Branding Time: Swatch and Global Brand Management: Ram - Mudambi@temple - Edu
Branding Time: Swatch and Global Brand Management: Ram - Mudambi@temple - Edu
Branding Time: Swatch and Global Brand Management: Ram - Mudambi@temple - Edu
From the earliest periods man has used some form of time measurement, be it only the
seasons of the year or phases of the moon. As people began to congregate in villages,
and forms of religious ceremonies began, more refined methods of time measurement
were needed. Civilization in early times was concentrated in areas where there was lots
of sunshine and water aplenty for the then relatively small populations. Here time
keeping was developed along two main lines - from the shadow stick, probably the
earlier, and then the water clock. Sundials (first used in ancient Egypt, 1500-1300 BC)
and water clocks (developed by the Greeks, 400BC) were eventually developed to give
surprising accuracy. Various other methods were also used. Alfred the Great of England
was reputed to use burning candles to measure time (980 AD) while burning incense was
in use in China about the same time.
By the 1400s mechanical clocks were built in Europe using a mainspring and balance
wheel. In 1510 Peter Heinlein, a Nuremberg locksmith, introduced portability by
inventing the pocket watch. However, the accuracy of these clocks and watches was poor
and they usually required re-setting on a daily basis. In 1583, Galileo Galilei realizes that
the frequency of a pendulum's swing depends on its length and n 1657 Christiaan
Huygens used this theoretical advance to invent the first pendulum clock, capable of far
greater accuracy than any preceding timekeeper. But the clock did not work at sea, and
this was a crucial flaw.
1
This case has been written to provide material for classroom discussion. Only published sources were
used. Hence any opinions or interpretations presented in this case are not necessarily those of the Swatch
Group or any of its employees. Eston Griffin III, Frederick Null, Donald Rieck, Mathew von Wronski and
Elizabeth Zadzielski prepared the original presentation upon which this case is based.
Protestant Huguenots, were driven from many parts of Europe and found refuge in
Geneva, bringing with them numerous skills and handicrafts. Geneva had been a center
for the jewelry industry for centuries, but John Calvin and his followers frowned upon it
as a manifestation of luxury and excess. Calvin took power in Geneva in 1541 and
promulgated his Ordonnances Ecclesiastiques, one of whose provisions banned the
wearing of the jewelry. Huguenot jewelers rapidly turned their craft skills, knowledge of
metals and artistic flair to a useful industry watch making. The Watchmakers' Guild of
Geneva was formed in 1601 and was the first watchmakers guild in the world.
A century after Calvin, Geneva was becoming overcrowded and many watch makers
decided to move out of the city into the surrounding Jura Mountains. Watch making in
the Jura remains indebted to a young goldsmith called Daniel Jeanrichard (1665-1741),
who, for the first time, introduced the division of labor in watch making. By 1790,
Geneva was already exporting more than 60,000 watches.
2
Sobel (1995).
3
Federation of the Swiss Watch industry (FH) website, 2004.
Even as it continued to push the frontiers of technology, the Great Depression that began
in 1929 forced the Swiss industry to consolidate. In 1930, a number of firms including
Omega and Tissot banded together to form SSIH (Societe Suisse pour lIndustrie
dHorlogerie). Another large consolidation in 1931 led to the formation of ASUAG
(Allgemeine Schweizerische Uhren AG). Both groups included watch brands and
companies that were 150 to 200 years old.
SSIHs principal aim was to sell selectively and exclusively good quality Swiss products.
By taking over companies that produced high-quality movements as well as other brands
in the lower price segment, SSIH gradually managed to establish a strong position as the
pre-eminent Swiss watch manufacturer. Meanwhile, according to the companys statutes,
ASUAGs main purpose was to maintain, improve and develop the Swiss watch industry.
ASUAG initially amalgamated a number of companies that made movement-blanks.
However, it later absorbed firms manufacturing finished watches, which it merged to
form the subsidiary General Watch Co. Ltd. Both companies endeavored to combat the
major economic crises and unemployment of the 1930s through complementary research
and development programs in their respective companies. It proved difficult for both
SSIH and ASUAG to implement a common industrial policy for all of their diverse
subsidiaries.
In 1945, Swiss firms accounted for 80 per cent of the worlds total watch production and
99 percent of all US watch imports. The Swiss industry was composed of nearly 2,500
companies, almost all of which employed fewer than 50 people.4 All the while, the
quality and accuracy of Swiss watches continued to improve. In 1962, NASA bought an
Omega Speedmaster from a Houston jewelry store, subjected it to a battery of hellish
endurance and accuracy tests, and found it fit to fly in a spaceship around the world, and
eventually much farther. On July 20, 1969, when Apollo 11 made its historic lunar
landing, the Speedmaster became the first watch on the moon.
