A case study on the luxury watch market
The following case study is largely focused upon Prestige luxury watches but in order to give a context to the activities of this business also presents some background information on the luxury watch market and some information about a number of other brands operating in this market. A number of positioning matrices are included in the Appendix to aid understanding of the competitive market. 1.
The luxury watch market
Switzerland dominates the global watch market through a near monopoly on luxury watches. A long history, dedicated university and apprenticeship programs together with related and supporting industries, such as fashion and precision engineering, have created a rich environment of integrated and independent ǁĂƚĐŚŵĂŬĞƌƐŝŶ^ǁŝƚǌĞƌůĂŶĚ͛Ɛ:ƵƌĂƌĞŐŝŽŶ͘dŚĞ^ǁŝƐƐDĂĚĞůĂďĞů͕ƐƵƉƉŽƌƚĞĚďǇƚŚĞŐŽǀĞƌŶŵĞŶƚĂŶĚƌĞƐĞĂƌĐŚ focused institutions for collaboration (IFCs), has been of enormous benefit in marketing Swiss watches abroad, especially in Asia, which is the single biggest market. There is a danger however that the value of the Swiss Made brand motivates complacency and that the Swatch Group holds a near monopoly on part of the value chain (components).
Wristwatches fall broadly into two categories: mechanical and quartz. Mechanical watches rely on an ƵŶǁŝŶĚŝŶŐƐƉƌŝŶŐĂŶĚŵĞĐŚĂŶŝĐĂů͞ŵŽǀĞŵĞŶƚƐ͟;ĐŽŵƉŽŶĞŶƚƐͿƚŽƉĂĐĞŚĂŶĚƐĂĐĐƵƌĂƚĞůǇĂƌŽƵŶĚĂĚŝĂů͘YƵĂƌƚǌ watches rely on battery power and a quartz crystal oscillator to keep time accurately. Today quartz watches are more widespread because they are cheaper to produce and are more accurate. Mechanical watches mostly occupy the luxury segment, but many luxury quartz watches exist. Beyond the underlying technology of the watch however, the single greatest determinant of a ǁĂƚĐŚ͛Ɛ ǀĂůƵĞ ŝƐ ŝƚƐ ĐŽƵŶƚƌǇ ŽĨ ŽƌŝŐŝŶ͕ ŚĞŶĐĞ ƚŚĞ ŝŵƉŽƌƚĂŶĐĞŽĨƚŚĞ^ǁŝƐƐ ŵĂĚĞůĂďĞů͘&Žƌ Ă ǁĂƚĐŚƚŽďĞĂƌ ƚŚĞ͞^ǁŝƐƐDĂĚĞ͟ůĂďĞů͕^ǁŝƐƐůĂǁƌĞƋƵŝƌĞƐƚŚĂƚĂƚ least 60% of the components are Swiss, that the movement is cased up in Switzerland and that the final inspection of the watch happens in Switzerland. Despite the importance of this issue, the cost of components and movement assembly for a typical Swiss luxury watch is only around 6% of its retail price (Pictet, 2003).
The Swiss watchmaking industry is both prosperous and extremely secretive. Reliable figures are hard to come by, and are never provided directly by watchmaking brands themselves. Only the Federation of the Swiss Watch Industry (FH) regularly publishes official export data. Switzerland exported 28.1million finished watches in 2013, a drop of 3.6% on the previous year and continuing a downward trend. However, this figure only represents around 2.5% of the 1.2 billion watches manufactured worldwide over the same period. China is, in fact, the market leader in this respect, producing 634.4 million watches in 2013͘/ƚŝƐƚŚĞǁŽƌůĚ͛ƐůĂƌŐĞƐƚ exporter of finished watches, followed by Hong Kong, which produced 331.5 million. Switzerland comes in third place. However, the opposite is true when it comes to value, where Switzerland takes the lead, producing 95% of all watches sold at prices of over 1,000 francs. It should also be noted that, in 2013, Swiss watches cost on average 791 dollars having doubled over the last 12 years, as opposed to barely 3 dollars on average for watches manufactured in...
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