1. Spencer Rosen
Javier Fungairino
Antonio “Chuck” Paguio
Guillaume Beck
Sophia Liang

2. Agenda History Swatch Today Industry Analysis Financial Position
Our Proposal
Swatch
Today
Industry
Analysis
Financial
Position
Our Proposal

3. Development of World Watch Market
Rolex
Traditional
Swiss brands
17th~mid 20th Century: Swiss brands dominate the world market
Prestige, Design,
Exclusivity
History
Swatch
Today
Swatch
1984:
Launch of Swatch
Industry
Analysis
Seiko, Citizen
Cheap HK brands
1950s~1970s:
Seiko, Citizen, Casio re-invent the industry: Analog and digital quartz technology
Cheap digital quartz watches from Hong Kong
Low
Price
High
Price
Financial
Position
Our Proposal

4. 1970s Crisis in the Swiss Watch Industry
History
World Market = 500 million watches
Swatch
Today
World market
Swiss Share
(%)
(%)
Luxury
8 m 1
Industry
Analysis 97
Middle Range 3
42 m 9
Financial
Position
Low Range
450 m 90
Our Proposal
Swiss watches = Jewelry = Life time investment

5. Swiss direct labor > 30 % Total cost
COMPETING ON PRICE
History
Benefits
Swatch
Today
Price
Industry
Analysis
Fixed Cost
Financial
Position
Variable Cost
Swiss
Japanese Hong Kong
Our Proposal
Swiss direct labor > 30 % Total cost

6. Hayek’s 4 Strategic Recommendations (1980)
History
Technological innovation
Vertical integration
Expansion of production
Compete in all watch segments
Swatch
Today
Industry
Analysis
Strategic Intent
compete in high volume market
control quality and costs
Financial
Position
Our Proposal

7. Watch Unit Production Cost
History
Benefits
Swatch
Today
Price
Industry
Analysis
Fixed Cost
Variable Cost
Financial
Position
Japanese Hong Kong
Swatch
Swiss
Our Proposal
Swatch charged “Swiss-made” premium but operated at similar costs as Japanese and Hong Kong competitors

8. The Swatch Value Chain History Swatch Today Industry Analysis
THE ONGOING CHALLENGE FOR SWATCH
History
High quality, high value
Margin
Mass marketing of individualized products
Low costs despite high wages in Switzerland
Swatch
Today
Inbound Logistics
Operations
Outbound
Logistics
Marketing & Sales
Service
Margin
Industry
Analysis
Vertically Integrated
Fast moving
Fashion Watch
Seasonal
Non-conventional Marketing
Olympics, F1
Internet Time
Fashion Shows
Financial
Position
All in Switzerland
Highly automated
Economies of scale
Our Proposal

9. Swatch Today Marketing Mix: The 4 P’s
History
Swatch Today Marketing Mix: The 4 P’s
Swatch
Today
Industry
Analysis
Financial
Position
Our Proposal

10. One profitable growing global brand in every segment
PRODUCT & PRICE
Swatch group Watch sales
History
Price US$ 40
110
600
+500k
Longines
Tissot
Certina
Mido
Hamilton
Pierre Balmain
Swatch
Flik Flak
Rado
Omega
Blancpain
Swatch
Today
44%
60%
10%
Industry
Analysis
14%
Financial
Position
42%
Our Proposal
One profitable growing global brand in every segment

11. PRODUCT: From Low-end to Mid-market
From Plastic to Metal
Unconventional product
Life Cycle Extension
Emotional product “Always new, Always different”
History
Swatch
Today
Industry
Analysis
Financial
Position
Our Proposal

12. PLACE: Swatch’s distribution network
History
Swatch
Today
Brick & Mortar
Swatch Store
Swatch Megastore
Online Store but only for limited markets
limited customization on Internet
Industry
Analysis
Financial
Position
Our Proposal f
A1-Misc-Basic Slide Formats-

13. PROMOTION History Swatch Today Industry Analysis Financial Position
Unconventional promotion
Olympic Games Official Timekeeper
Online expansion SIT (Swatch Internet Time )
Swatch Club – Customer Loyalty & Following
Swatch
Today
Industry
Analysis
Financial
Position
Our Proposal

14. Industry Analysis History Swatch Today Industry Analysis Financial
Position
Our Proposal

15. Development of World Watch Market
Followers competing in the same segment as Swatch, (Benetton, Guess, etc.)
Prestige, Design,
Exclusivity
History
Licensed metal sports watches (Adidas, Puma, Fossil, etc.)
Rolex
Swatch
Today
Traditional
Swiss brands
Swatch
Industry
Analysis
Seiko, Citizen
Cheap HK brands
Low
Price
High
Price
Financial
Position
More local brands in emerging markets, i.e. China and India
Our Proposal

