The Swatch Group
Essay Preview: The Swatch Group
Report this essay
Since the inception of the modern day watch in the 16th century the Swiss have been among the industry leaders in production. With the invention of the balance spring in the 17th century the art of watch making was changed forever, for the better. The Swiss made watches dominated the world market, as recently as the mid-20th century. However, drastic changes in the competitive landscape were taking affect; after the result of WW1 new technologies and production techniques were made available by the industrial revolution. These improvements made it possible for watch makers to produce at a higher capacity and at lower cost. This hurt the Swiss watchmakers on a global scale in total market share, reducing their market share of 80% to approximately 15% in the 1980s. The burdens of the necessary strategic changes to the Swiss watch market were placed upon the shoulders of Nicolas Hayek. Formally known as SMH, The Swatch Group was created when Hayek merged two failing watch making companies. He believed that his vision of building Swiss quality into mass produced low-end, high-quality watches could revive the Swiss name.
As he took the reins of the company he saw immediate success in the 1990s with the introduction of the first Swatch product. This launched Swatch back into the spotlight as the industry leader and thus the biggest watch producer in the world as of 1999 with its 19 product offerings. With the onset of a new millennia he began to notice a downward trend in their competitive advantage strengths. The U.S and Asian watch producers had spread their production process across multiple countries in order to take advantage of production cost efficiencies. This made Swatchs pricing strategy ineffective; making the average price of a Swiss made watch 2 ½ times that of a watch from U.K and 29 times more expensive than a watch from Hong Kong. Considering this drastic change in cost of production Swatch Group needs to decide what platform to compete on. What proceeds is an in-depth analysis of the Swatch Groups competitive position the global watch industry. In my analysis of the industry as a whole, but specifically that of The Swatch Group and Rolex; I will identify a problem and offer strategic options with a customer oriented approach, for a variety of the facets of the overall business process. Finally, I will discuss how to implement and evaluate suggestions on the basis of the triple bottom line.
Overall Strategy, Omega Strategy, Sales increase.
The Swatch Group is at a strategic dilemma and needs to analyze the industrys past, present, and future in order to determine its next move. The Swatch group has nearly 90% of its profits generated by four brands: Omega, Swatch, Tissot, and Rado. These brands competed in the following segments: luxury, basic, middle, and high range. As well, The Groups prestige, luxury, and top ranged brands were third in global market share at 14%, the leader Rolex at 28% and Vendome coming in 2nd with 20% of market share. This market share is impressive considering they control 7% of the global production, but from this small control Swatch Group generates 51% of the global value. Considering this, they only produce 34 million units a year that distributed to 90% foreign markets, but only having a 3% market share in U.S. Through these figures several conclusions can be drawn. The Group has strong financial performance; they manage to attain the highest value from the smallest units produced, an aspect they enjoy because of the high prices they charge for their products. As well, it is seen that exports are continually important to The Group, and is where they have the largest market share, 25% in terms of export value. Finally, four of the products produce a majority of their profits; this raises the question should The Group streamline their portfolio in an attempt to gain a better competitive advantage? This can be answered from what my overall strategic recommendation is.
Their overall strategy as it is now will slowly lead to The Group losing market share and decreased competitive advantage. They are placing too much focus on the “wedding cake “trying to group each of its 19 different products into four different categories. They initially need to make changes in their overall company strategy. Evolving to a more streamlined portfolio, focusing on the four main offerings will allow them to increase their market share. As well, they need to begin to take advantage of the growing popularity of the mid-range watch, in order to broaden its customer base. This leads us to the next question, what strategy should The Swatch Group implement the Omega product line to become a true competitor of Rolex? It is not going to be just one strategic move to place them in the same luxury category with Rolex; it is going to be a combination of a few moves. First, they need to increase the prestige level of Omega; this can be done by reducing the amount of POS interactions. To do so they will need to offer the Omega product line in mono-brand stores mainly; as well, in their privately Group owned locations such as, “Tourbillion”. Increasing the price of the Omega product line is another necessary strategic move. The cheapest Rolex watch is priced 60% higher than the most expensive Omega watch. This gap is too great, in order to be able to increase the price value adding functions are needed as well as additional watch collections available in the Omega product line. The value statement that Omega needs to introduce to the consumer is that “Omega watches are not a commodity, but are produced by those who have a passion for watches”. In doing so this places them in a category closer to Rolex adding the aspect of personalized customization for the consumer. In the next four to five years The Group wants to reach sales of 10 billion Swiss francs. Is this a feasible option? The Omega line is already producing over 3 billion in sales and they have four other lines that are capable of reaching over 1 billion in sales. So, yes, this is a possibility for The Swatch Group in the future. They need to analyze. In order to reach this goal, they need to increase their presence in the U.S and Asian markets. The U.S is the largest market for watches, providing consumption of one unit per capita. China is their best market for the higher priced watches and continuing to increase their sales in this region through vertical integration is a key factor to raising sales. All of these consumer oriented strategic moves should increase The Groups sales and especially that of the Omega line; as well, these moves will also in turn position them in a place to be more competitive in the entire industry, and particularly increasing the level of competition the Omega line is at with Rolex.
The Swatch Group has positioned