China, India
3. Research cost reductions in raw materials
OurOurProposalProposal
History
SwatchToday
IndustryAnalysis
FinancialPosition
Forecast for the Future
2. Create “Super Low-End” Brand
1. Target the Mid-Market Segment
OurOurProposalProposal
History
SwatchToday
IndustryAnalysis
FinancialPosition
Sales Breakdown
0
1000
2000
3000
4000
5000
6000
1997 1999 2001 2003 2005E 2007E
CH
F in
mill
ion
s Others (Movements, Components,Services)
Electronic Systems
Watches
Forecast +2% year over year in watches
Forecast -0.5% year over year in movements
Q & A
“Time is what you make of it.”