Technology revolutions
The commanding position of the Swiss industry, based on fine craftsmanship could not
last in the mass production era following World War II. US Time Corporation (later
Timex) used automation, precision tooling and simpler design to bring durable
inexpensive watches to market in 1951. While traditional jewelers were reluctant to carry
these low margin items, new channels like department stores, catalogue showrooms and
sporting goods outlets were rapidly developed.
4
Morrison (1999).
70
Demand
60
down by the Swiss industry, sold it the
55 2
Bulova Corporation of the US. Bulova
50
later formed a partnership with the Citizen
45 1
Watch Company of Japan to produce
40
35 0
movements for its watches.
1946 1950 1954 1958 1962 1966 1970
Year
The Swiss watch industry also invented
the quartz movement, but did not use the invention because it felt this technology would
destroy their existing market. Anyone could use the quartz movement, whereas only the
Swiss had the skills to make little cogwheels and balance springs. This classic
innovators dilemma almost killed the Swiss watch industry.5 Watchmakers in Japan
and Hong Kong eagerly grabbed the quartz movement, and in one year in the late 1960s
the sales of Swiss watches dropped by 25 percent. By 1970, the Swiss share of the world
watch market was down to about 40 percent and falling fast.6
To the brink
Things got steadily worse for the Swiss industry. By 1983, its share of world watch and
clock exports had fallen to about 25%. The number of Swiss firms in the industry fell
from 1618 in 1970 to 630 in 1983 and employment fell from about 90,000 to 34,000
during the same period. SSIH and ASUAG, the two largest watchmaking groups in the
country, faced liquidation. Their Swiss creditor banks were on the verge of selling the
valuable branded assets such as Omega, Longines, Tissot, and others to foreign
competitors, many of them Japanese. At this late stage, Nicolas G. Hayek, at that time
CEO of Hayek Engineering, received an assignment to assess the chances of survival and
to develop a strategy for the future of both companies. The now renowned Hayek Study
recommended:
(a) the merger of SSIH and ASUAG
(b) the launch of a low-cost, high-tech line of watches with an emphasis on design
The merger led to the formation of SMH and the watch line that Hayek recommended
resulted in the Swatch brand. Hayek took over as CEO of the new SMH Group that
established its headquarters in Biel, Switzerland. This watershed event not only created
new possibilities but also launched a new culture that would make the SMH Group the
largest watch-making company (in value) within five years.
5
Christensen (1997).
6
De Bono (1992).
What rescued the Swiss watch industry was a very unSwiss concept of the Swatch, a
simple and clever contraction of Swiss watch. Hayek recognized that telling time was
no longer the most important thing in a watch. A $5 watch tells time every bit as well as
a $30,000 watch. The Swatch was not selling time so much as fun and costume
jewelry.7 As Hayek told The New York Times, We were convinced that if each of us
could add our fantasy and culture to an emotional product, we could beat anybody.
Emotions are something that nobody can copy.
Swatchs approach to marketing was two-pronged approach. The first prong consisted of
high fashion and edgy design with very a short product life cycle. The link to high
fashion was developed through linking products and launches to European haute couture
as well as a wide-ranging program of celebrity endorsement.8 The intelligent use of a
few common platforms to generate literally thousands of models made it possible to
ensure that product life cycles were sometimes measured in months. The second prong
consisted of the sponsorship of high profile special events and public relations activities.
In its first full year of existence, Swatch was listed in the Guinness Book of World
Records for the 13-ton 162 meter high Swatch at the headquarters of Commerzbank in
7
De Bono (1992).
8
Swatch launched the Pop Swatch at Prt a Porter fashion show in Paris. It used celebrity endorsers
ranging from Cindy Crawford and Michael Schumacher to young stars in youth and fun oriented sports like
freestyle skiing, surfing and breakdancing. At the same time, it associated its luxury brands with images of
sophistication, e.g., product placement of Omega as the watch of 007 in James Bond films.
In addition to its upstream marketing and creative activities, Swatch also vertically
integrated downstream, by setting up and running hundreds of Swatch outlets. These
included dedicated Swatch stores as well as shop-in-shops. The company particularly
focused on the travel retail sector, putting kiosks in dozens of high traffic airports. Since
the retail markup in the watch industry is as high as 80%, the development of this
retailing expertise was to prove hugely profitable for the Group.
