The Birth of the Swatch free essay sample

What changes in the production and marketing of watches led to Swatch? ?Before 1950s â€Å"home-made† effect Starting from 1950s watches were considered as very precious goods that only few people could afford. The production of watches was a craft that required accurate skills and mastery of jewels making techniques. Watches were considered as a luxury good as well as a â€Å"financial investment†. People spent a lot on them, had great care of them and used to hand them down from generation to generation. In this period the watch industry was dominated by Swiss producer, watch craftsmanship was developed especially in Switzerland; the country had a great â€Å"home-made† effect on consumers: people looked at Swiss watches as the best on the market and trusted the quality and value of such products. Although after the World War II many Swiss watch firms were forced to close because of the recession, almost the 80% of the world’s total production was Swiss: Switzerland was watch’s home country. ?From 1950s to 1970s low-price and new technology After 1950s the overall industry landscape changed, after-war time companies evolved into the development of low-cost watches. Such watches still used mechanical movements but were made by metals in place of jewels, so they were less expensive but still very precise. In this period Timex was introduced; it is a U. S. company that produces simply designed watches with cheap exterior, but durable and precise. Later, other Japanese companies entered this arena, selling low-price watches with good quality and they started to compete directly with Swiss manufacturers. Swiss watch producers started to fear competition coming from low-cost producers, and they felt this competition becoming stronger when Quartz technology was introduced. This new technologies created space in the market for Japanese and Hong Kong firms; such firms provided modern, precise and multifunctional watches that appeal customers of all over the world. Switzerland begun to be uncompetitive in the market, Swiss manufacturers refused to embraced the quarts technology because they believed that their wn watches were more sophisticated, more luxurious and more valuable than the Japanese ones; they believed that customers would have perceived the more value provided by their watch and felt like they were competing in an upper segment than other producers. But this was not the story; customers liked the new watches, they did not care anymore whether the watch was Swiss or Japanese, they wanted a nice- precise watch that could be provided by other than Swiss manufacturers. The new watches could also include jewels or fake jewels and this really appeal customers. From 1970s to 1983 – the newly born Swatch Looking at this situation Swiss watch manufacturers understood that something had to be done. First of all the two biggest companies of the industry- ASUAG and SSIH- merged and fought together against this new environment. It was perceived that a change was needed, not only a change in the product but also a change in strategy, in structure and in management. The new company’s objective was to have a wide presence all over the market, not only in the upper segment. At this point Swatch was born: to be present in the low end segment the company had to provide a new product that could be produced at low cost and that embraced the quartz technology, and Swatch was the right answer to all this needs. Basically three changes were carried on through Swatch: firstly the production was vertically integrated. In order to drive production costs down, the company had to rely a little on labor force and try to make the most of things automatic. Secondly, the material used was a cheap one: plastic; thirdly this new product had to have a new image, perceived as unique by all customers. Understanding these needs, and working on such changes Swatch started its way through the success. 2. Why was the swatch so successful? The success of swatch can be summarized from three perspectives, the first one is from Marco perspective, the second one is from industry perspective and the last is from the company perspective. ?From Macro perspective: When we talk about the success of swatch, the world’s economic development and the baby boom after the World War II can not be ignored. The following charts show that from 1950s the world’s population kept going up and the world’s GDP growth rate maintained around 4% annually. With the joint effect of the big population base and the increasing of personal incomes, the consumption goods industry got big step in its development. As case mentioned, some brand like Timex, Citizen and Seiko etc. , they segmented the watch market and threw the watch which had been considered as luxury goods into normal peoples’ life. Millions of thousands people can afford cheaper watches. It is the precondition of the success of Swatch. ?From Industry Perspective Referring to the industrial environment, the technology innovation and the stronger competitors pushed forward the Swatch’s success. First is the technology innovation. The new technology made SMH to bring its production costs down to Asian levels, so it became true that low price watch can be produced in Switzerland. People look at Swiss made watch as the best on the market in the same price level and trust the quality and value of such products. Most people chose to pay 10% more comparing with other low price level brand for Swiss made watch, so the new technology in watch industry help Swatch to succeed. Meanwhile, the emergence of some strong competitors such as Timex, Citizen and Seiko etc changed the traditional watch industry. By producing low price watch, those competitors segmented the watch market and created huge demand for watch as well as contributed to the technology innovation. As a giant in watch industry, Swiss watch companies may be just waiting to see what will happen and once they found the trend or real situation, they will try their best to win. The new technology and the stronger competitors, in some extent, gave the birth to the Swatch also contributed to the success of Swatch. ?From Company Perspective: As a later comer in low price watch market, Swatch got a big success and the management level’s wisdom is the key reason for its success. Followings are several main strategies which had been adopted by Swatch management level. a. Designs and Collections: Swatch got an immediate success when it gave birth in 1983 in most of countries where it began business. Dozens and dozens of models and several different collections which had been produced every year can be chosen by customers. When people especially for those who were born after the war stepped in to later 1980s, they were the biggest potential customers, and also the designs and collections were fit to their tastes. Swatch’s management level must find such kind of trend and made a right decision in the right time and finally got a big success in low price watch market. b. Conveying Swatch messages: By advertising, promoting and also setting up distribution channels, Swatch built its brand imagine to the world which made it different from other competitors’ brand. Through this strategy, Swatch offers its own culture to its customers and boosted the customers’ loyalty. Besides, there are other smart strategies we may dig further in the following section. All these mentioned are made by the excellent managers in SMH. The management level’s wisdom is the key reason for its success. 