Positioning

Swiss watches usually rank in the higher- priced market segment. But Swatch used a different positioning approach: low price for high quality - but still including quartz accuracy, water and shock resistance.

Let's not forget that positioning is also the process by which marketers try to create an image or identity in the minds of their target market for its brand. This is where the real genius of Swatch's approach takes place: positioning the product as the famous "fashion watch" thereby creating a whole new market, much larger in size than the original watch market.

This positioning was, and still is, very innovative compared to those of the competitors. Swatch watches are to be put in the entry- level category of watches. Made out of plastic, they differ from those more traditional, stainless steel or leather watches. Swatch made the watch a fashion object, to be changed every season. The objective is to offer a watch for everyone, at any moment of his life. To paraphrase N. Hayek's words,"Swatch it about provocation colors, rejection of conventions. Swatch cocks a snook at pretentious and snob people. Swatch is made for rich and for poor, for men and women, for young and for old".

Even if this product is no technological invention per se, it revolutionized the use of the watch. Indeed, by making it a fashion accessory, Swatch managed to alter consumers' behavior. Watches are now consumables and most of all, a way to express yourself, which represents a real added value - it allow the customer to differentiate himself from others.This is why Swatches are so successful: you don't buy one only watch, but several of them, to better express your mood, or better fit with your outfit. This strategy enables small budget buyers to purchase a watch - but knowing that the production for each model is limited, you better buy the Swatch you like the first time you see it.

Based on the analysis of market trends and how market shares were captured, we find that each of the previous leaders captured the market share by innovation: Citizen was able to capture the market share by innovating a new way of creating watches that are cheaper than the industry standard at that time. Seiko was able to capture a big market share by innovating the quartz technology. Swatch was able to capture the market share by finding innovative uses of watches. 

(source: http://www.scribd.com/doc/75098982/Swatch-and-Global-Watch-Industry)

By making the watch fashionable and representative of one's personality, Swatch managed to reach a high brand awareness and most of all, a positive emotional connection. These features allow it to differentiate itself from its competitors in a stronger and more durable manner.

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: