THE BIRTH OF SWATCH

Author: Thien Tran | September 2014.

Prior to the introduction of the Swatch, what kind of watches were popular

among consumers? In what ways was a Rolex different from a Timex, or from a

gold-plated Seiko? How did consumers make buying decisions?

Before the birth of Swatch, the watch industry seemed to be dominated by Switzerland with

nearly 2,500 firms specializing in watch making, accounted for approximately 80% of the

world total watch production in 1945. These Swiss companies were famous for producing

mechanical which consisted of almost 100 components and many precious stones, especially

it was facilitated to be repaired and opened. These physical values made Swiss watches to be

considered as a financial investment. However, the game changed with the penetration of

new market challenger and follower from US and Asia named Timex and Seiko respectively.

Unlike Swiss watches, Timex made full use of low-cost mechanical production to introduce

another kind of watch, called disable watch which used hard alloy metals in place of jewels

with a simple design and poor function. This product apparently received positive feedback

from market, especially in US, with almost 35% over total sale volume. In 1970,

watchmaking industry was in a cutthroat competition with the innovation of Quartz

technology which allowed more sophisticated functionally and more competitive than

mechanical in term of production cost. Seiko, one of leading brands in Japan, took

advantage of this new technology to introduce analog watches with 22 million watches

produced annually.

Generally, each brand has its own strategies in developing, marketing and distributing

product depending on its market segmentation which differentiated them from each others.

It is obvious that Rolex targeted high-end segment and positioned its product at high-

CASE STUDY ANALYSIS

involvement level. Therefore, it created different values to meet that target segment

including function, intrinsic cue and social which were different from other competitors.

Rolex understood that those who bought its products were willing to pay higher price for

beautifully constructed watches in return as that was their financial investment and able to

show their social class. These perceptions mutually impacted on Rolex distribution strategy

that the products were sold primarily through jewelers and upscale department stores.

Setting a much lower selling price (between $ 6.95 and $7.95), in contrast, Timex targeted

another segment and positioned itself at entry-level, so its products were not packed as

much value as Rolex. Unlike Rolex, moreover, the products were sold through many low-

priced outlets such as drugstore and discount house.

It is clear that each market segment will set different criteria to purchasing decision and the

product will be sold if its value meets consumers’ requirement. In this case, both Rolex and

Timex had their own market in which the value they created satisfied their certain market

segment, so the market share cake was shared depending on how consumer perceived those

values. Obviously, traditional jewelers are target segment of Rolex who looked for they

looked for products with full function and beautiful design to equal their investment and

show their social class. For this reason, they have no interested in carrying Timex watches

because “They were priced too low, they lacked the precious metal exteriors of Swiss watches

and they eliminated the need for repair”, they said.

Why was Swatch so successful? In what way was the Swatch different than any

watch the industry had seen?

There are many elements contributing to the success of Swatch. Firstly, it stems from

thoroughly analyzing internal and external environment to understand market, understand

consumer demand, see through company’s problem and then turn it to be opportunities.

Given analysis, Swatch realized that they rejected applying quartz technology that they

invented to stay at the high-end tier which resulted in a decrease in unit share to less than

15% in 1983. It means that they missed an opportunity at lower tier which had been

dominated by Japanese and Hongkong companies for several years. In reality, furthermore,

the company was in huge problem of strategy, structure, marketing, management that forced

Swatch to plan clear strategies which “need at least one profitable, growing, global brand in

every segment – including the low end”, Hayek said.

Secondly, Swatch selected right segment and right target consumer to position itself at a

right tier to compete with Japanese and US watches in term of pricing, function and design.

Swatch understood that it was market leader at high-end segment but not at the low-end

one. In order to compete and penetrate into this segment, beside points of parity it must to

create points of difference. Having realized “most people always talked over the story of

technology and pricing” at the lower-tier, therefore, Swatch mainly focused on designing

beautiful watches without an exception of full functions and competitive selling price. They

understood that unlike other watch brands, Swatch consumers “were always lookout for

intriguing new designs. Swatch indeed built up a value of proposition to positioning it

among many competitors at that tier.

Last but not least, Swatch was consistent in managing and delivering message to target

consumer or in marketing the product in other words. They said “we not just selling the

product…we were selling an emotional product,...it can be an important part of your self-

image” Swatch clearly made a clear and great strategy in positioning the product which was

extremely important in making purchasing decision of consumer. It is obvious that, there

were many “me-too” products at the moment and what differentiated Swatch was its value of

proposition –emotional and self-image. It strategy was to raise a low-end product to a higher

scale which build the strong relationship between consumers and product. This is not an

easy math, but Swatch did well due to it consistent and unique message “we are not just

offering people a style. We are offering them a message…emotional products are about

message…tell them who you and why you do what you do…high quality, low cost,

provocative. Joy of life…we are not just offering watches. We are offering our personal

culture. ”

In comparison with other watches, people could easily recognized the differences of a Swatch

to the competitors’ one. In terms of design, Swatch was encased in plastic, featured witty,

outlandish designs by using brash and intense color which totally surprised watch industry

as traditional watch manufacturers were familiar with using the highest-quality metal and

jewels to produce watches. Moreover, Swatch also attached special importance to product

diversity which implicated in the way of recruiting talented designers from different

nationalities, and the way developing a wide range of collections to stimulate purchasing.

Unlike other watches, in addition, Swatch followed an unconventional distribution strategy

by which different lines were sold at different points of purchase. This enabled approaching

Swatch become handier in accordance with their communication “A Swatch is not just

affordable, it’s approachable”. Another element that differentiated Swatch is that Swatch was

marketed in unique way which emphasized on below-the-line activities from product

placement, event, sponsorship to outrageous display to spread out their message “it’s was

quality-Swiss”.

What elements of the original marketing plan were most critical to the brand’s

success? Given the huge demand for Swatches (particularly for certain models)

did the company make a mistake in not raising prices for some of its styles?

The most crucial elements contributing to the brand’s success were the company chose right

segment, right target consumer right positioning which were transformed through

marketing mix including unique and diversified product strategy, affordable and

approachable pricing strategy, unconventional and consistent promotion strategy, and multi

distribution channels.

In term of product strategy, the company was right to remain commitment to producing

high-end mechanical watches that required traditional craftsmanship as those products

served a certain market segment which preferred classy appearance and functions.

Simultaneously, it developed another product with new features, design and functions which

benefit and serve another segment in which Swatch lines was born. In other words, the

company did not abandon its core product which had been perceived by consumers year by

year, but it created Swatch to complete product line strategy from the bottom to top at which

the coverage was nearly 100%.

Regarding distribution strategy, I think the company was smart to get Swatch approached

easily through untraditional retail channels such as fruit and beverage markets, shop-in-

shop, especially franchised stores which were completely different from other competitors

indeed. Given selling price, those belonging to Swatch’s target segment – the youth - might

have lower income compared to middle and higher section, so they might go shopping at

these places rather than in jewelry stores. For this reason, selling Swatch at those points of

purchase enabled Swatch to get closer to its target consumers. This was exactly the plan

what the company built Swatch “not just affordable, it’s approachable”. Furthermore,

locating in franchised stores on high-fashion districts partially consolidated Swatch’s brand

image and positioning in consumers’ mind – Swatch is fashion.

For promotion, Swatch pioneered in making creative, unique and consistent marketing

strategies from planning to execution as it perceived that different segment and positioning

needed different approaching tactics. Therefore, it spent almost 30% of Swatch retail price

on advertising ( $28 million by 1992) to gain brand awareness. In the meantime, it organized

below-the-line activities from PPL, endorsement to sponsorship to build brand personality

or image and connect those who perceived and shared the same Swatch value. However, the

most interesting activity is that it established a “Swatch community” with more than 50,000

members not only to impulse consumers’ demand, consolidates the relationship between

current end-users and brand, but also to get potential customers involved in. In other words,

Swatch gradually transformed product from low to high-involvement and built up loyal

customers who could be key influencers to Swatch’s expansion in the immediate future.

The company built a pricing hierarchy with three different levels at which price positioning

was set separately including low tier, middle tier and upper tier. Personally, the company

was right to maintain Swatch’s selling price as it was born to fit and serve lower tier. If the

company increased selling price, the whole structure would overlap and collapse and Swatch

might not succeed. Suppose the Swatch was priced at $100 or higher, it would be classified

in middle tier group whose consumers were more “traditional, less fashion

oriented….preferred watches that looked more expensive”. In this case, it is obvious that the

different values and features Swatch created to complete at lower section might not satisfy

the needs of middle one. As a result, the positioning of other brand probably needed to be

restructured, otherwise the marketing plan would not be consistent and consumers would

confuse