THE WATCHMAKING INDUSTRY - PORTER'S FIVE FORCES

  

Competitive Rivalry 

In the watchmaking industry, there is a strong competition between firms, which are mainly portfolios brands. These firms as The Swatch Group, own different brands, covering several segments of the market. Each brand tries to develop its image, concept and storytelling. Also, firms compete through costly marketing campaigns to increase their influential power over their customers and new potential customers.

Potential Entrants

Highly competitive, divided between powerful firms, the watchmaking industry presents lots of barriers which represent big steps to overcome for potential new entrants on the market. The financial barrier is one of the most important. In fact, to create and design a range of watches requires to raise funds. Linked to this barrier, the technological part can be also a problem for potential entrants because a watch is a complex object. But it seems that the main difficulty for potential entrants is to compete with brands, as Swatch, which have a well-established brand image worlwide.

Bargaining Power of Buyers

On the watchmaking industry, it exists a large offer of very different watches. Due to the strong differenciation of the products between brands, customers don't switch easily from a product to another. In fact, it seems impossible for someone wanting to buy a breguet to finally switch for a Rolex, because, even if they are both luxury brands, they sell very different types of watches, in relation to their own positionning and story.

Bargaining Power of Supplier

In concret terms, it exists 2 types of situations concerning the suppliers in the watchmaking industry. The first one is brands as The Swatch Group which own their factories to create and assemble mecanisms. The second case is brands as Gucci, or Ice Watch which are not watchmakers and which need to order mecanims to (external) suppliers. In this situation, suppliers have a certain power of negociation about prices and schedules.

Substitutes

We can say that it doesn't really exist substitutes for watches, but the increasing development of the smartphones is evolving the situation. People become used to read the clock on their mobiles, it is why the watchmakers have to motivate them to wear watches, otherwise it could be a threat, especially for the low-cost segment.

JVS.

References

http://maven.wordpress.com/2008/01/11/a-new-version-of-porters-five-forces-model/

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BRAND ASSOCIATIONS

To continue our analysis of Swatch and Ice watch, we wanted to understand what the people were thinking about it. So we decided to conduct a little research and we have prepared a survey.

We have asked the people what adjectives or word they were associating with each brand (surveyed population = 31 people).

This analysis might look simple on the paper but is actually a really good way for the brands to clearly understand how they are perceived by the general population (consumers and non-consumers). Once the company is aware of this, they will be able to take the relevant action. For example in terms of communication, to emphasize or to change the people’s perception (in case of a bad brand association).

Here are the results for our two brands:

Could you guess which one is Ice Watch? And Swatch?

Versus

Word cloud on the top = Swatch

Swatch is described as a colorful, fun, Swiss and affordable brand.

All of this is very positive feedback. We had a very small minority of people who disliked Swatch. This is a good result for Swatch as it is in line with the image they want to give to their customers. We can also notice that people were describing the points of parity of the brand (affordable and fun watches), but could identified the points of differences (Swiss, quality).

Word cloud at the bottom = Ice Watch

Ice Watch on the other hand is described as a colorful, trendy, bling-bling, cheap, rough and even a copy.

This is pretty obvious people do not see Ice Watch as they picture Swatch.

Here, most of the adjectives are more negative and overall the feedback is not good. This is clearly something the brand needs to be aware of in order to survive.

In this battle, Swatch takes clearly the advantage in the people’s heart: Where Swatch is perceived as a solid and reliable brand, Ice Watch is a “disposable” brand, certainly colorful and cheap, but most of all as a trend that will not last.

FP.

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BRANDS PORTFOLIO ANALYSIS

The Swatch Group has developed a large brands portfolio (through acquisitions, joint ventures) on different segments: watches & jewelries; production; electronic systems and corporate. But here, we will focus on the watches& jewelries segment.

As we already read in the previous articles, Swatch Group is leader on global watchmaking market with market share of 17.4 %. Watches & jewelries segment represents 88% of Group’s global sales and continues to increase +9.1% in the first semester 2013. In this segment, the Group has 19 brands categorized into four ranges:

•   Luxury and Prestige range
•  High range
• Middle range
• Basic range

•          Luxury and Prestige range

This range repertories brands offering watches over 3000 francs (over 2500€): Breguet, Harry Winston, Blancpain, Glashütte Original, Jaquet Droz, Léon Hatot and Omega. All these brands are historical and prestigious brands with rich heritage in the watchmaking industry. Most of them are pioneered in conception of mechanical masterpieces in the field. They continue to be innovative and to impress by their know-how, the exceptional quality and complications of their watches.

The Luxury and Prestige range is the most profitable in the watches/jewelries segment. Omega achieves 2/3 of total range sales. The high-end luxury market pursues its growth (between 5% and 10% in 2013), sales are still good thanks to increasing demand coming from Asia. But the growth market tends to slow because of global economic slowdown. The Group’s brands are well positioned on this market and take advantage by grabbing more market share.

•         High Range

Longines, Rado and Union Glashütte are brands belonging to the High range. These are sophisticated watch brands with an excellent reputation in the industry. Indeed they are famous for their design, quality and technological innovation. The High range includes watches with prices from 900 to 3000 francs (from 800 to 2500€).

On the High range watchmaking market, Swatch Group is the global leader. On this market, the main advantage of Swatch Group is that all its competitors are positioned on the global luxury market therefore, for the Group, opportunities to gain market share and make more profit on this range are numerous. The Group’s brands are all in evolution, especially Longines which known growth with 2 figures in 2012.

•          Middle Range

Tissot, Calvin Klein, Balmain, Certina, Mido and Hamilton own to the Middle range. Again, these are watches with remarkable quality, recognized for their precision but the differentiation point with the “High range” brands is throughout their design, they are oriented more fashion and sport.  The high range includes watches with prices from 250 to 900 francs (from 200 to 800€).

Regarding the market, the Group’s Middle range is exactly in the same situation than the High range. The brands are positioned on niche market having high growth; where there is lot of opportunities to seize. In 2012, these brands known growth higher than their competitors positioned on the luxury market. We can explain the niche market growth by increasing of middle class in emerging markets such as Brazil for example.

•         Basic Range

There are just two brands in this range: Swatch and Flik Flak. These brands address to young people but with a totally different positioning. Swatch offers original and trendy plastic watches for young people from12 years old whereas Flik Flak is positioned only on children watches market. Swatch is the second most profitable watch brand of the Group (around 16% of total sales). The brands are very affordable with prices lower than 100€.

The children watches market and the entry-level watches market are both mature. Swatch and Flik Flak are leader in their own market.

To sum up lines above, we will use the BCG Matrix very useful to analyze and determine attractiveness and balance of brands or businesses portfolio.

•        Stars are the High range and the Middle range because they are businesses of Watches & Jewelries segment knowing high market share in a growing market.
•          Cash Cows are the Luxury, Prestigious range and the Basic range with high market share in a mature market with growth slowdown.
•          The Watches & Jewelries segment of Swatch Group has no Question Mark which means no businesses with low market share in a growing market and also no Dogs, businesses knowing low market share in a mature market.

As L. said in the article on branding strategies, Ice Watch has at the moment no brands portfolio. But in term of market share, Ice Watch is close to Swatch. Ice Watch market share represents 3.9% when Swatch (the brand) gets 5.2%. But Swatch keep its leading position on the entry level market (from 0 to 50€).

CG.

Source:

·         http://www.swatchgroup.com/en/brands_and_companies/watches_and_jewelry/prestige_and_luxury_range

·         http://www.fhs.ch/en/news/news.php?id=77

·         http://www.blscapital.dk/en/company/the-swatch-group/?tag=global*

·         http://www.swatchgroup.com/en/services/archive/2013/half_year_report_2013

·         http://www.lefigaro.fr/societes/2013/03/07/20005-20130307ARTFIG00450-swatch-group-porte-par-ses-montres-de-luxe.php

·         http://www.lefigaro.fr/culture/2013/01/22/03004-20130122ARTFIG00295-l-horlogerie-de-luxe-a-plein-volume.php

·         http://www.challenges.fr/entreprise/20120322.CHA4505/pourquoi-swatch-a-toujours-un-temps-d-avance.html

·         http://www.letemps.ch/Page/Uuid/8dfa5ee2-a8fe-11e2-920d-2852686e7c27%7C0#.Upe8dcTuIl4

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BRANDING STRATEGIES

In her book No logo: Taking Aim at the Brand Bullies, which is partly dedicated to brands and their consumer's society, Naomi Klein had rather deal with the lifestyle of Swatch than the product. According to her, " Swatch is not about watches, it is about the idea of time”, 1999.

Her position is in line with Kevin Lane Keller’s one, “A brand is more than a product”, 1998.

Indeed, at the end of the 1940’s, companies already had to admit brands are neither only a picture, nor a catchphrase, nor a mascot; but companies had to deal with brand identity or “corporate consciousness”. Besides, the branded world approach developed by theorists in the mid 1980’s assure corporations should first produce brands, then products in order to be on the same wavelength with their customers, who had rather buying brands than products.

My friend JVS had already deal with the reasons that had prompted the Swiss brand Swatch to its enormous success (see art. 3, SWATCH A FANTASTIC STORY) but one may wonder how Swatch permanently maintains its position through its branding strategy.

