Ali Grace Gustin 14200380

Corporate Marketing Strategy

Mary Lambkin 13 April 2015  

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TAG  Heuer  and  Wearable  Technology:                                  Should  the  Swiss  Watch  go  Smart?    

           

[Individual Assignment 4]

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Table of Contents    

I. INTRODUCTION   3  THE WONDERFUL WORLD OF “WEARABLES”   3  THE RUMORED TAG HEUER SMARTWATCH   3  

II. BRAND OVERVIEW: TAG HEUER   4  BRAND REPOSITIONING   4  

III. MARKET OVERVIEW: THE SMARTWATCH INDUSTRY   5  GROWTH TRENDS   5  CONSUMER ATTITUDES   7  

IV. TAG HEUER’S OPPORTUNITIES IN THE SMART-WATCH MARKET   9  ESTIMATED SPEND ON SMARTWATCH STRATEGY   9  RECOMMENDATIONS: A DESIGN TO OVERCOME THE INDUSTRY’S OBSTACLES?   9  

V. CONCLUSION   9  

VII. BIBLIOGRAPHY   11  

VIII. APPENDIX   12  ITEM 1: CONSUMER SMARTWATCH PURCHASING INTENTIONS BY PLATFORM   12  ITEM 2: BARRIERS TO SMARTWATCH ADOPTION   12    

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I. INTRODUCTION

The Wonderful World of “Wearables”

The term “wearables” or, perhaps more formally, “wearable technology” refers to any type electronic devices

that are worn on the body as an accessory, or even threaded into the fibers of clothing. Wearable devices may

include fitness bands, smartwatches, and other assorted devices like Google Glass eyewear and smart clothing

(Danova, 2014).

Consumer electronics industry analysts as well as enthusiastic early technology adopters have been paying

close attention to innovations in this market, which gained early popularity through health and fitness tracking

wristbands, Garmin GPS accessories for runners, and the Kickstarter funded Pebble smartwatch in 2013.

Analysts touted 2014 as the year of wearable tech and 2015 as, more specifically, the year of the smartwatch.

According to a recent report by NextMarket Insights, the smartwatch category was forecast to triple in global

product shipments from 5 million in 2013 to a total 15 million shipments in 2014. Furthermore, sustained

growth is expected for 2015, with smartwatch shipments reaching the 37 million mark (George, 2014).

Since the first smartwatch was released in 2013, a fodder of industry giants like Samsung and Sony have

developed their own smartwatch models, rapidly perpetuating a crowded and fiercely competitive $11 billion

market. The much-anticipated upcoming release of the Apple Watch is expected to accelerate the popularity of

this category of wearable technology (Euromonitor, 2014).

The Rumored TAG Heuer Smartwatch

In the wake of Apple Watch’s tremendous publicity, Swiss watchmaker TAG Heuer has announced that it will

partner with Google and Intel to release a luxury smartwatch on the Android Wear platform using Intel Chip

Technology. The companies are aiming to make a smartwatch that is both "luxurious and seamlessly connected

to its wearer's daily life," combining cutting edge wearable technology with the unparalleled design aesthetics

of the most celebrated Swiss watches (Langshaw, 2015).

The TAG Heuer product will be among the first to high-end smartwatches targeting tech-savvy and style-

conscious consumers, competing with LG electronics, China's Huawei and the $10,000 18-karat gold luxury

edition Apple Watch (Rooney, 2015). The product is expected to offer functionality similar to its predecessor

in the category, the Withings Activité. The design with embody the traditional classy timepiece look and

feature the traditional smartwatch fitness and health related functions such as steps taken, calories burned and

sleep patterns (George, 2014).

There are a number of factors that must be considered in order to come to a conclusion regarding the potential

success of Tag Heuer’s smartwatch. Analyzing growth projections for the overall smartwatch market, the

competitive environment—especially in light of Apple’s upcoming smart watch release, current barriers to

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smartwatches hitting the mainstream, the unique opportunities that these obstacles offer for the Tag Heuer

product, and finally, an estimation of the costs associated with launching the product.

