Is the apple watch killing the watch industry?

Jaqueline LedezmaMario MartinezDaniel FelixMauricio Martinez

EGADE BCG 1

EGADE BCG

Case 1; “Is the Apple Watch killing the Swiss watch industry?’ The Apple Watch – a threat or an opportunity for the Swatch group ltd?”is based on IMD Case: IMD-7-1844, available from the case centre at www.thecasecentre.orgcopyright © 2017 by IMD, Lausanne, Switzerland (www.imd.ch)

Mandate

EGADE BCG 2EBCG

• Should Swatch Group directly compete with Apple Smartwatch?

• Is it a threat or opportunity to grow market share of existing products?

• Should the company introduce new products?

• How can it integrate technology without destroying its brand heritage?

Agenda

EGADE BCG 3EBCG

• Recommendation

• Analysis

• Key issues

• Strategy

• Implementation

• Wrap-up

Recommendation

EGADE BCG 4EBCG

• Swatch Group should compete with Apple watch just through its Swatch

brand

• Use Apple’s smartwatch trend to grow market share of its watches

• Swatch Group smartwatch product line should compete in the low end

segment

Concentration of 90% of global exports (watches)

EGADE BCG 5EBCG

Asia

• HK• China• Singapore• Japan

America

• USA

Europe

• Switzerland• Germany• France• Italy• UK

China is the largest exporter of low-end watches

Swatch Group Sales Growth

EGADE BCG 6EBCG

6 764

7 796 8 456 8 709 8 451

0%

5%

10%

15%

20%

25%

-

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

10 000

2011 2012 2013 2014 2015

Swatch Group Sales

Net Sales Net profit margin

• Last 5 years strong growth, but declining profitsin 2015 by 21% due to strong swiss franc and decline

In exports

CAGR Sales – 6%CAGR Net Inc – (3)%

Concentration of 90% of global exports (watches)

EGADE BCG 7EBCG

Vs.Global sales

(%)Units sold (mill) Sales (blln $usd)

Average price unit ($usd)

Switzerland 2.5 29.3 22.9 737

China 58 678.5 5.2 3

Apple Watch 0.1 13.5 - *299 – 17k

By 2015

* Price range

Switzerland dominates the luxury segment ( 4.5x > than China)

Swatch Group sales push

EGADE BCG 8EBCG

B2C

• Luxury watches• Smart product

B2B

• Micromechanics• Microelectronics

Watch ingeneering technologies is the core competition

Engaging in the luxury market worldwide

EGADE BCG 9EBCG Although in the future, a combination of both can reinforce

Luxury consumer

27% prefer smartwatches

15% SW substitutes

luxury watches

73% prefer luxury watches

Key issues

EGADE BCG 10EBCG Having these in mind to create the best strategy

How to grow market share?

Maintain brand

heritage

Work with specific price

segments

Swatch Group Positioning

EGADE BCG 11EBCG

Brand reliability

In house development

Swiss bloodline

Easiness to use

Positioning

• Timeliness• Craftsmanship• High efficiency with lower parts• Strong brand presence

Swatch Group does not depend on third parties for its watches

EGADE BCG 12EBCG Swatch group has a vertical integration model

Designs watches Manufactures watches

Sells finished watches, jewelry and components

Distributors

Alternatives

EGADE BCG 13EBCG

Compete against Apples Smartwatch

- Mid-to-high prices- Direct competition with

Apple

Luxury Smartwatches

- Higher prices- New product for a high

end segment

Low-end segments: Swatch

- Lower prices- Existing products in low

end segment

Evaluation

EGADE BCG 14EBCG

DriversCompete against

Apple`s SmartwatchLuxury Smartwatches

Low-end segments: Swatch brand

Technology - - - + + +

Potential revenue + + + -

Brand alignment - - + + + +

Market knowledge - + + + + + +

Manufacturingcapabilities

+ + + + +

Strategy time frame

EGADE BCG 15EBCG

Steps/periods 1-6 months 6-12 months 13-18 months19-24

months

New product development

Heavy advertisingcampaign

Expanding boutiques presence

Second productintroduction

What are the possible risks involved?

EGADE BCG 16EBCG

Impact

Probability

New luxury players Currency

fluctuations

Successful low-end

price products

New product development

EGADE BCG 17EBCG A Swiss watch is a symbol of quality

Develop the new smartwatch in house at the SWATCH research facility in Switzerland to keep its swiss bloodline.

Smartwatch analysis

EGADE BCG 18EBCG

Smart technology

Feature including:• Cardiac frequency• GPS coordinates• Functionality: a small smartphone

• Limited battery life• Traceability• Needs to be paired with smartphone• Small screen size• High price

Strenghts Drawbacks

Apple Watch introduction is an opportunity for SwatchGroup

EGADE BCG 19EBCG People still prefer a regular watch

• People in the US were not using watches anymore

• Swatch can profit from Apple creating growing market demand for watches

Only 27% of global luxury consumers prefer Apple Watch to a luxury watch

Only 15% see Apple Watch as potential substitute for luxury watch

Customized swatch smartwatches –low end segment

EGADE BCG 20EBCG Take advantage of vertical integration

•Measures swimming time•Manages assignments•agenda

• Safety features•GPS• Barometer•Altimeter•Humidity levels

•Measures performance, steps, distance,calories

•Calories• Food intake•Weight•Cardio activity•Medicine tracking

Health conscious

watch

Smart touch zero

one

Student smartwatch

Mining and oil industry

• Suit specific requirements for sports: snowboarders,

swimmers, surfers, volleyball, soccer players

• Other categories: Students, health conscious, mining and

industry

Heavy marketing

EGADE BCG 21EBCG

Sports Events Kids Millenials

Advertising

EGADE BCG 22EBCG Target will be young and trend followers

Strong advertising campaign

• Millenials• Young adults• Kids• Sporting events

How to have presence

EGADE BCG 23EBCG Distribute the product on Swatch owned boutiques

Open new

boutiques

U.S.

Europe

Latin America

Asia

What about a second product?

EGADE BCG 24EBCG There is always going to be interest in the NEW product

Version 2.0 to be developed

• Keep interest in the product line• Improve any consumer needs• Keep up with updates and

competition

Wrap up

EGADE BCG 25EBCG Proposed strategy aligned with objectives

Determine threats and

opportunities

Maintain brand

heritage

Work with specific price

segments