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HaskayneConsulting
SWATCH GROUPCLASSIC WATCHES FOR THE INFORMATION AGE
Presented to Nick Hayek, President and CEOSwatch Group headquarters in Zurich Switzerland // January 2016
Allison LennoxKenny LaurinAbeer HabibullahJeff Hall
HaskayneConsulting
PROBLEM
How should Swatch Group Ltd. respond to the growing popularity of smart watches and wearables?
SWATCH GROUP 2
Is this a threat or an opportunity?
HaskayneConsulting
EXECUTIVE SUMMARY
SWATCH GROUP 3
1.9 billion profits Swiss francs by 2019
Issue Recommendation
How should Swatch respond to the growth in wearabletechnologies and smart watches?
Don’t panic and pivot – continue to focus on core productsRestructure to develop innovation division featuring agile teams to work on smart technologies
What new products should Swatch develop? Introduce “anaLOG” watch at $180 price point – look of a classic watch with smart features (steps, RFID, etc.)
What should swatch do with Swatch Touch 01 Introduce Swatch Touch 02 incorporating additional sports on one watch (hockey, soccer etc.)
What should swatch do with luxury watches Continue with traditional watchesStart to incorporate smart features (RFID) without changing classic design in certain models
Low battery life associated with smart watches Functionality closer to a wearable initially Wireless charging Innovation team focused on battery life
HaskayneConsulting
WHAT DOES THAT REALLY MEAN?
Swatch needs to protect its core business and develop classic watches that are built for the information age
• Develop innovation division• Incorporate smart features in classic designs today• Prepare for continued growth of smart watches in the future
SWATCH GROUP 4
HaskayneConsulting
DON’T PANIC!
• 95% of Swatch’s profit comes from luxury watches
• Currently smart watches are seen as more of a “gadget”
• Only 15% of survey respondents would substitute an Apple watch for a luxury watch
SWATCH GROUP 5
Not currently a significant threat to Swatch’s largest source of profits
HaskayneConsulting
PREPARE FOR THE FUTURE
• Technology is evolving rapidly and changing consumption patterns at a rate never seen before
• 168 million units of wearables technology is going to be sold by 2019
• Innovation Division will build internal capabilities to compete if this trend continues and becomes a larger threat
SWATCH GROUP 6
Need to lay the foundation for the future – don’t become Kodak or Blockbuster!
HaskayneConsulting
A GAP IN THE MARKET
“People do not buy watches for their functionality, but because of the emotions they transport/carry.”
SWATCH GROUP 7
Opportunity to add functionality to emotive time pieces
HaskayneConsulting
CLASSIC WATCHES FOR THE INFORMATION AGE
SWATCH GROUP 9
Swatch’s portfolio is across price segments
Product segment Price
Economy $0-$75
Entry-Level $75-$200
Mid-Range $200-$1000
Luxury $1000-$5000
Super luxury Over $5000
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INNOVATION DIVISION
Innovation teams built close to core company strengths
Agile, cross functional teams – not rigid, no silos
Driven by business goals and entrepreneurial spirit
Mentorship based leadership – more autonomy to allow idea generation
SWATCH GROUP 10
Create the environment for product innovation
HaskayneConsulting
INNOVATION DIVISION• 5 teams of 5-10 employees
SWATCH GROUP 11
Must become an innovator for future consumer needs
Battery technology
No pairing requirements Customization
Vehicle communication
Future full smartwatch
HaskayneConsulting
CLASSIC WATCHES FOR THE INFORMATION AGE
New entry level segment product introduction - anaLOG
Introduce Sport zero two for additional sports
Additional functionality into luxury segment
SWATCH GROUP 12
New opportunities across product portfolio
HaskayneConsulting
NEW PRODUCT - ANALOG
Well designed, classic mechanical look
Entry level price - $195
Fashion conscious & tech savvy consumer
SWATCH GROUP 13
Designed as a watch
HaskayneConsulting
NEW PRODUCT - ANALOG
Timepiece, fitness tracking, near field communication
Pairs with smartphone – doesn’t need to be always connected
Long battery life, no touch screen, no applications supported
SWATCH GROUP 14
Same look, additional functionality
HaskayneConsulting
SPORT SPECIFIC WATCHES
Sport specific devices – Swatch zero two
Same device, customize software
Opportunities in golf, swimming, cycling, tennis
SWATCH GROUP 15
Certain in sports remain to be underserved
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PRODUCTION INNOVATION – LUXURY SEGMENT
Maintain design & craftsmanship
Add functionality – fitness tracking, near field communication, car unlocking
Partnership opportunities luxury car brands - BMW, Porshe, Mercedes
SWATCH GROUP 16
Opportunity is not limited to low price segment
HaskayneConsulting
CURRENCY RISK
SWATCH GROUP 19
The primary reason for decline in revenue in 2015 was currency market fluctuations
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MITIGATING CURRENCY RISK
•We recommend that you enter into currency swaps and swaptions for all major currencies Swatch Group Ltd. does business in (EUR, USD, HKD, and CNY)
•This strategy would offer a fixed rate for all these currencies and reduce the impact of currency market fluctuations on our financials.
SWATCH GROUP 20
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COST OF IMPLEMENTATION
SWATCH GROUP 21
Initiative In CHFNew Hire (5 senior managers) 325,000
Product Development (1% of sales) 85 million
Marketing Campaign (up to 1% of sales) 20 - 85 million
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ASSUMPTIONS
•We will capture 2% of the wearables market by 2019
•Hybrid watches will have a 30% higher margin per unit
•Average watch price of $737
•$1.5 USD to 1 CHF
SWATCH GROUP 22
HaskayneConsulting
ALTERNATIVES
SWATCH GROUP 25
Focus on analog watches only
Partner with a smart-watch developer
Position yourself as a components supplier
STOP!
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FOCUS ON ANALOG WATCHES ONLY
• Wearable technology is a rapidly growing technology. Swatch needs to position itself in this industry early on.
SWATCH GROUP 26
STOP!
Do not Focus on analog watches only
HaskayneConsulting
PARTNER WITH A SMART-WATCH DEVELOPER
• They may develop brand and competencies and cut us out
• Does not lead to in-house development which is not aligned with our long term strategy for Swatch
SWATCH GROUP 27
STOP!
Do not Partner with a smart-watch developer
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SHIFT ENTIRELY TO SMART TECHNOLOGY
• Only 15% of luxury watch customers would substitute for a smart watch
• 95% of Swatch’s profits are from luxury analog watches
SWATCH GROUP 28
STOP!
Do not Position yourself as a components supplier
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IMPLEMENTATION PLAN
Step 1: 6 months – 1 year
• Hiring of managers and creation of Innovation Division
Step 2:1-2 years
• Launch anaLOGhybrid watch
• Release hybrid tech in luxury segment
Step 3:2-5 years
• Roll out hybrid technology in watches at all price points
• Development of future tech
SWATCH GROUP 30
HaskayneConsulting
STEP 1: INNOVATION DIVISION TIMELINE0-3 months – VP human resources
• FIND TEAM LEADERS
• Internal or external hires
• Experience with tech, startups, managing people, record of innovation
0-6 months –Innovation leaders
• BUILD TEAMS• Cross-functional:
Engineering, marketing, manufacturing etc.
• Small teams, flat structure focused on mentorship
6 months – 1 year – Define objectives
• Goal oriented, focused on innovative results
• Fail fast, fail cheap
• Autonomous teams separated by goals
SWATCH GROUP 31
HaskayneConsulting
STEP 2: ANALOG PRODUCT LAUNCH
•TARGET CONSUMER•Motivations:• Style conscious, tech savvy• Want limited functionality with classic looks• Weary of complicated apps, annoyances
•Demographics:• Likely 45 years old or younger• Male & female• Young professionals
•Buys• Online, frequently, impulsively
SWATCH GROUP 32
HaskayneConsulting
STEP 2: ANALOG MARKETING
•Messaging:•Timeless looks – throwback to classic swatch looks, on trend design•Core functionality – “The features you need, none you don’t”•Still a classic timepiece, with added features for today’s consumer
•Media•Heavy use of social media – targeted facebook, instagram ads•Use of influencers – create excitement through carefully selected social media personalities
•Limited online ads – banner ads etc.