By the mid-1990s, it was clear that the Swatch revolution had saved the Swiss watch
industry. Through Swatch, the Swiss had successfully made the transition to quartz
technology and had created just the right mixture of fashion and technology to re-invent
the Swiss made label (see Appendix). As fashion accessories, Swatch was able to
multiply the number of sales per individual. Swiss watch exports increased from just
over CHF 4 billion in 1986 to CHF 8 billion in 1995. Life was good in the Jura
Mountains again.
In 1998 SMH officially changed its name to the Swatch Group. The Group had a
worldwide market share of 14% in the luxury, prestige and top range (prices greater than
$300). In the US, its market share in this category was 21% while in the mass market
(prices less than $50) its share was only 9%.
In the 1990s Swatch continued to consolidate the Swiss watch industry. It acquired
Blancpain in 1992, along with its subsidiary company Frederic Piguet. In 1999, it
acquired Favre & Perret, a highly reputed Swiss manufacturer of watchcases, as well as
Groupe Horloger Breguet SA. Glashutter Uhrenbetrieb GmbH and Montres Jaquet-
Droz were added to the Swatch Group in 2000. In addition, Swatch continued to acquire
a number of small electronic component manufacturers to maintain its commitment to
technology.
This ongoing consolidation was not limited to Switzerland. In 1999, the French luxury
group LVMH acquired Tag Heuer, one of the big groups in the Swiss industry. However,
by the turn of the century, Switzerland still had about 600 watch-making companies with
about 34,000 employees, in addition to three big groups Swatch, Vendome (now known
as the Richemont Group) and Rolex.
In the 1990s Swatch was still relatively weak in North America. Therefore it
aggressively attacked the US market, opening a mega-store in New Yorks 5th Avenue in
1996, becoming the official timekeeper to the Olympic Games in Atlanta and mounting a
gigantic Swatch to count down the time to New Year, 1997 in New Yorks Times Square.
As a result of these moves, Swatch was able to increase the share of its sales in the US
substantially. In 2003, Swatch sales in the US made up 19% of worldwide sales. For the
Swatch has continued to perform well in terms of overall group results. Even through the
difficult recessionary years of 2001-2, the Group was able to record an eviable record of
performance and increase employment. It outperformed competitors in the luxury
segment like LVMH, as well as in those in the value segment like Citizen. (See Exhibit
2).
These results seemed to indicate that Swatch is well positioned for the future. Hayek,
however, was not sanguine. He continued to see danger ahead, mainly in the form of
increased competition from Asian producers and what he has termed mistakes of other
Swiss firms.
Asian markets
China (including Hong Kong) continues to be the largest watch producers in the world by
volume, manufacturing about 80 percent of world production in 2004. However, they
compete in the bargain segment that is largely ignored by Swiss manufacturers, including
Swatch. The average export price of a Chinese watch was CHF 7 in 2004 compared to
CHF for CHF 378 for a Swiss watch, a multiple of 54. Further, China and Hong Kong
continue to be one of Swatchs most important markets and are generally considered to
be the ones with the greatest growth potential.9
Thus Swatch has made significant moves to maintain its advantage in this market. It has
offices in Shanghai and Beijing and has a factory in Zhuhai that produces quartz
movements for the local market. A big part of its China strategy has been its sponsorship
of the 2008 Beijing Olympic Games. It has secured rights to be the official timekeeper at
the Games. Its current commitment to the Games totals about $47 million and is likely to
rise to $100 million by 2008. In the runup to the Games, Swatch plans to place a giant
Olympic Countdown Clock in Tiananmen Square in Beijing. It is opening retail stores
in all brand segments and rolling out its all its top brands in China particularly Omega,
Longines, Breguet, Jaquet Droz, Glashutte-original and Leon Hatot.
As of August, 2003, Swatch had twelve flagship stores in Hong Kong and mainland
China, as well as close to 200 retail outlets. At the end of 2003, Swatch opened
boutiques at both Beijing and Hong Kong International Airports. As Swatch
spokesperson summed up its Chinese retail strategy thus: We need to be in all key
cities. The company feels that this market is key to its overall future growth and that it
is crucial to generate first mover advantage here. Tariff rollbacks and the abolition of the
watch and clock import quota in 2005 (associated with Chinas entry into the WTO) will
further expand the Chinese market. As Hayek has put it, Looking at the growth rate the
China market has now, this opening may not last. This is a unique opportunity. For the
9
China already constitutes the largest import market for clocks and watches, representing about 30% of the
worlds imports of these products in 2004.
The downside in China (whose currency was pegged to the US dollar), as in many other
markets, continued to be the strong Swiss franc, which exerted upward price pressure on
Swatchs products. Representatives of Swatch and the Swiss watch industry generally
constantly complained to their government about what they perceived to be competitive
handicap generated by Swiss macroeconomic policy.
Japanese competitors continued to migrate upward in the watch brand space. However,
the average export price of a Japanese watch in 2004 was still only CHF 27. The upper
end of the Japanese competitive spectrum did compete directly with the lower end of the
Swiss industry. Both Citizen and Seiko internationalized their production facilities with
factories in Hong Kong, Korea, China and Germany. They competed with Swatch in
more than 100 countries. Swatch felt therefore that it was imperative to compete with
their manufacturers on their home turf and devoted substantial resources to ensuring
successful performance here. The Swatch Bijoux took the first prize in the 2003 Super
Goods of the Year consumer event, one of the most prestigious business events in Japan.
The company opened its flagship store in the Ginza district of Tokyo on July 6, 2004.
This is a multi-storey marquee building with an exhibition room to showcase Swatchs
luxury brands.
Swatch considered India to be one of the key emerging markets for the future in Asia.
Swatchs India strategy was based on highlighting differentiators at all points of
contact. An India specific collection was developed to target a wide cross-section of
trend conscious consumers. The objective was to build an aspirational brand image
targeting newly emerging class of fashion conscious youth with disposable income. The
company sought to constantly raise Swatch profile in front of the consumer. To this end
it invested in a high frequency, high decibel multimedia campaign in television and print.
It supported this communication campaign was an aggressive focus on distribution.
Swatch entered India in January 2000, and by 2004 it had 60 outlets in the country.
These included two executive stores and kiosks in Delhi and Mumbai as well as alliances
with a number of trendy store chains like Shoppers Stop and Planet M. Swatch also has a
presence in stores like VAMA, Eternia and Benzer in Mumbai and Ebony in Delhi. New
Swatch retail stores are in the works for Mumbai as well as second tier cities like
Chandigarh, Hyderabad, Calcutta, Chennai, Bangalore and Pune.
Swatch Today
At the end of 2003, the Swatch Group was the second leading producer of watches in the
world after Japans Citizen Watch Company Ltd. It had a worldwide employment of
nearly 21,000, manufactured about 25% of the worlds watches and operated 160
10
Horologe Association of China.
Hayek11, now aged 75, believes that maintaining a technological edge the key to the
survival of the Swiss watch industry. He claims that heavy investments in manufacture
and innovation are the only way to maintain this edge. This may be why he has
maintained such a high degree of vertical integration in the Swatch Group. Hayek has
accused Swiss watch companies outside his group of relying too heavily on blank
movements bought from the Swatch Group company ETA SA12 and ignoring production
themselves. His buyers have accused him of trying to cement ETA as the dominating
producer of Swiss watch movements, a move which they say threatens their existence in
the industry.
ETA sells so-called bauches or incomplete watch movements to third parties. It has a
dominating upstream position in the Swiss watch industry. Most smaller watch
companies, both Swiss and worldwide, buy their movements from ETA. Even the
Richemont Group, one of the big three Swiss watch groups whose luxury brands include
Cartier, Piaget, Vacheron Constantin, Jaeger-LeCoultre and Baume & Mercier, is heavily
dependent on movements supplied by ETA.13 Of major watch firms, only Rolex and
Seiko manufacture their own movements.
However, ETA has said it wants to halt deliveries by the end of the year 2005. This has
prompted a storm of protest from companies not belonging to the Swatch Group. I said
I was not going to deliver any more of my movements unless they try to do their own
production, Hayek said in January 2003. Otherwise the Swiss watch industry will
suffer exactly the same problems it had before and it will go down.
Clearly the Group Swatch believes that the Swatch brand is a unique competitive asset.
The irony of Swatch may be that even while it trumpets itself as Swiss technology for
11
Hayek and his family control about 37% of Swatch stock. He stepped down as CEO of Swatch in late
2002, but remains the Groups chairman. With a fortune of $2.4 billion, Hayek is the 6th richest person in
Switzerland and was 256 on the Forbes list of the worlds richest people in 2003. His son, Nicolas Hayek
Jr. is the current CEO of the Group.
12
ETA SA Fabriques dEbauches is headquartered in Grenchen, Switzerland, employs more than 10,000
people worldwide and supplies the movements for watches to all Swatch brands which themselves organize
production and distribution of the finished products. The worlds third largest manufacturer of movements,
ETA SA has over 15 production sites in Switzerland, Germany, France, Thailand, Malaysia and China. In
1998, ETAs revenues exceeded one billion Swiss francs. (Cf: Alt, Fleisch and Osterle, 2000).
