Market Overview - Porter's 5 Forces

By Guillaume


The watch industry analysis

The bargaining power of buyers :

When consumers are looking for a watch, they are confronted to the multitude of brands competing and the various segments : fashion brands watches, haute-horlogerie watches, mass-market watches, etc. As we have seen previously, the number of watchmakers is very important and therefore, buyers have to make a choice. The different criteria involved in the decision-making process may be :

·       Price – we can find watches for 10€ as well as spending thousands of euros

·       Quality – made in China vs. Swiss made

·       Style – colorful plastic watch vs. Leather wristband and golden watch

·       Size – from the Piaget Altiplano (2.35mm thick) vs Rolex Sea dweller (15mm thick)

·       …

 

This important number of competitors means a broader offer to the consumer, which enhances his bargaining power. This power is also reinforced by the fact that buying a watch is usually not an utility purchase. This point is more and more true as people have time on their mobile phones and a watch is becoming of a second importance.

The bargaining power of suppliers :

There is an important difference between the mass market brands and premium ones. If both of them often have the « swiss made » inscription, they have two different meanings. For the first ones, the watch components are usually made in a low labour cost country, with a low to medium quality, and then are assembled in Switzerland, allowing the watch to be « swiss made ». For the second ones, both manufacturing the components and assembling them are made in swiss by the company, which is often synonym of a good quality. For the first group of manufacturers – that includes Swatch, suppliers don’t have to have a very strong know-how, and can therefore be relatively numerous. This is diminishing their bargaining power over watch brands.  

The threat of new entrants :

Eventhough the haute-horlogerie segment has very strong barriers to entry (manufacturing costs, brand heritage, distribution selection…), Swatch can be attacked by new entrants. Indeed, its products are simple, accessible, playful, and colorful – the exect opposit of haute-horlogerie watches – and entering this segment does not have very specific requirements (as brand heritage can be). It also can be attractive as there are not a very strong competition on this specific segment.

The threat of substitutes :

The way we use a watch shifted drastically these years. As the wristwatch was a revolution (opposed to the pocket watch), the mobile phones are changing the rules of the industry. The utilitarian aspect of a watch a decreased a lot, the time being now available on mobile phones, computers, and more. People would rather consider a watch as a style accessory, an expression of their personality. Therefore, we can see the threat of substitute as relatively high. The primary function of watches – that is giving the time ! – is seriously challenged by all the electronic devices we carry everyday (mobile phones, mp3 players, Kindles/iPads, laptops, etc.).  

The Five Forces of the watch industry: