The Birth of Swatch

The following report generally describes the evolution of the watch category and particularly success story of Swatch over the years. The report starts off by describing the growth of the industry through 4 distinct time epochs. It then goes on to describe the needs and wants of the different types of consumers of wrist watches and what attributes do the consumers value the most in a watch, explained with the help of perceptual maps. Finally, the report describes the challenges faced by the watch category from electronic devices with their own time keeping devices and proposes a marketing strategy to effectively face these challenges.

1. Evolution of the Wrist Watch

1.1. 1800s – 1950

The first wrist watch was invented in late 1800s but it was not until early 1900s that the industrial scale production of the wrist watches begun happening. During this time, the wrist watch was considered to be more a luxury item than a functional tool. Owning a wrist watch was akin to a financial investment and it was not unusual for a wrist watch to change hands from one generation to the other. Assembling a wrist watch was considered a supreme form of art as it entailed having skills of a master jewelry maker, dexterity with micro-mechanics and a very low margin for error. Swiss watch makers, with their years of experience in jewelry making, dominated the industry during this time. Over 80% of all the watch sales in the world and 99% percent of all watch imports into USA were Swiss. There were 2500 Swiss watch making firms and some of the most respected brands of watches in the world were nothing but Swiss. The watch itself consisted of carefully crafted expensive jewels like sapphire and diamonds and high quality metals. Since the wrist watch was inherently costly, hand crafted, not mass produced it had to be aesthetically appealing and long lasting at the same time. From seller’s point of view, there were two distinct revenues streams. A one- time sales of watches and second a recurring repair and maintenance of the wrist watches (Attribute levels for those consumers are provided in Exhibit 1-2).

1.2. 1950s – 1970

Because of hard times of by the end of the World War II, a lot of low cost production methods had been developed. U.S TIME (later, Timex) managed to produce considerably cheap watches that used hard metal allows and low cost mechanical movements and automated production techniques. A cheap exterior, a strictly functional design and low cost of production allowed U.S time to market these watches as disposable but durable, shifting the paradigm of wrist watch from one of being a luxury item to one of being a functional tool (Exhibit 3-4). An engaging ad strategy with low pricing enabled Timex to capture almost entirely the US watch market. By late 1970 Timex was the market leader in terms of sales. This period also saw the emergences of the Japanese watch such manufacturers as Seiko and Citizen. They started out by capturing the Japanese market and slowly moving to other Asian and gradually to the European Markets. Consequently, the market share of Swiss watches fell to 42% in 1970, 50% of what it was 20 years ago.

1.3. 1970s – Mid 1980s

In 1970 the quartz technology was developed and it changed the face of the competition completely. Quartz technology made it possible to produce very accurate time pieces with no need for manual intervention in a very cost effective way, thus significantly reducing the competitive advantage the Swiss watch makers had in the accuracy attribute. This, coupled with significant advances in the semiconductor technology drove down the costs of production drastically. Moreover, quartz technology also enabled to have digital display. Japanese watch makers, mainly Citizen, Seiko and Casio specialized in producing low cost, digitized and multifunctional plastic watches by investing heavily in automation of the production and low cost of assembly in Hong Kong. This made Swiss watch makers very uncompetitive in terms of cost. Citizen emerged as the Global Market leader as they saturated the world market with cheap digital quartz watches. Swiss watch makers reacted by driving the prices higher and higher in the luxury watch segment and consequently completely lost the 500 million units market for watches less than $100. As time persist and the demand for low cost watches increases, the Swiss market containing only elegant watches with high prices were in line for declines (Exhibit 5-6).

1.4. 1990s – 2000s

This period in wrist watch industry belonged completely to Swatch. The birth of Swatch is a turning point for the Swiss watch industry. Swatch (“Swiss”+“Watch”) is a low budgeted, boldly fashionable watches designed by the