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The Birth of Swatch

The country where the product was made gives the perception of quality and value for
money for the respective product. For centuries, Switzerland has been known for its expertise in
watchmaking that requires skill of master jewelry maker combined with artistic micromechanical
engineer. Swiss watch is a global seal that portrays the wearers quality, status, and prestige. By
1945, Swiss watch accounted for 80% of the worlds total watch production and 99% of all U.S.
imports. However, the first wave of turbulence was faced when an American company U.S. Time
introduced a line of disposable watches bearing the Timex brand name. This was followed by the
quartz technology, by which watch companies could reduce their manufacturing cost and sell at a
much lower price. Japanese companies such as Hattori-Seiko, Citizen, and Casio emerged out of
this technology, capturing a greater market share in Asia and Europe with these low-cost
watches. Though the Swiss had pioneered quartz technology, they paid no heed based on the
belief that electronic watches were unreliable, unsophisticated, and beneath Swiss standards.
They were adamant that Swiss watch had to be made from precious stones, complex mechanical
architecture, and very high priced.
With such skeptical views, the Japanese industries gained more market, while the Swiss
declined to just 42% in 1970. It was during this time when the two Swiss companies ASUAG
and SSIH merged to form Societte Suisse de Microelectronique et dHorlogerie (SMH) and
Nicholas Hayek took over as the CEO. SMHs new goal was to capture competitive brand in
every price segment in the market. The strategy was based on vertical integration, decentralized
marketing, and portfolio management. The Swatch was born in 1983 with stylish design, plastic
covering, quartz technology and a very low price of $40. Hayeks motive was to assign Swatch
as an emotional product with a message a strong, exiting, distinctive, authentic message that
tells people who they are and why they do. The global success of Swatch and its brand
association revived the sunken Swiss company, and its other products such as Omega and Rado.
Even though Hayek was successful to take SMH to greater heights and regain global
market share, Swatch and SMH still faced problems as of 1992, despite its sales of 26 million
and cumulative sales surpassing 100 million. Hayek has considered that Swatchs 10 years
consistent price of $40 has shown the companys concern for customers value for money.
However, by doing so, SMH has to rely on gross unit sales of Swatch forever. Though the selling
price can remain same, the cost price increases every year. So in order to achieve a positive net
profit, SMH always has to look into increasing volume sales, or to compensate by increment in
price in high-end watches. Swiss watches comprise only 18% of total world volume of watches,
while Japan has 41% and Hong Kong 20%. This is primarily due to the fact that most of SMH
sales are in Europe and Asia. It has not been able to capture market in America, Australia, and
Africa, though they have watch designers from these regions.
Though Hayek persisted on using the quartz technology for the watch, the production has
been limited to analog quartz in all low-end to high-end segments. Quartz technology can be

used to manufacture digital watches, which have more functions such as accuracy in
milliseconds, alarm, stopwatches, etc. Japanese companies have heavily invested in digital quartz
to achieve greater market share in total watch volume, while Swiss companies still have to enter
the digital world. Swatch had 26 million sales out of world total of 939 million sales in 1993,
giving it a market share of mere 3%. This may have caused due to SMHs inability to make
significant effect in America, and not entering the digital quartz watch segment. Swatch brand
has extended to new areas such as telecommunication devices (pagers and telephones) and
automobiles (environment friendly Swatch concept car). Consumers associate the Swatch brand
simply to wristwatch and nothing else. Just because pagers are wrapped around our wrist and that
has the same quartz technology does not mean they work like watches. Moving into
telecommunication can dilute consumers brand association towards Swatch. Their skills and
mastery lies in centuries old craftsmanship of watchmaking and not automobiles. Here, they will
be competing against stable brands such as Toyota and Honda, who are producing eco-friendly
cars as well.
Swiss watch comprised 99% of all U.S. imports in 1945. Their influence decreased with
the emergence of U.S. Timex in 1951. Despite 40 years time, they still havent gained
substantial American market. Most of the Swatch campaigns were based on European regions
only. They should promote such campaigns in U.S. as well, which is indeed a huge market. The
Japanese companies have marked their presence, but Swiss companies havent, thus lagging
behind in terms of percentage of total world sales. People look for precision in seconds and
milliseconds. Such precision is possible only with digital technology. Japanese companies have
profited from this, while Swiss companies still need to make an entry. Instead of producing
digital pager, they can use the digital technology to produce digital watches with Swatch brand
name. Diversification into telecommunication and automobiles under the Swatch flagship should
be halted. Otherwise, this will confuse consumers as to what the brand Swatch should be
associated with something that tells time.