3. In what ways was the Swatch different than any watch the industry had ever seen? And how does its marketing mix serve this new image? The image of Swatch is high quality, low cost, personal culture, provocative and joy of life. All these messages conveyed to customers are strongly supported by its marketing mix. ?Price Revolution a. How low the price is? How much is the intended customer willing to pay for Swatch? As Swatch has is own loyal and stable buying groups, one of the main reasons for the success is its low price, just $40 in USA and SFr50 in Switzerland. The low price matches the groups’ buying habit, which refers to buying the favor on impulse without any hesitate. b. How can Swatch achieve this goal? Drastically reduce a watch’s number of components, cut costs by more than 30% in the competition, launch one of the cheapest watches on the market and position it as a fashion accessory. c. No discount There are no discounts about Swatch as the price is already low enough. There was no model for cheap watches as great sellers. Perhaps someone would come along and make cheap watches which looked very similar to the expensive ones and so take over the cheap watch market. However, the compensation is accessed: some sales activities, some little gift. ?Product a. Allowance Each pattern of Swatch has very limited numbers which make sure that each person wears different Swatch. b. Quality Although it has plastic shell, the quality is good. The good examples are anti-water, anti-heat and anti pressure watches. c. Function Recently Swatch begins to expand its market to more functional areas, such as sports, accouterments. d. Appearance and design Decorated by jewelry, it is one of the reasons that it is so popular. Nicolas Hayek, founder of the current Swatch Group, was convinced that the solution lay in a double-impact response: transform the watch into a fashion accessory, in such a way that each consumer can have more than one. It was clear to Hayek that the market was prepared to change its concept of the watch and pay little for a new aesthetic. With the born of the first line of Swatch watches in 1983, there was more than one and fulfill Hayek’s visionary idea: transform the watch into a fashion accessory. . Strong brand The idea has proved to be a powerful one. There was still another value to the Swatch concept. This was part of the strong branding. If Swatches were known to have a strong design element, then this became part of the branding. Swatches were recognizable both on the wrists and in stores. Others have tried to imitate the concept, but with less success. ?Promotion a. Swiss combination Could the Swatch have success if it had not been known to be from Swiss? The answer to this question is obvious. If a Korean company had started to produce Swatch-type watches, would there have been the same success? The combination of esteemed Swiss watch man-ship and the low price was needed for success. b. Confidence-high technology used If there is confidence at the value level then the other risks are reduced. Can values, as such, be pre-tested? This is not usually easy. There can be comparisons with similar values in other fields (like cheap airline flights) but the comparison may not be valid. You may want a cheaper holiday, but not a cheaper watch. With the Swatch the key point was the quartz accuracy. Without this high-tech ingredient, the cheap concept would never have worked. c. Advertisements In order to make more people know more about Swatch and match its fashionable concept, Swatch has the local and special ads in different areas in which all hires the big stars. For example, Li Yuchun was nominated as the first celebrity in Asia in 2006. ?Place a. Mono-brand store, the design of which can catch the customers’ attention at the first sight. b. Big cities, fashionable cities. Swatch chose location deliberately where they can target more potential customers. Trough a whole combination of marketing strategies, the Swiss company rescued an entire sector from disaster and invented a new concept of the watch as a fashion accessory, using a Pricing Strategy that was a precursor to the classic â€Å"good, pretty, and cheap†. 4. ZIPPO as another example as successful as Swatch Zippo, the famous lighter brand, is just doing the same thing as Swatch. ?Zippo’s History Zippo was created in 1932 by â€Å"Mr. Zippo†, George Blaisdell in Bradford, Pennsylvania. Since 1932 Zippo has produced over 400 million windproof lighters till September 3, 2003. And now Zippo produces about 12 million lighters a year. Zippo is similar to Swatch in many aspects a. High quality In many people’s mind, Zippo is a reliable fellow forever. World War II mostly increased the popularity of Zippo. US soldiers used Zippos to heat food in a helmet, light campfires, spark fuses for explosives, hammer nails, and also as the signal to fellow soldiers with the famous Zippo click and even save a life by deflecting bullets. High quality made Zippo experience tough test and acquired very high prestige. Nowadays, with modern technology and careful monitoring, it has achieved a very low reject rate of one in 50,000. b. Low price The original price for Zippo lighter was $1. 95. Zippo is mostly made up of brass or other cheap alloys. Some high-end models are made of gold, silver, titanium, or copper. Now the mainstream products of Zippo are sold at $15 to $80 each unit. Zippo is affordable especially for young men. c. Designs Collections Just like Swatch, Zippo delivers special message and distinguishes from their competitors by its provocative design. Many of their customers are attracted by the fantasy message. Zippo is also an emotional product. Each year Zippo designers create over 100 new and different case designs. Especially geared towards collectors, these are produced for a limited time or quantity only, and are generally replaced by newer designs the next year. A new design generally sells about 20,000 units, but with so many designs available there provides room for variety. d. Promotion Distribution As a kind of young fad, Zippo always adopts similar style of promotion campaigns with Swatch. Zippo has very similar distribution channel as Swatch. It is often pushed for shop-in-shop systems or mini-boutiques that exclusively on the Zippo brand in department stores. e. Collectors’ Club In 1990, SMH created a Swatch Collectors Club for its most ardent fans. Similarly, Zippo also formed the Zippo Click Collectors Club to better service these customers. 15 Clubs for lighter collectors have been organized in Italy, Switzerland, Germany, Japan and the United States. In 2003 Zippo founded the Zippo Click Collectors Club for Zippo lighter enthusiasts worldwide. Swatch is more than a watch. Zippo is more than a lighter. The most important elements of their message are the hardest for others to copy—they are offering their personal culture. That is the most similar and shining point of the two brands.