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Swatch Group: It’s About “TIME” DeGroote Consulting, Strategy Division

Sarah SchweinbergerBriana KnowltonMichael WidlickiShelby Gorelle

Opportunity Statement

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Should the Swatch Group incorporate technological features with its Swiss watch elements to compete directly with the Apple Watch in the smartwatch segment?

Recommended Solution

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It’s About

TIMEWe recommend that the Swatch Group does not compete directly with Apple.

Instead, the Swatch Group should stay on top of technology trends by expanding its product line to include sensory capabilities and develop a Swatch activity tracker.

How? Using the TIME methodology!

Key Considerations

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Key Considerations

5Key Issues Analysis Alternatives Solution Execution Contingencies

Importance

Urge

ncy

High

Low

Low HighBrand Protection

• Swiss watches are synonymous with quality• Swatch Group has a long standing

heritage in this industry that it must protect

Brand Protection

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TIME

Key Considerations


Importance

Urge

ncy

High

Low

Low HighCustomer Preferences

• Today’s customers are tech-savvy, demand a high degree of transparency and personalization, and are becoming less loyal to brands overall

• That being said, Apple is world renowned and has inspired significant levels of repeat buying

Brand Protection

Customer Preferences

It’s About

TIME

Key Considerations


Importance

Urge

ncy

High

Low

Low HighSmartwatch Product Obstacles

• There are four key obstacles current smartwatch users report:

• Battery life• Smartphone linkage• Screen size• Price

• These must be considered if the Swatch Group commits to the smartwatch industry

Brand Protection

Product Obstacles


It’s About

TIME

Key Considerations


Importance

Urge

ncy

High

Low

Low HighCurrency fluctuations

• The Swiss franc is currently strong (through implied to be overvalued) resulting in decreased revenues on a dollar basis

• Sales volume decreasing also as a result of relatively high selling price

Brand Protection


Product Obstacles

Currency Fluctuations

It’s About

TIME

Key Considerations


Importance

Urge

ncy

High

Low

Low HighPast Smartwatch Challenges

• Failed smartwatch partnership with Microsoft in 2004

• Swatch Group moved too early and the technology did not resonate; must learn from past failures

Brand Protection


Product Obstacles

Past Challenges


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TIME

Key Considerations


Importance

Urge

ncy

High

Low

Low High

Key Takeaway: The Swatch Group must balance its brand heritage with the demands of consumers and technological advances.

Brand Protection


Product Obstacles

Past Challenges


It’s About

TIME

Analysis

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Industry Analysis: Smartwatch


Rivalry within the Industry

Threat of New

Entrants

Supplier Power

Threat of substitutes

Buyer Power

It’s About

TIME




Threat of New

Entrants

Supplier Power


Buyer Power

Threat Level: Low/Medium

• Apple and Samsung dominate industry• Many small players attempting to take small

market share• It challenging to become a dominant

player; unlikely that a new “big” player will enter

It’s About

TIME




Threat of New

Entrants

Supplier Power


Buyer Power

Threat Level: Low/Medium

• Physical apparatus suppliers is low (it has all been commoditized)

• “Smart” technology is medium because there are two operating platform options: iOS (Apple) and Android

• Apple generally does not share technology; Android is more open

It’s About

TIME




Threat of New

Entrants

Supplier Power


Buyer Power

Threat Level: High

• Many substitute options to choose from• Smartphones• Tablets• Laptops• Timekeeping watches• Activity trackers

• The utility of a smartwatch is redundant

It’s About

TIME




Threat of New

Entrants

Supplier Power


Buyer Power

Threat Level: High

• Technology buyers are “flavor of the month” focused

• Jewelry (ex. Timekeeping watches) have staying power

• Technology does not; it generally obsolete within 2 years

It’s About

TIME




Threat of New

Entrants

Supplier Power


Buyer Power

Threat Level: High

• Apple dominates the industry• Samsung and Motorola also offer

smartwatch options• Remainder are small players that are

aggressively seeking market share

It’s About

TIME




Threat of New

Entrants

Supplier Power


Buyer Power

Key Takeaway: The smartwatch industry is technology; it is not jewelry. While the appeal of jewelry has stood the test of time, there has yet to be a technology company or product that has done so.

It’s About

TIME

Ansoff Matrix


Existing New

New Product Development Diversification

Existing Market Penetration Market Expansion

MarketPr

oduc

t

Key Takeaway: If the Swatch Group chooses to compete in the smartwatch segment, it must pursue a product development strategy to address the product obstacles.

It’s About

TIME

Customer Profiles


Timekeeper Watches

SmartwatchesActivity Trackers

There are three sub-segments in the watch industry.

Each sub-segment appeals to a different group of customers.

It’s About

TIME

Customer Profiles


Timekeeper Watches


Target Customer: Joe Segment

Who is Joe?

• Age: 45, bank manager• Looking for a functional accessory• Income level and price sensitivity vary, but

the core need to satisfy are consistent:• Functionality – tells time effectively• Fashion – appealing design

It’s About

TIME

Customer Profiles


Timekeeper Watches


Target Customer: Jillian Segment

Who is Jillian?

• Age: 36, Vice President of Brand Marketing• Health conscious and active; looking to

understand her own habits and improve• Budget conscious to a degree• Core needs:

• Accuracy of tracker readings• Visually appealing

It’s About

TIME

Customer Profiles


Timekeeper Watches


Target Customer: Steve Segment

Who is Steve?

• Age: 24, software engineer• Tech-savvy and early adopter of

technology• Fad-chaser, looking for the next best thing• Willing to spend extra to have the best in

technology, but may not spend extra for style alone

It’s About

TIME

Customer Profiles


Timekeeper Watches


Key Takeaway: Through the various brands in its portfolio, the Swatch Group is currently targeting customers in the Joe segment (at various levels of price sensitivity).

It’s About

TIME

DuPont Analysis


2012 2013 2014 2015Performance

NI/Revenue 20.57% 22.80% 16.26% 13.24%Revenue/ Total Assets 74.75% 72.69% 68.29% 63.67%Total Assets/ Total Equity 1.22x 1.22x 1.19x 1.18x

ROE 18.71% 20.14% 13.27% 9.95%

ROE = Profit Margin x Asset Turnover x Financial Leverage

Key Takeaway : Short-term Swatch Group can use leverage to bolster Performance but a Long-term Solution will have to focus around selling larger volumes while maintaining margins.

Product Life Cycle: Smartwatch


Sales

Time

Innovators

Early Adopters

Early & Late Majority

Laggards

It’s About

TIME



Sales

Time

Crossing the “Chasm”

Innovators

Early Adopters


Laggards

One of the most challengingobstacles that technology companies face.

It’s About

TIME



Sales

Time

Crossing the “Chasm”

Innovators

Early Adopters


Laggards

Key Takeaway: Apple already has a massive customer base to tap when offering a new product; initial sales will be large. However, they have yet to “cross the chasm” and projections are speculative.

It’s About

TIME

Apple Revenue % of Totalby Product Revenue ($) Revenue

iPhone 155,041 66.34%iPad 23,227 9.94%Mac 25,471 10.90%Serv ices 19,909 8.52%Other Products 10,067 4.31%Total 233,715

Alternatives

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Should the Swatch Group compete with Apple?

Alternative 1: Get Smart


• Evolves with shifting trends and markets

• Targets “Steve” the early adoptor

• There are multiple brand avenues to pursue

• Will expand customer base

• Not aligned with current core competencies

• Smartwatch category is currently in its infancy and has not “crossed the chasm”

• Will rely on external companies and partners

Key Takeaway: By pursuing this alternative, the corresponding Swatch product would become a gadget, and no longer be an accessory.

Compete directly with Apple by offering a full smartwatch.

It’s About

TIME

Alternative 2: Stay Classy


• Targets Joe• Aligned with existing

brand identity• Jewelry is proven to

have staying power; rarely devalues over time

• Leverages existing core competencies

• Lack of innovation (do not want to become Nokia or Blackberry)

• Risk of becoming irrelevant if the smartphone industry “takes off”

• Missed opportunity to increase customers

Key Takeaway: Traditionally, organizations that have failed to innovate fell behind in their respective fields – the Swatch Group could be risking future sales with this alternative.

Do not move into the smartwatch segment/compete with Apple at this time.

