is the apple watch killing the swiss watch industry? · apple watch has been successfully taken a...
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Is the Apple Watch Killing the Swiss Watch Industry?
BROCK UNIVERSITY – CASE ONE
GSB Consul�ng Group – Afra, Mithra, Hanna, KaranPresent to: Mr. Nick Hayek and management team of Swatch
Case 1; “Is the Apple Watch killing the Swiss watch industry?’ The Apple Watch – a threat or an opportunity for the Swatch group ltd?” is based on IMD Case: IMD-7-1844available from the case centre at www.thecasecentre.org, copyright © 2017 by IMD, Lausanne, Switzerland (www.imd.ch)
AgendaCurrent Situations
Problem identification
Recommendation
Analysis
Decision Criteria
Alternatives and Evaluation
Financial Analysis
Implementation, Contingency
Key Take Away
Current Situation
Apple Watch has been successfully taken a piece of cake from the watch market from 2015.
Smart watch is gaining more and more attentions.
Swatch Group’s sales in 2015 declined by 3% (0.9% of selling, 2.1% of currency situation)
The targeted segmentation of Swatch Group is somehow different from smartwatch firms.
Problem Analysis Alternatives Recommendation Conclusion
Problem Identification
• Is smartwatch a threat or opportunity?• Should Swatch compete in this market and how?
Immediate problems
• What’s Swatch’s sustainable growth strategy giving the interruptive technology?
Long-term problems
Problem Analysis Alternatives Recommendation Conclusion
Recommendation
Problem Analysis Alternatives Recommendation Conclusion
Swatch should catch the opportunity from smart watch market,
Invest in product development and produce luxury smart watch,
Keep positioning the new product under the luxury brand umbrella.
External Analysis - PEST
Problem Analysis Alternatives Recommendation Conclusion
Political factor:Support from Swiss
government
Economic factors:
Exchange rate fluctuation
Social factors:1) Awareness trend in watches is increasing;2) Clear distinguishing between mechanical and smart watches
Technologies factors:Disruptive
technology from smart watches
External Analysis – Porter’s Five ForcesSmartwatch market
Consumer Barging Power
• More choice• Brand loyalty
among luxury watch consumers
Competition among rivals
• Concentrated competitor group
• Apple’s dominance
Supplier Barging Power
• Limited amount of technical suppliers
Threats from new entry
• Many start-up technical firms
• High initial investment
Threats from Substitutes
• Different types of wearable devices
Problem Analysis Alternatives Recommendation Conclusion
High Medium HighLowHigh
The competition in smartwatch market is intensive.
Consumer AnalysisEmotional preference:Hedonic vs FunctionalityPleasurable aspects of luxury watchStatus symbol in the societyAppreciation of craftsmanship and timelessnessSuperior design featuresLoyalty: 27% of luxury watch consumers preferred Apple Watch15% considered apple Watch as a potential substitute
Problem Analysis Alternatives Recommendation Conclusion
Competitive Analysis
Apple1) Superior technology
2) Market leader in smart watches3) Innovativeness
Swatch1) Leader in luxury watch markets
2) Technological expertise in mechanical watches
3) Value proposition to consumer
Problem Analysis Alternatives Recommendation Conclusion
Core competency of Swatch lies in the luxury segment.
Ansoff’s Matrix
Market development Diversification
Market penetration
Product development
New markets
Existing markets
Existing product
New product
Problem Analysis Alternatives Recommendation Conclusion
SWOT MatrixStrength:1> Current top player in luxury watch2> Capable to over come crisis3> High brand equity4> Operational efficiency
Weakness:1> Traditional function in designs2> Lack of technology capability
Opportunities:1> Growth in smartwatch market2> Potential growth in US mechanical watch market
SO: Product Development
Positioning luxury smart watches
WO: Diversification
Diversity into smart watch category
Threat:1> Emerging substitutes2> Economic fluctuation
ST: Market Penetration
Heavy marketing investment in mechanical watch market
WT: Market Development
Focusing on US mechanical watch market development
Problem Analysis Alternatives Recommendation Conclusion
Decision CriteriaLeveraging
core competency
Profitability
Risk Growth Sustainability
Problem Analysis Alternatives Recommendation Conclusion
Alternatives - ASO: Product Development
Positioning luxury smart watches
Problem Analysis Alternatives Recommendation Conclusion
Pros
• Leverage our core competency in luxury market
• Add new value in brand awareness to get sustainability growth
Cons
• High risk in investing new technology
Alternatives - BWO: Diversification
Diversity into smart watch category
Problem Analysis Alternatives Recommendation Conclusion
Pros
• Product category diversity
• Improve the defense ability of market fluctuation