13
In addition to ETA, Swatch also controls the Nivarox-Far company, which has a virtual monopoly on the
production of balance springs for luxury mechanical watches. Even Rolex buys balance springs from
Nivarox-Far, though it does maintain a limited amount of manufacturing capacity.
EXHIBIT 2
25
Swatch
20
15
Citizen
10
5
LVMH
0
1999 2000 2001 2002
EXHIBIT 3
14
SOURCE: Swatch 2003 Annual Report.
EXHIBIT 7
15
SOURCE: Deutsche Bank Alex Brown
Watches, clocks and alarm clocks manufactured in Switzerland bear the designation Swiss made (or its
abbreviation "Swiss") as well as the logo of the producer or distributor. This label (place of origin in
legal terms) enjoys a solid reputation throughout the world. And globalization of trade has done nothing to
diminish its importance. Swiss made embodies a concept of quality that has been forged over the years. It
includes the technical quality of watches (accuracy, reliability, water-resistance and shock-resistance), as
well as their aesthetic quality (elegance and originality of design). It covers both traditional manufacturing
and new technologies (micro-electronics). The intrinsic value of the Swiss made label is the result of
considerable efforts on the part of watch-making companies, who are ultimately responsible for
maintaining its reputation.
While prestigious brand names have thrived, they have never relegated the Swiss made label to a
secondary place. The brand names and Swiss made have always worked together in an alliance that
provides the consumer with a compound guarantee. It is hardly surprising that this asset attracts
counterfeiters. Swiss made has to be constantly protected on every market. Providing this protection is
one of the principal tasks of the Federation of the Swiss Watch industry (FH) that conducts an on-going
battle through legal and administrative channels to thwart anyone abusing the Swiss name. The weapons
used in this battle are the laws of each of the countries concerned, backed by international agreements.
These include bi-lateral treaties signed by Switzerland with several European countries as well as multi-
lateral conventions drawn up by the World Intellectual Property Organization and by the World Trade
Organization, e.g., the Trade-related aspects of Intellectual Property Rights (TRIPS) agreement.
Recognizing that it must set the example, Switzerland reinforced the legal instruments at its disposal. A
new law on the protection of brand names and place of origin was passed on 28 August 1992 and it
introduced more severe punishments. The Swiss customs authorities keep a vigilant eye on all imports,
exports and merchandise in transit.
Moreover, a law regulating the use of the name Swiss for watches sets out the minimum conditions that
have to be fulfilled before a watch merits the Swiss made label. This law is based on a concept according
to which Swiss quality depends on the amount of work actually carried out on a watch in Switzerland, even
if some foreign components are used in it. It therefore requires that the assembly work on the movement
(the motor of the watch) and on the watch itself (fitting the movement with the dial, hands and the various
parts of the case) should be carried out in Switzerland, along with the final testing of the movement. It also
requires that at least 50% of the components of the movement should be manufactured in Switzerland.
Certain regions in Switzerland have their own place of origin labels. One of the most renowned is
Genve, which identifies top-quality timepieces made in the city and canton of Geneva. Like Swiss
made, this label is very popular with counterfeiters and therefore benefits from continuous protection
within the framework of the FH's anti-counterfeiting program. The Swiss watch industry is very active in
safeguarding the integrity of Swiss made and its other regional labels of quality.
Legal Specifics
A Swiss watch
Only when it is Swiss, may a watch carry the indications Swiss made or Swiss, or any other expression
containing the word Swiss or its translation, on the outside. According to Section 1a OSM, a watch is
considered to be Swiss if:
- its movement is Swiss;
- its movement is cased up in Switzerland;
- and the manufacturer carries out the final inspection in Switzerland..
A Swiss watch movement
As we have seen, to be Swiss, a watch must use a Swiss movement. According to Section 2 OSM, a
movement is considered to be Swiss if:
16
This appendix is based on information drawn from the Federation of the Swiss Watch Industry (FH)
website, 2005.
Christensen, C. (1997). The Innovators Dilemma: When New Technologies Cause Great Firms to Fail.
Harvard Business School Press, Boston.
De Bono, Edward. (1992). Sur/petition: Creating Value Monopolies when Everyone Else is Merely
Competing. HarperBusiness, New York.
Morrison, Allen. (1999). Swatch and the Global Watch Industry. Ivey Case #9A99M023, University of
Western Ontario.
Sobel, Dava. (1995). Longitude: the True Story of a Lone Genius Who Solved the Greatest Scientific
Problem of His Time. Walker, New York.