SWATCH GROUP 33
HaskayneConsulting
STEP 2: LUXURY PRODUCT LAUNCH
•TARGET CONSUMER
•Motivations:• Wants a watch that demonstrates taste• Focused on heritage & tradition
•Demographics:• Likely 45 years old or older• Male & female• Retirees, Executives
•Buys:• In store, infrequently, luxury & super luxury
SWATCH GROUP 34
HaskayneConsulting
STEP 2: LUXURY MARKETING
•Messaging:•Classic style – “the same luxury image you’ve always enjoyed”•Ease of use – still a classic timepiece, not a newfangled gadget
•Media•Magazines – GQ, Vogue, Forbes, Esquire•Television – Golf Channel, NBC, NBC news
•Promotion•Partnerships with Porsche, Louis Vuitton, other luxury brands to develop limited launch editions
SWATCH GROUP 35
HaskayneConsulting
STEP 3: ROLLING OUT TO ALL PRICE POINTS
•Trickle down effect to all price ranges
•Not all watches, need to keep some classic offerings
•Carefully select functionalites base don consumer segments
SWATCH GROUP 36
HaskayneConsulting
RISKS & MITIGATIONS
Risk Mitigation Likelihood Impact
Smart watch market explodes Have a strong foundation, prepared to innovate
M H
Currency fluctuations Engage in swaps and swaptions
Other companies copy our strategy Competency in design, brand
HaskayneConsulting
YOU ASKED US, WE ANSWERED1. Will the Swatch Group be able to compete with its own resources and capabilities
against the Apple Watch?- Yes, by establishing a new innovation division and introducing new products
2. Should Hayek directly compete with Apple? If so, how?- No, continue to build products for discerning timepiece buyers
3. Is it really a threat or rather an opportunity?- It is a growth opportunity to further your position as a market leader
4. If it is a threat, what should the products of the Swatch Group look like, and in which price segments should it fight?
- New product at $195 price point, functionality at all higher price points
5. How can Swatch design a smartwatch incorporating the technology with heritage?- Keep classic appearances, avoid app funtionality
6. What will happen if Apple starts to compete in the luxury watch segment?- Swatch will be prepared and defended by hybrid technology
HaskayneConsulting
FUTURE CONSIDERATIONS
•These are some “outside the box” ideas we are not recommending right now, but should be considered in the future.
HaskayneConsulting
WHAT DOES THAT REALLY MEAN?
Swatch needs to protect its core business and develop classic watches that are built for the information age
• Develop innovation division• Incorporate smart features in classic designs today• Prepare for continued growth of smart watches in the future
SWATCH GROUP 41
HaskayneConsulting
EXECUTIVE SUMMARY
SWATCH GROUP 42
1.9 billion profits Swiss francs by 2019
Issue Recommendation
How should Swatch respond to the growth in wearabletechnologies and smart watches?
Don’t panic and pivot – continue to focus on core productsRestructure to develop innovation division featuring agile teams to work on smart technologies
What new products should Swatch develop? Introduce “anaLOG” watch at $180 price point – look of a classic watch with smart features (steps, RFID, etc.)
What should swatch do with Swatch Touch 01 Introduce Swatch Touch 02 incorporating additional sports on one watch (hockey, soccer etc.)
What should swatch do with luxury watches Continue with traditional watchesStart to incorporate smart features (RFID) without changing classic design in certain models
Low battery life associated with smart watches Functionality closer to a wearable initially Wireless charging Innovation team focused on battery life