swatch group: seizing the opportunities from the new ... group: seizing the opportunities from the...

Swatch Group: Seizing the opportunities from the new

smartwatch marketPresenting to CEO Mr. Nick Hayek

May 2016

Heinrich Heine University Duesseldorf:

Louisa Schuessler, Ursula Hilgers, Johannes Gerlach, Hannes Kurz

DuesseldorfConsultingMandate

May 2016 Heinrich Heine University Duesseldorf 2

How to respond to new competitors producing smartwatches especially to the Apple Watch

DuesseldorfConsultingRecommendation

Enter the smartwatch market with a highly technological product in all price segments.


DuesseldorfConsultingAgenda

1. The development of the smartwatch market

2. The Swatch Group

3. Entering the smartwatch market?

4. Implementation of the Smart Swatch• R & D• Product• Distribution

5. Outlook

6. Wrap-up


DuesseldorfConsultingThe Swatch Group’s revenues are mostly generated from the luxury segment

95%

5%

Luxury segment Others


You need to offer an alternative for the luxury segment instead of the Apple WATCH

• 18 watch brands • 36,000

employees• 50 countries

27%

73%

Prefer Apple watch Prefer traditional watches

DuesseldorfConsultingDevelopment of Swatch Group’s net sales and net income

6764

77968456 8709 8451

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0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2011 2012 2013 2014 2015

In m

n CH

F

Net Sales Net Income


Well development of net sales and financial situation

CAGR: 5.7%• Equity ratio: 84.7%• Balance sheet total: CHF 13,270mn• Employees: 35,783

DuesseldorfConsulting

6764

77968456 8709 8451

1276 1608 19281416 1119

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2011 2012 2013 2014 2015

In m

n CH

F

Net Sales Net Income

Development of Swatch Group’s net sales and net income


Tackle the decreasing net sales and net income in the currently changing market environment

CAGR: -3.0%• Equity ratio: 84.7%• Balance sheet total: CHF 13,270mn• Employees: 35,783

CAGR: -11.1%


The smartwatch market is increasing by an average of 49.14% where the Apple WATCH is the dominant player in the advanced smartness sector

30.32%

50.40%

66.71%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

Market growth for smartwatches

2015 2016 2017


You need to improve your technological smartness in order to compete with Apple

Luxury

Mass market

Low Advanced Smartness

Apple WATCH EDITION$10,000 - $17,000

Apple WATCH HERMES$1,100 - $1,500

Apple WATCH$549 - $1,099

Apple WATCH SPORT$299 - $349

Swatch Touch Zero One$130

TISSOT$1,100


The target group of watches can be divided into “Traditionals” and “Technology Lovers”


You need to assess which target groups will be addressed by your product

High

Low


Price segment

“Technology Lovers”“Traditionals”

Customer needs for smartwatches:• Touch navigation • Mail, calendar, messages• Multimedia• Waterproof

DuesseldorfConsultingKey issues

Assess the importance of technological

development for the Swatch Group Ltd.

Determine future market positioning

Tackle the decreasing

financial performance


DuesseldorfConsultingShould Swatch Group Ltd. enter the market of smartwatches?


AlternativeCriteria

Enter the market of smartwatches

Staying in the traditional Swiss watch market

Growth opportunity

Customer needs

Existing competition

Brand heritage

DuesseldorfConsultingShould Swatch Group Ltd. enter the market of smartwatches?


AlternativeCriteria

Enter the market of smartwatches

Staying in the traditional Swiss watch market

Growth opportunity

Customer needs


Brand heritage

DuesseldorfConsultingWhich customer group should be targeted?