Tag Heuer has a unique opportunity to revolutionize the smartwatch product in terms of fashion and prestige

and, as a result, appealing to the highly profitable market of consumers that purchase luxury Swiss watches.

Through detailed analyses of both trends within the wearable technology industry—particularly in the

smartwatch category, as well as TAG Heuer’s current position within the luxury jewelry and watches market,

the following report will prove that, albeit risky, entering the smartwatch market is an exciting and very likely

quite profitable strategy for the brand. With the introduction of the luxury smartwatch, the company can expect

not only to increase its own market share and revitalize the brand, but also add considerable value to

smartwatch products as a whole, which would in turn stimulate industry growth.

II. BRAND OVERVIEW: TAG HEUER

Tag Heuer is the leading brand in LVMH Moët Hennessy Louis Vuitton S.E.’s (LVMH) watches division,

with an estimated turnover of 1 billion Swiss francs and almost 1,000 employees (Jeannot, 2014). The

Swiss watchmaker designs, manufactures and markets watches and fashion accessories. The brand has a long

tradition of technological innovation in precision timepieces. The luxury sport watches and the TAG Heuer

name are associated with an array of competitive sports. The brand has provided official timing services for the

Olympics, FIS Ski World Cup, FIA Formula 1 World Championship and a wide range of other major

international sporting since the early 1900's (TAG Heuer, 2015).

TAG Heuer continues winning an active following among sports enthusiasts around the world. Throughout its

history, the brand has steadily built its reputation as a master of design and innovation while also emphasizing

a sense of tradition. Today, the brand is well established as a leading producer of prestigious sports watches

and chronographs. The TAG Heuer name is instantly recognizable worldwide and associated with a unique

brand personality and aesthetic style (TAG Heuer, 2015).

In an effort to maintain a brand image that epitomizes prestige and performance, the company has developed

active partnerships with actors like Leonardo DiCaprio, Brad Pitt and Cameron Diaz as well as world

renowned athletes including Cristiano Ronaldo, Jeff Gordon, Maria Sharapova, Jeremy Lin and Tiger Woods.

The Monaco Chronograph was even featured in the wildly popular AMC television series “Breaking Bad” as a

significant element in the show’s plotline (TAG Heuer, 2015).

Brand Repositioning

Jean-Claude Biver, the new head of the LVMH Watches Division, has instigated a repositioning strategy for

TAG Heuer. Biver and Stéphane Linder, TAG Heuer’s CEO, have expressed intentions to focus TAG Heuer’s

efforts on its core business—watches priced between 1,500 and 4,500 francs. This means a putting a stop to

the current up-market trajectory, effectively postponing the brand’s attempts to penetrate the “haute horlogerie”

market with luxury watches priced over about 8,000 francs.

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When interviewed about his repositioning strategy, Biver remarked, “Today, TAG Heuer is a strong, well-

structured brand that is very profitable and has succeeded in moving upmarket. Just remember where the brand

was ten years ago,” suggesting that proceeding with the final stage in the upmarket move would be imprudent,

as it does not fit the current market conditions (Jeannot, 2014). He went on to explain, “TAG Heuer watches

priced at 4,000 francs sell extremely well with an excellent turnover rate, which isn’t the case for those costing

8,000 francs or more” (Jeannot, 2014).

Higher tiered Tag Heuer products that compete with industry giants like Rolex and Omega have struggled to

find a niche among consumers. The company is still “aiming for the top” but the current market environment is

calling for a slight deceleration in these efforts to refocus on the mid range watch category (Jeannot, 2014).

TAG Heuer’s repositioning strategy represents a strong a marketing attempt to attract a younger target market.

The brand has reinvigorated and recycled marketing strategies that contributed to its success in the nineties.

One of these elements is the reimplementation of the “Don’t crack under pressure” slogan, which has been

updated for the 21st century and accompanied by a more timely advertising campaign. Efforts to appeal to a

new, younger clientele have also included the recent addition of Cristiano Ronaldo to TAG Heuer’s impressive

list of brand ambassadors. The brand’s recent announcement of its smartwatch development is consistent with

the overall strategy to target a younger market (Jeannot, 2014).

III. MARKET OVERVIEW: THE SMARTWATCH INDUSTRY

Wearable technology, for the second year in a row, seemed to be the most exciting buzzword at this January’s

Consumer Electronics Show. However, the innovations expected in this product range have turned out to be

remarkably limited (Henderek, 2015).

The small amount of differentiation that has occurred in the smartwatch category has primarily been centered

around designing and introducing additional features and functionality to the devices, such as on-device

cellular capabilities, music playback, more capacity for and a greater range of apps, broader third-party app

compatibility, better screens and experimentation with style and design aesthetics (Henderek, 2015).

Growth Trends

The global wearables market is expected to grow at a compound annual rate of 35% over the next five years

and hit 148 million units shipped in 2019. A recent Business Insider report projected that smartwatch

shipments alone will raise by a compound annual rate of 41% over the next five years as displayed in Figure 1

below. In 2014, smartwatches accounted for nearly 60% of all wearable device shipments with a total of 15.6

million units shipped. According to Business Insider projections, that share will continue to increase to just

over 70% of shipments by 2019 (refer to Figure 1 below) (Danova, 2014).

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The upcoming launch of Apple Watch is likely to stimulate the growth within the smartwatch market, perhaps

pushing it closer toward mainstream consumption. Industry analysts predict that the Apple Watch will account

for 40% of smartwatch shipments in 2015 and will peak at 48% share in 2017 (Danova, 2014). This proposed

growth trajectory of smartwatches suggests that TAG Heuer’s risk in entering the market would be relatively

low.

Historically Apple and Google and their respective operating systems have dominated the markets in which

they compete (i.e. smartphone and tablet). Thus, it is logical to assume that a similar pattern will emerge in the

smartwatch market. Because these platforms make up nearly 97% of the overall mobile market, many mobile

users interested in wearable devices will gravitate toward the Apple Watches and Android Wear-based devices

like the forthcoming TAG Heuer model (Danova, 2014).

Survey data from Nielsen indicates that wearables adoption in the United States market, which made up

roughly 80% of the overall wearables market in 2014, is following the same trajectory observed for tablet

adoption in 2011. About 6% of the survey respondents indicated already owning some type of wearable device.

Tablets saw the same level of market penetration at the end of Q1 2011—roughly a year after the release of the

first iPad. Assuming that smartwatches continue to follow the same trajectory as tablets, 33% of US adult

consumers will own a wearable device by Q2 2017 (Nielsen, 2014).

One may confidently predict that the trajectory will continue to match that of tablets, as wearables and tablets

have very similar sales characteristics. More specifically, both products are primarily off-the-shelf purchases

that are unsupported by subsidies, and they are merely a complementary good to the more traditional devices

in that neither product could effectively replace its predecessor—smartphones in the case of smartwatches and

Figure  1:  Global  Wearable  Device  Unit  Shipments  Forecast

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the PC in the case of tablets (Danova, 2014). Figure 2 below illustrates the growth trajectories of a number of

complementary devices that are dependent on either PC or smartphone devices.

Consumer Attitudes

In general, consumers seem dubious at best about the potential of owning a smartwatch device in the near

future. Wearables face a number of obstacles that must be addressed before this industry becomes mainstream.

Although the Apple Watch is likely to stimulate growth and interest in smartwatches and boost the overall

appeal among consumers, a number of innovations within the category will be necessary in order to avoid the

devices being written off as a fad.

In a recent Business Insider smartphone survey, only one-fifth of smartphone buyers expressed interest in

purchasing a smartwatch to pair with their current smartphone. Even within the 1,678 respondents who

reported having plans to purchase a new phone within the next six months, only 21% had plans to also

purchase a smartwatch in a similar timeframe. Notably, 31% of prospective iPhone purchasers indicated

interest in also purchasing a companion watch while only 12% of the respondents with plans to buy a new

Android device indicated such interest (refer to Item 1 in the Appendix for graphical representation) (Danova,

2014).