First, it should be borne in mind that Swatch is part of the Swatch Group (SG), the world’s largest watchmaking company. The SG has been successful in generating a worldwide brand identity thanks to the group’s powerful and efficient branding strategy. 



- BRAND ARCHITECTURE -

Several theorists have developed architecture models related to the management and the relationship of brands but we will focus on the theory of Dr. David A. Aaker’s, who did the conceptualization of “brand architecture”. 

There are:

• The Branded House (also called a Monolithic architecture), where all products and/or services offered by the company are using the same corporate name (e.g. Virgin Group, which have kept the same name for beverages, mobiles, airlines, hotels, etc.).
• The Endorsed Brands, where all products and/or services offered by the company are linked together and are using an endorsing parent brand (e.g. Ritz by Nabisco and Oreo by Nabisco).
• And what matters most to us, the House of Brands (also called a Freestanding architecture), where all products and/or services are individually branded for their own target market.

Indeed, the SG is a House of Brands, in other words, the parent of a dozen freestanding brands.

As you can see in the table below, the eighteenth brands of the SG, such as Swatch, Tissot, Longines, Breguet or Omega are together targeting and covering all segments of the horology market, from the Basic Range to the Prestige and Luxury Range through the Middle and High Range.

Category	Brand	Acquisition date	Sales in million CHF	% of total watch sales	Selling price ranges (CHF)
Prestige and Luxury Range	Omega	1983	1 325	33,9	> 1 800
	Blancpain	1992	115	2,9	> 10 000
	Breguet	1999	305	7,8	> 10 000
	Léon Hatot	1999	5	0,1	> 10 000
	Jaquet Droz	2000	9	0,2	> 10 000
	Glashütte Original	2000	60	1,5	> 10 000
	Harry Winston	-	-	-	-
High Range	Longines	1983	380	9,7	900 to 3 000
	Rado	1983	365	9,3	750 to 4 000
	Union Glashütte	2000	-	-	-
Middle Range	Tissot	1983	395	10,1	300 to 900
	Hamilton	1983	138	3,5	350 to 2 000
	Certina	1983
	Mido	1983
	Balmain	1987
	CK Watch	1997	150	3,8	150 to 1 500
Basic Range	Swatch	1983	640	16,4	< 70
	Flik Flak	1987	-	-	-

The branding strategy of the SG enables firms to distinctly position brands on functional benefits and to target niche segments. In this way, brands are enjoying a high level of clarity and leverage whereas if these distinct brands were restricted to the same brand, they naturally won’t be as differentiated and as successful as they are today. Thus, although they are not part of the same category, Omega (direct competitor of Rolex) and Swatch (entry of level of the SG) alone are representing more than 50% of the group’s total watch sales. 

Unlike the Swiss company, Ice Watch has no portfolio yet.

The Belgian company can neither rely on the strength, nor on the expertise and experience of its group. Indeed, Ice Watch counts a lot on its communication (including product placement particularly, but we will deal with that later). 



- BRAND MANAGEMENT -

Swatch does neither apply a differentiation strategy, nor a low cost strategy (Porter) but an “hybrid” one’s, which gathers both low cost of production and high differentiation. Beyond this strategy, Swatch took advantage of its expertise to develop new products.

In line with its motto “Always new, always different”, Swatch knows no border and has developed concentric and conglomerate diversification through new products in different industries: watch-making, fashion, electronics and even automobile!

To name but a few, Swatch has launched in the early 1980s the Maxi Swatch, which is the modern version of a wall clock (line extension: expansion of an existing product line by differentiating the nature’s product level), the sunglasses Swatch-Eyes (brand extension: expansion of the brand itself into new market), and the Smart, product of the collaboration between the Swatch Group and Mercedes-Benz (co-branding: new category).

While Swatch has tried different diversification strategies, Ice Watch just started to sell its own sunglasses, Ice-Watch Eyewear (brand extension) in 2013. As colorful as their watches, we wish them to outperform the original Swatch-Eyes, which were withdrawn from the market in 1994 because of the inadequacy with Swatch (weak control of subcontractors and high risks of poor quality). 

LH.

Sources:

Naomi Klein, No logo: Taking Aim at the Brand Bullies, Vintage Canada, 2000 
Pierre-Yves Donzé, Histoire du Swatch Group, Collection Focus, Editions Presses Universitaires Suisses
http://www.swatchgroup.com/en/brands_and_companies/watches_and_jewelry

http://www.brandchannel.com/education_glossary.asphttp://distility.com/building-brand/what-is-brand-architecture/ 
http://equibrandconsulting.com/services/brand-consultant/brand-architecture/exampleshttp://www.meltystyle.fr/ice-watch-lunettes-de-soleil-rentree-2013-devoilees-a197707.html  

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