"The Birth of Swatch" Case Analysis

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Today we will present you the analysis of the case «The birth of swatch». First we willl give you the information about the background of the problem, then we will define the problem of the case and finally we will present you our recommendations. So, let’s start with the background.

In the 1940s the Swiss dominated the watch industry in large part because of their centuries-long history of jewelry-making expertise. Watchmaking was a source of national pride, and the “Made in Switzerland” label was a global seal of quality, status, and prestige. Around the world, the general public consensus was that the only “good” watches were Swiss watches. , the Swiss accounted for 80% of the world’s total watch production and 99% of all U.S. imports. In 1950s several Japanese companies—including Hattori-Seiko and Citizen—had taken over the Japanese market. Then these Japanese watch manufacturers pushed into Europe and North America as well. The result was that, even as worldwide demand for watches grew, the Swiss share of the global market declined, from 80% in 1946 to just 42% in 1970 In 1970, the introduction of quartz technology changed the nature of competition in the watch industry once again. The rise of quartz technology hastened the decline of the Swiss watch industry. Swiss watchmakers had refused to embrace quartz based on the belief that electronic watches were unreliable, unsophisticated, and beneath Swiss quality standards.By 1984, more than three-fourths of the watches sold around the world were based on quartz technology (most were manufactured in Hong Kong), and by 1986, Citizen had become the overall global leader in both movement and finished watch production volumes. Now, as Japanese watchmakers saturated the global market with quartz watches at rock-bottom prices, Switzerland found itself unable to compete. By 1983, both of these companies were losing millions of dollars, and Switzerland’s unit share of the world watch market had fallen to less than 15%. There were three major price segment in the Worldwide watch industry in the early 1980s. Look at this figure. the first price segment is watches above 350$. 8 million units produced and switzerland market share is 97%. the second segment is watches between 100$ and 350$. 42 mln units were produced and switzerland has only 3% of market share. and finally watches below 100$. 450 mln units produced, the biggest amount and switzerland has(could you gues how many percent?) zero percent of market share. Hayek the CEO of SMH, the company that controlled many of the world’s best-known watch brands, including Omega, Tissot, Longines, and Rado, began executing a shift in the company’s strategy. Hayek’s low-end product initiative was a quartz watch called Swatch (“Swiss” + “watch”). Internally, the Swatch business strategy is centralized around three fundamental pillars, as described in the case study. This reflects vertical integration, decentralized marketing and portfolio management, with the goal of having a competitive brand in every price segment of the market. Prior to the Swatch’s launch, the company tested several prototypes in U.S. department stores. The tests were conducted without fanfare in markets such as Dallas, Salt Lake City, and San Diego. The results were not very encouraging. Additional tests were conducted in New York and Dallas; these tests only confirmed consumers’ lack of enthusiasm for the Swatch concept. The Swatch was launched in March 1983 in Switzerland, Great Britain, and the United States. A few months later, the Swatch was introduced in Germany and then in other European countries. Within a few years, it was available in almost every country and continent in the world. In most of these countries, the Swatch was an immediate success. For example, in the United Kingdom, the company had hoped for first-year sales of 50,000 units; instead, it sold 200,000 units. In fact, within two years of its initial introduction, sales...
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