Cons
• Lack of leveraging core competency
• High risk in entering new market
Alternatives - CST: Market Penetration
Heavy marketing investment in mechanical watch market
Problem Analysis Alternatives Recommendation Conclusion
Pros
• Lower investment requirement
• Easy to using existing product
Cons
• Limited space to growth
Alternatives - DWT: Market Development
Focusing on US mechanical watch market development
Problem Analysis Alternatives Recommendation Conclusion
Pros
• Easy to get profit with existing product cetology
Cons
•Highly depend on the market change
• Limited space to growth
Alternatives EvaluationCriteria A - SO B - WO C - ST D - WT
Leveraging core competency(30%) ++ - - ++ -
Profitability(30%) ++ + + +
Risk(20%) - - - + -
Growth Sustainability(20%) ++ ++ + -
Problem Analysis Alternatives Recommendation Conclusion
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
2011 2012 2013 2014 2015
Percentage change in Net Sales
-16.00%
-14.00%
-12.00%
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%2016 2017 2018 2019 2020
Projected Percentage change in Net Sales
StatusQuo
Problem Analysis Alternatives Recommendation Conclusion
Forecasting Demand for smartwatches
• Total forecasted units Apple will sell in 2016: 23.8 million units• Percentage of market share: 66.6%• Total number of units: 35.7 million units• Growth rate for 2016: 70%• Total number of units based on the
industry growth rate: 60.7 million units
Financial Analysis
Problem Analysis Alternatives Recommendation Conclusion
2016 2017 2018 2019 2020
Annual Demand (In million units) 60.70 84.98 123.22 184.83 277.25
Percentage of luxury smart watches 10% 10% 10% 10% 10%
Total Annual demand 6.07 8.50 12.32 18.48 27.72
Total Percentage Share 7.50% 12.50% 20.00% 27.50% 35.00%
Total sales (in million units) 0.46 1.06 2.46 5.08 9.70
Total Sales ($million) 56.90 132.78 308.05 635.35 1212.95
Projected luxury smart watches saleFinancial Analysis
Problem Analysis Alternatives Recommendation Conclusion
Cost and NPV Analysis
2016 2017 2018 2019 2020
Total Cost ($million) 120 106.2 231 413 727.8
Discounting factor 0.909 0.826 0.751 0.683 0.621
PVCI 51.73 109.74 231.44 433.96 753.15
PVCO 109.09 87.79 173.58 282.07 451.89
Discounted cash flows -57.36 21.95 57.86 151.89 301.26
NPV 475.60
Problem Analysis Alternatives Recommendation Conclusion
Licencing cost Independent app developersMarketing and promotion Research of Design & Deveopment
Cost Breakdown
Initial Investment: $120 million
Problem Analysis Alternatives Recommendation Conclusion
Assumptions:
1) Annual demand for smart watches will grow by more than 40%
2) Price of a luxury smart watch: $12503) Market share will grow at an increasing rate4) Cost of capital is assumed to be 10%
Financial AnalysisProblem Analysis Alternatives Recommendation Conclusion
RecommendationSwatch should catch the opportunity from smart watch market,
Invest in product development and produce luxury smart watch,
Keep positioning the new product under the luxury brand umbrella.
Problem Analysis Alternatives Recommendation Conclusion
ImplementationsFirst 6 months
>Partnering with Google>Build up the team for new product>Ready for production>Marketing planning:
6 months to 2 years
>Trigger the production>Launch the new product into market>Intensive promotion to extend the brand association
2-5 years
>Focus on R&D and innovation of products
Problem Analysis Alternatives Recommendation Conclusion
ImplementationsFirst 6 months
>Partnering with Google>Build up the team for new product>Ready for production>Marketing planning:
6 months to 2 years
>Trigger the production>Launch the new product into market>Intensive promotion to extend the brand association
2-5 years
>Focus on R&D and innovation of products
Problem Analysis Alternatives Recommendation Conclusion
ImplementationsFirst 6 months
>Partnering with Google>Build up the team for new product>Ready for production>Marketing planning:
6 months to 2 years
>Trigger the production>Launch the new product into market>Intensive promotion to extend the brand association
2-5 years
>Focus on R&D and innovation of products
Problem Analysis Alternatives Recommendation Conclusion
Risks and ContingencyRisk: Apple’s unpredictable initiatives into the smartwatch market, giving the company is really innovative!
We will trigger our contingency plan at stage 2 (6 months to 2 years) if we didn’t meet our target revenue at $M 132 if Apple take over much more markets.
Contingency plan:Focus on US with mechanical watches market.
Problem Analysis Alternatives Recommendation Conclusion
Key Take Away
Leveraging our core competency
Seizing new opportunity in smart watch
Partnering with technical giant to win the battle!
With 120 $M investment we are going to generate more than $2 Billion in 5 year!
Problem Analysis Alternatives Recommendation Conclusion
Thank You !