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Running head: The Birth of the Swatch 0

1. How would you characterize the state of strategy at SSIH and AUSAG before the arrival of Hayek in the early 1980’s?

In early 1980s, the Swiss watch industry was dominated by two companies: SSIH and AUSAG. SSIH was a private company founded in 1980 and holder of several popular brands including Omega and Tissot. The second company was AUSAG and it was combination of 100 different organizations including world famous brands. 97% of the Worldwide Watch Industry was dominated by Swiss companies and 80% of the Swiss industry was dominated by these two companies.

Before the foundation of SWATCH and arrival of Hayek, the Swiss watch industry was manufacturing high priced watch with jewels and it was considered high priced financial investment. The strategy model of SSIH and AUSAG is similar with the model of Sit down which was talked about in Taco Bell Case. The watches of SSIN and AUSAG were sold with very high price and implement with a specially emotion into the watches. However, the old strategy model had faced challenge of the innovation in the watch industry. For example, in mn195w, Timex, a U.S. based organization introduced disposable watches and quartz technology was also introduced in 1970. The quartz technology was same level accurate and less priced as compared to the watches manufactured by SSIH and AUSAG. The fundamental strategy of Swiss Watch Makers was manufacturing the high end mechanical and high priced watches. These companies offered wide range of products but limited editions. Quality of Swiss watches was high and compatible to requirement of the people. These companies spent 30% of their retail sales on advertisement. The message was the main success factor of their strategy.

Hence, these companies were confident about their business strategy and that’s ‘why, refused to accept the quartz technology as they called it electronic and less reliable. However, the profitability of the old strategy was not effective and the value drive was no longer greater than the cost drive. Less and less people thought the value of the luxurious watch with pearls and jewels is one of the most important reason to consume a watch. Therefore, SSIH and AUSAG failed to compete with U.S. watch manufacturing organizations and it resulted in free fall of Swiss Watch Market Industry. It was time when these companies think to consult Mr. Nicolas Hayek for the improvement of their continuously declining market share in Swiss as well as global watch industry.

1. What is the competitive strategy that Hayek chose to implement at the newly merged company of SMH once he took over? Define and justify.

“Consumer Segmentation and Product Differentiation” was the strategy that Hayek chosen to implement at the newly merged company of SMH once he took over. Actually, the Hayek agreed the idea of Japanese companies that were manufacturing the different watches for different consumers in different price ranges. According to Hayek, the scenario has been changed and now it is time to focus on the consumer preferences. The SWATCH will be emotional and new products according to the personality and purchasing power of consumer.

Hayek exemplified it through dividing the price ranges of watches according to their manufacturing country. The watch with the tag of “Made in Switzerland” will be costly; the watch with the tag of “Made in Japan” will be less expensive while the watch with the tag “Made in Hong Kong” will be cheaper as compared to previous two categories. Affordable price and high quality were also two key ingredients of Hayek’s strategy for new brand. Hayek further argued that SWATCH sells the personal culture.

Hayek defined the new brand’s strategy after a long term analysis of both external and internal market. After complete SWOT analysis, Hayek realized that Swiss companies lost a biggest opportunity through rejecting the Quartz technology. Hence, he decided to adapt the quartz technology for new brand to offer the less priced and fashionable products especially to middle class consumers. The new strategy that Hayek implemented followed the foundation of strategy which is profitability equal the function of value drive is greater than cost drive. Swatch has created with unique emotional and cultural and people are much welling to purchase a Swatch with an affordable and clean price.

1. What do you believe are the critical success factors that sustained Swatch’s competitive advantage? Explain and justify.

After reading the case, I believe that following critical success factors helped the SWATCH to maintain its competitive advantage.

• Consumer Segmentation and product differentiation

• The message: High quality product with low price and personality suited.

• Coherence between consumer personality and product.

• Clean Price: Affordable and Fix

• Unconventional retail approach

• Decentralized Marketing and Promotion

• Benchmarking the Japanese and Hong Kong competitors.

Out of these seven CSFs, the two most important CSFs are consumer segmentation and message delivered by the company to its consumers. SWTAC products were designed on the base of demographics segmentation of consumers. Different products were launched for different consumer classes as shown in the figure 01. Similarly, watches were fashionable and designed according to the personality of their consumers. An emotional attachment was created between watch and user.

Moreover, Hayek had made sure the SMH maintain the mission clarity between each segments on account of maintaining the success of SMH. For example, Hayek implemented the strategy of “give Omega back its message” when Omega was in trouble of mission frog. After Omega lower the price, people began to lose the believe of what Omega stood for. Therefore, Hayek helped Omega to rebuild its brand image and give Omega back its message. He let Omega became an elite watch for people who achieve and help sharp the world.

1. In the evolution of the watch industry, what technologies served as “disruptive” innovations? What impact does a disruptive innovation exert on the state of the impacted industry?

Regarding the given case, “The Introduction of Quartz Technology” served as the disruptive innovation in watch industry. The primary impact exerted by this disruptive innovation was creation of new watch market, rising up the competition, offering more options to consumers and free fall of Swiss watch industry. However the primary impact was “the emergence of low cost competition.” Actually, the introduction of quartz technology was an opportunity for Swiss watches makers to introduce the less priced watches. However, they missed it and it resulted in an immediate decline of their market share. A primary reason behind the success of SWATCH was the adoption of quartz technology as it was only one way to compete the Japanese and Hong Kong watch makers. Additionally, quartz technology forced the Swiss watch makers to go for product differentiation and giving more options to consumers regarding the prices of watches.

1. Provide three examples where you can see a disruption making a major impact on an existing industry. Explain how the disruption changes the focal, impacted industry.

Three examples where the disruptive innovation changed the scenario are listed below.

• Digital Photography

• Uber

• Cellular Mobile Phone in communication industry

In photography industry, Digital and HD photos changed the paradigms and offer the differentiation in scree resolutions results. Same phenomenon happened in taxi where Uber change the whole taxi industry. In communication industry, wireless cellular mobile phone was a great disruptive innovation which changed the world and made it a global village.