AlternativeCriteria

Technology lovers Traditionals

Growth opportunity

Customer needs


Brand heritage

The “Smart Swatch”

DuesseldorfConsultingThe implementation of the Smart Swatch


R & D Product Distribution

DuesseldorfConsultingThe development of Smart Swatch for Technology lovers with a partner

Criteria for partner

• Experience• Reputation• Lead time

Contract

• Production• R&D• Long term• Banning own smartwatch

Department

• 50 people• Coordination • Swatch heritage• Competencies


Create the Smart Swatch with an advanced technology and build up the necessary competencies in house in the long term


Further development of the Smart Swatch to eliminate the need for a second device and increase the battery life

Universities

• Stanford• Oxford• ETH Zurich

Start-ups

• Competitions

R&D

• Innovation Center• Increased

expenditures

Marketing agency

• Conjoint analysis• Cluster analysis


Meet the increasing customer needs and survive the upcoming competition

DuesseldorfConsultingThe price ranges and design of your Smart Swatch

Smart Swatch I

• $250• Sportive band

Smart Swatch II

• $500• Black / brown leather band

Smart Swatch III

• $3000• Yellow gold wrist band


Serve all price segments with different wristband

Customization• Size of screen • Removable wristband• Name and picture engraving

• Round face of watch• Swiss craftsmanship frame

DuesseldorfConsultingThe multiple advanced functions of the Smart Swatch

Organizer

• Mails, messaging• Calls • Calendar• …

Health

• Activity tracking• Nutrition• Medical information

Technology

• High battery power• Waterproof (IPX7)• Inductive charging


Meet the increasing customer needs for a digital solution for life


Online shop

• Video tutorials• Live chat• Schedule appointment

in the nearby store

Own Swatch stores Retailer

Distribution via three channels

• Training of Swatch sales team

• Online Smart Swatch configurator


• Special sales areas in each stores for customers to test connectivity of Smart Swatch with their own devices

• Online tutorials for end customer sales staff (product information and connectivity)

• Support by Swatch sales team• Standard models in each store • In store configurator (same as online)• Catalogue for offline configuration

DuesseldorfConsultingImplementation plan and associated costs


2016 2017 2018 2018 2019 2020 Costs

Analysis of potential partners 800000

Negotiation with partners 200000

Build up the Smart Swatch Department with 50 employees 10000000

Market Research and developmen of app (marketing agency) 6000000

Development of configurator 500000

Education of sales persons 3000000

Shop arrangements 2000000

Building up in-house knowledge 15000000

Launch of Smart Swatch X

Total costs of implementation: CHF 37.5mn

DuesseldorfConsultingFinancing concept and financial outlook

• Take out a loan of CHF 40mn

• Duration: 10 years, interest rate 2.5%

• Yearly interest payments: CHF 1.0mn


Investments will be profitable in 2022

2018 2019 2020 2021 2022 2023

Net income 5 5.5 8 15 25 40

Accumulated 5 10.5 18.5 33.5 58.5 98.5

Break Even X

DuesseldorfConsultingThe Smart Swatch will compete directly with the Apple WATCH


With the slightly lower price you will be able to gain market share

Luxury

Mass market


Apple WATCH EDITION$10,000 - $17,000

Apple WATCH HERMES$1,100 - $1,500

Apple WATCH$549 - $1,099

Apple WATCH SPORT$299 - $349


Smart Swatch $3000

TISSOT$1,100

Smart Swatch $500

Smart Swatch $250

DuesseldorfConsultingOur expectation for your company in 2020


Continuous market research would identify changing customer expectations

Luxury

Mass market


Smart Swatch $3000

Smart Swatch $500

Smart Swatch $250


TISSOT$1,100

Products• Smart Watch • Traditional watches

Markets• Global presence as you

already sell watches worldwide

Customers• Technology lovers• Traditionals

DuesseldorfConsultingRisk and contingency

1. Appreciation of Swiss Franc as during the financial and European sovereign debt crisis Hedge currency risks on financial markets

2. Failing to meet customer expectations and “smartness” of Smart Swatch Increase marketing as well as R&D efforts

3. Dependence on cooperation partner contractual penalty and build up in-house knowledge management in the long term


1

3

2

Probability

Impact

DuesseldorfConsultingWrap-up

Assess the importance of technological development for the Swatch Group Ltd.

Tackle the decreasing financial performance




Thank you.

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