It’s About

TIME

Alternative 3: Fashion with Function


• Targets Jillian• Caters to classic target

customer and includes people looking for technology solutions

• Captures high growth market

• Keeps the Swatch Group relevant and on –trend

• Less risky approach than full commitment

• Risk of commoditization of sensor technology

• Potential loss of brand focus

• Industry is also in its infancy; higher risk than timekeeping industry

• Has not been proven to generate returns

Key Takeaway: This alternative opens the door into the “smarter” watches industry; however, it is a paced approach, with far less risk than direct competition with Apple.

Do not compete with Apple at this time; offer an activity tracker to gauge trend longevity.

It’s About

TIME

Decision Matrix


Key Considerations Weight Get Smart Stay Classy Fashion with Function

Brand Protection 0.3 3 5 5

Customer Preferences 0.3 5 3 5

Product Obstacles 0.2 1 5 3

Currency Fluctuations 0.1 1 1 1

Past Challenges 0.1 1 3 5

TOTAL 1.0 2.8 3.8 4.2

0 – does not address5 – full addresses

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Implementation Plan

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Implementation Overview


It’s About

TIME

TTest and Tailor

I Industry Positioning

MMarket Launch

EEvaluate Performance



It’s About

TIME

TTest and Tailor

Preparation:• Leverage the “Swatch” product line and existing

sensors• Return to historical leverage ratio of 1.22x

R&D:• Develop a new product that is essentially the

“Swatch” activity tracker

Testing:• Alpha/beta testing to test sensors and technology



It’s About

TIME

I Industry Positioning

Preparation:• Conduct focus groups using “Jillian” participants to

test product look, feel, pricing and usability • Improve product features in accordance with

findings

Position in New Market:• Develop core messaging and advertising strategies

based on feedback from focus groups• Determine appropriate price point (~$100-300

estimate)



It’s About

TIME

MMarket Launch

“It’s 2017 and It’s Time to Track!”

Market Description:• Launch in the metropolitan United States, targeting

Jan 1 2017 (new years resolutions)• Sales channels - online and in-store bricks and

mortar (Swatch kiosks)• Future sales could look to partnerships with

technology warehouses (ex. Best Buy)

Advertising and Communications:• In-store product demonstrations• “What is your new years fitness resolution?” contest



It’s About

TIME

EEvaluate and Evolve

Evaluate performance using traditional key performance metrics:

Category KPISales Performance

Leverage Ratio

R&D Testing

Marketing Metrics

Sales volume (to control against currency fluctuations)

Target historical levels of 1.22x

Alpha and beta testing results

Store/kiosk sales vs. foot trafficImpressions via social mediaContest participation and voting rate

Implementation Timeline


It’s About

TIMETailoring, Testing and

Positioning (6-8months)

Market Launch(Jan 1 2017)

Evaluation (Jan 1+)

• Take on debt• R&D• Conduct testing and

finessing of product• Conduct focus

groups• Finalize positioning• Build buzz via social

media channels and in-store

• Official market launch with “What is your new years fitness resolution?” campaign

• Conduct continuous testing to gauge performance against KPIs

• Continue improving products based on customer feedback

Costs


It’s About

TIME(in USD 000's)

T PhaseSensor Production 500,000R&D / Testing 5,000

I PhaseFocus Groups 500Secondary R&D 5,000

M PhaseMarketing

Social Media 200In Store 200

E PhaseMiscellaneous 100

Total 511,000

Risks & Contingencies

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Contingency Plan


Situation Trigger Likelihood Recommendation

Current Sensor Team is overwhelmed

Production volumes are missed by 2-3% for

three consecutive months

LowIncrease team

accordingly to market demand

Market demands more technology

Product forecasts continue to skew

favourably for Tech wearables (20-30%

growth)

Medium

Increase R&D resources to

accommodate established demands

Eroding sales of traditional brands

Traditional jewelry lines (i.e Rolex) trend

negatively for 2-3 years

LowExpand Technologicalofferings into the pure-play jewelry products

It’s About

TIME


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It’s About



How? Using the TIME methodology!

Appendix

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Market Growth


Market Growth2015 2016 2017

SmarthWatch 30.32% 50.40% 66.71%Wristband 30.15% 34.97% 44.10%SportsWatch 21.02% 23.93% 26.92%Other Fitness Monitor 21.07% 21.11% 25.08%

Key takeaway: although not targeting the highest growth, +25% growth YoY is substantial and ultimately less risky