16. Swatch Group sales revenue in China is high but volume is low
Top 10 Brands in China (unit)
Top 10 Brands in China (value)
History
Brand
Market Share
1. Tianwang
4.32%
2. Fiyta
4.09%
3. Rossini
4. Citizen
4.02%
5. Everbright
3.77%
6. Casio
2.64%
7. Tianba&Harpo
1.83%
8. Enicar
1.75%
9. Seiko
1.66%
10. Xinhuang
1.34%
Brand
Market Share
1. Omega
13.68%
2. Rado
9.26%
3. Longines
5.34%
4. Rolex
3.92%
4. Titoni
3.81%
5. Enicar
3.26%
6. Fiyta
3.24%
8. Citizen
3.13%
9. Tissot
2.86%
10. Tudor
2.78%
Swatch
Today
Industry
Analysis
Financial
Position
Domestic Brands
The Swatch Group
Our Proposal
Source: China National Commercial Information Center, 2001

17. Major Competitors in the Global Mass Market
History
Swatch
$ 2173 m
73%/ Group
Watch
Watch & components mfg
Electronic systems
Citizen
$ 1153 m
40%/ Group
Watch
Info& electronic equipment & devices
Industrial machinery & equip.
Seiko
$ 921 m
47%/ Group
Watch
Clock and precision pr.
Optical pr.
Sports & toiletry pr.
Timex
N/A (private)
Watch
Clock
Eyewear
Thermostat
Healthcare
Audio
Fossil
$ 781 m*
N/A
Watch
Accessories (leather goods, belts, handbags, sunglasses, etc.)
Swatch
Today
Industry
Analysis
Financial
Position
73% of Swatch Group’s total sales come from watch sales
Our Proposal

18. Trends History Swatch Today Industry Analysis Financial Position
Emphasizing FASHION
- Swatch: Calvin Klein
- Seiko: Nike
- Timex: Nautica, Guess?
Fossil: Burberry, Emporio Armani, Diesel, DKNY
History
Swatch
Today
Fossil
WritstPDA
MSN Direct
Citizen
Eco-Drive
Timex
Bodylink
Casio
GPS Pathfinder
Emphasizing TECHNOLOGY
Industry
Analysis
Financial
Position
Our Proposal

19. Trends (cont’d) History Swatch Today Industry Analysis Financial
Swiss target HIGH END/ LUXURY MARKET
Average unit price of export watch by country (in CHF), 2003
History
Swatch
Today
Industry
Analysis
Increasing ADVERTISING
- Brand ambassador
- Sports event sponsorship
Financial
Position
Our Proposal

20. SWOT of The Swatch Group
Expertise in core technology
Vertical integration
Brand equity
Distinctive segmentation
Economies of scale
Low market share in mid-market
Marketing not localized enough
Lack of IT-converged products
History
Swatch
Today S W
Industry
Analysis T O
Competitors produce in low-cost countries
Oversupply of watches in the global economy
Mid-range market
Super low-end market for developing countries
Financial
Position
Our Proposal

21. Financial Position History Swatch Today Industry Analysis Financial
Our Proposal

22. Swatch ROE is Superior History Swatch Today Industry Analysis
Financial
Position
Our Proposal

23. Margins are superior History Swatch Today Industry Analysis Financial
Position
Our Proposal

24. Market shows signs of recovery
History
Rebound & Recovery
Swatch
Today
Industry
Analysis
Financial
Position
Our Proposal

25. Group Sales have slowed down
History
Swatch
Today
-7%
Industry
Analysis
Financial
Position
Our Proposal

26. Our Proposal History Swatch Today Industry Analysis Financial Position

27. Recommendations 1. Target the Mid-Market Segment
History
1. Target the Mid-Market Segment
Swatch
Today
COMPETITION
2. Create “Super Low-End” Brand
Industry
Analysis
CHINA
INDIA
Financial
Position
BRAZIL
Our Proposal

28. Target the Mid-Market Segment
History
Create mass customization via the Internet
- localize sites
- design your own watch online
- purchase watches online
Swatch
Today
2. Change “Swatch The Club” to promote loyalty
- strategic alliance with airlines: frequent flyer miles
- link with ClubMed and resorts
- award Swatch points, e.g.- thru Olympics
Industry
Analysis
3. Invest more heavily in R&D, IT convergence
- memory stick watches
- GPS watches
- watches with cameras
- PDA watches
Financial
Position
Our Proposal

29. “Super Low-End” Product
Research Creating
“Super Low-End” Product
History
Develop cost reducing operations improvements
Swatch
Today
2. Explore producing outside Switzerland, e.g.- China, India
3. Research cost reductions in raw materials
Industry
Analysis
Nearly 5 billion people of the world’s 6 billion population are considered poor, earning less than US$20,000 per year. The key to success in these markets, such as India and China, is providing super low cost products in high volumes.
- C.K. Prahalad
Financial
Position
Our Proposal

30. Forecast for the Future
1. Target the Mid-Market Segment
History
2. Create “Super Low-End” Brand
Swatch
Today
Forecast +2% year over year in watches
Forecast -0.5% year over year in movements
Industry
Analysis
Financial
Position
Our Proposal

31. “Time is what you make of it.”
Q & A
“Time is what you make of it.”