Figure 3 below illustrates the most common factors compelling consumers to purchase a smartwatch.

Particularly notable in this graph is that 27% of interested consumers currently wear a traditional timepiece and

find the additional functionality of a smartwatch exciting.

Figure 2: User Adoption of Connected Devices in the United States

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Though these respondents have not provided information on whether their current watch would fall into a

similar category as a TAG Heuer product, this data indicates that traditional watch consumers are in fact likely

to have interest in updating to a smartwatch.

As mentioned earlier, at this stage, smartwatch devices must be tethered to a smartphone or tablet to support

the most key aspects of the functionality. Specifically, without in-device Wi-Fi and dependence on Bluetooth

connections, the smartwatches must be in close proximity to a smartphone in order to conduct key tasks such

as fitness tracking, GPS services, and messaging (Danova, 2014).

For example, the Apple Watch will use location data from the iPhone to track steps which is an enormous

inconvenience for athletes hoping to benefit from the health and fitness aspect of the device, as they will have

to run with both the smartwatch device and the iPhone in order to take advantage of any fitness tracking

functions. As time progresses and developers seek to add value to these products, it is plausible that the

smartwatches will evolve from companion devices to fully connected, autonomous computing hubs (Danova,

2014).

Other barriers to mainstream smartwatch adoption also persist, leading to uncertainty about the industry’s

overall growth potential (refer to Item 2 in Appendix for chart). First, there is a lack of a persuasive use case

for the devices. This may be addressed with a design of one particularly important or revolutionary application

that introduces an explanation of why consumers need to own a smartwatch. Finally, the issue of style and

design aesthetics is a serious obstacle to consumer adoption. TAG Heuer, a brand known for style and

performance, may be positioned to release a product that both inspires need and appeals to style-savvy, luxury

watch consumers (Danova, 2014).

Figure 3: Main Reasons for Planning to Buy a Smartwatch

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IV. TAG HEUER’S OPPORTUNITIES IN THE SMART-WATCH MARKET

Estimated Spend on Smartwatch Strategy

Google and Intel are expected to fund the majority of costs associated with the technological side of

development of the TAG Heuer smartwatch, which suggests that TAG Heuer will primarily be responsible for

investing in the marketing strategy (Yahoo News, 2015).

In order to estimate the cost of a well executed marketing strategy for TAG Heuer’s device, one must consider

the ad spend of its competitors in the smartwatch market. Apple has spent $38 million on its “Watch

Reimagined” campaign since the official announcement of the Apple Watch in March. In 2013, Samsung spent

$31 million in advertising for the Galaxy Gear smartwatch. However, both of these brands are known for their

involvement with innovative smart technology (Perlberg, 2014).

On the other hand, TAG Heuer will be entering this market for the first time and therefore will require extra

marketing effort to stand out among the already trusted and popular competition. Based on competitor spend

and the assumption that TAG Heuer will need to work a bit harder to achieve growth in the smartphone market,

$40 million would be a fair estimate of marketing costs associated with launching the device.

Recommendations: A Design to Overcome the Industry’s Obstacles?  Tag Heuer’s greatest opportunity in this market is to release a product that unites the modern day utilitarian

functions of the watch—i.e. fitness tracking, messaging etc., with the fashion, design aesthetic and style

aspects that consumers value in traditional watches that are primarily worn as jewelry. TAG Heuer is

positioned to marry luxury design with advanced technological performance and, in so doing, will attract a

younger clientele to the brand as well as introduce the smartwatch category to luxury Swiss watch customers.

Partnering with Google and Intel will allow Tag Heuer to add innovation to the smartwatch category. The

Android operating system is likely to be the most used platform smartwatch devices, following the trends

observed in the smartphone category. This means that for any future development of innovative smartwatch

applications will likely happen using the Android Wear system or Apple’s iOS. The TAG Heuer device, then,

is clearly poised for technological innovation that will make the luxury product appealing to the younger, more

tech-focused early adopter market as well as the more style and fashion oriented Swiss watch enthusiasts.

V. CONCLUSION  In light of TAG Heuer’s opportunities to revolutionize the category, expand the popularity of smartwatches

overall, and create an air of couture around the advanced technological devices, it is clear that the strategy to

expand business into the wearable technology industry, if well-executed, is likely to prove profitable and

increase the brand’s popularity among younger markets.

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Though the costs are high at $40 million projected ad spend, the TAG Heuer brand obviously does not hesitate

to make hefty investments in lavish marketing as evidenced by its ambassador program and involvement with

high performance sports. Furthermore, based on the assumption that the device will likely overcome some of

the most difficult obstacles to smartwatch adoption, the brand can expect that its investments in marketing will

offer high returns.

The uncertain climate in the smartwatch industry makes entrance into the market risky, but given TAG Heuer’s

recent repositioning strategy combined with the brand’s ability to introduce luxurious Swiss watch design

aesthetics and style to the technology of wearables bodes well for the product’s overall popularity and

profitability. Based on this report’s analyses of the TAG Heuer brand and the trends within the smartwatch

market, it is evident that launching the product will not only increase its own market share and revitalize the

brand, but also add value to the overall smartwatch category, which would in turn stimulate future industry

growth.

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VII. BIBLIOGRAPHY

  Danova, T. (2014) The Wearable Computing Market Report: Growth Trends, Consumer Attitudes, And Why Smartwatches Will Dominate. Available at: http://finance.yahoo.com/news/wearable-computing-market-report-growth-192528241.html [Accessed 8 April 2015]. Euromonitor. (2014) The Present and Future of Smart Accessories – Global Briefing. Euromonitor. (2015) LVMH Moët Hennessy Louis Vuitton SA in Luxury Goods (World) – Global Company Profile. George, N. (2014) Tag Heuer to unveil its first smartwatch at CES 2015. Available at: http://www.t3.com/news/tag-heuer-to-unveil-its-first-smartwatch-at-ces-2015 [Accessed 5 April 2015] Henderek, W. (2015) Wearable Market Trends and Signs of What Is To Come. Available at: https://www.npdgroupblog.com/wearable-market-trends-and-signs-of-what-is-to-come/#.VSqrPxPF_MR [Accessed 5 April 2014]. Jeannot, M. (2014) TAG Heuer’s repositioning: Jean-Claude Biver explains all. Available at: http://www.wthejournal.com/en/news/view/tag-heuers-repositioning-jean-claude-biver-explains-all [Accessed 6 April 2015]. Langshaw, M. (2015) Google, Intel and TAG Heuer team up to make the ultimate smartwatch. Available at: http://www.digitalspy.co.uk/tech/news/a636477/google-intel-and-tag-heuer-team-up-to-make-the-ultimate-smartwatch.html#~p9rwcoT7pk2jVD [Accessed 5 April 2015] Nielsen. (2014) Tech-styles: are consumers really interested in wearing tech on their sleeves? Available at: http://www.nielsen.com/us/en/insights/news/2014/tech-styles-are-consumers-really-interested-in-wearing-tech-on-their-sleeves.html [Accessed 9 April 2015]. Perlberg, S. (2014) Apple Enters The Smartwatch Market — But Will Its Ad Dollars Follow? Available at: http://blogs.wsj.com/cmo/2014/09/09/apple-watch-marketing/?mod=WSJ_cmo_today&mod=wsj_cmohome_cmoreport [Accessed 7 April 2015]. Rooney, B. (2015) Tag Heuer to make Google-powered smartwatch. Available at: http://money.cnn.com/2015/03/20/technology/google-tag-heuer-smartwatch/ [Accessed 4 April 2015]. TAG Heuer. (2015) Corporate Website. Available at: http://www.tagheuer.com/int-en/home [Accessed 8 April 2015]. Yahoo News. (2015) Luxury brands hedge their bets with smartwatches. Available at: http://news.yahoo.com/luxury-brands-hedge-bets-smartwatches-221522379--finance.html [Accessed 6 April 2015].

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VIII. APPENDIX

 

Item 1: Consumer Smartwatch Purchasing Intentions by Platform  

   

Item 2: Barriers to Smartwatch Adoption