The Swatch Watch1

The Assignment :Read the Story of Swatch Watch and Comment on

a)The Business Design ;
b)Or is it a case of Customer Care and Insight

Hayek knew quite well most people who analyse the destruction of the Swiss watch industry
in the 1970s emphasize price and technology. They point to the arrival of hundreds of
millions of cheap quartz watches from Japan and Hong Kong and Swiss watch makers
decision to ignore quartz, a technology which Swiss invented. Hayek felt Swiss watch
companies had huge problems beyond technology. There were problems of strategy,
structure, management, customer care , customer service and addressing customer emotion.2

Trained in mathematics, physics and in chemistry at the University of Lyon, Nicholas G

Hayek learned those disciplines served him well throughout his career. His desired to study
nuclear physics could not fulfil due to family and financial factor; he took the responsibility
to run a foundry of his father in law , who became ill. When he did put the foundry firmly
on the saddle of growth his father in law relieved him of the responsibility. Hayek set up a
engineering consulting firm in Zurich. One of his initial assignments caught the attention of
German industrialist and he became known as a secret weapon in German industry, which
fetched him assignments from Volkswagen AG, Nestle, US Steel, AEG-Telefunken, Digital
Equipment Corporation. He got assignments from Swiss Government as well- he became to
be known as the guy who tells the truth.

The History : In the early 1980s, the banks named Hayek as their chief adviser on the
troubled watch industry. He was already well-known as the founder and CEO of Hayek
Engineering, a Zurich-based consulting firm that is something of a cross between Arthur
D. Little and McKinsey & Company. In 1985, the banks proposed that Hayek buy a
controlling equity stake in Swiss Corporation for Microelectronics and Watchmaking
(SMH). He assembled a group of investors, retained the single largest stake, and became
CEO. Under his the Swatch Group achieved worldwide renown as the crown jewel of the
watchmaking industry. Hayek led the firm’s recovery from a severe crisis. He and his
colleagues at the Swiss Corporation for Microelectronics and Watchmaking (SMH) have
engineered one of the most spectacular revitalization of the Swiss watch industry. The SMH
(Swiss Corporation for Microelectronics and Watchmaking Industries Ltd.), founded by
Nicolas G. Hayek in 1983 through the merger Swiss watchmakers ASUAG and SSIH, was
1
Written by Ahindra Chakrabarti, Great Lakes Institute of Management, Gurgaon.
2
In the 1930s, both ASUAG and SSIH sought to combat the severe economic crisis and ensuing
unemployment by means of complementary research and development programs in their respective
companies. It proved difficult for both, however, to implement a common industrial policy for the subsidiaries
concerned. Following repeated crises in the Swiss watch industry, by the 1970s both ASUAG and SSIH were
once again in trouble. Foreign competition, in particular the Japanese watch industry, with its mass production
of cheap new electronic products and new technology, was rapidly establishing a strong foothold in the market.
Eventually, both ASUAG and SSIH faced liquidation, and foreign competitors were offering to buy prestigious
brands such as Omega, Longines, Tissot, and others.

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renamed The Swatch Group. SMH is not a turnaround story - it is a case study of Hayek’s
philosophy, strategic thinking, care for customer and their emotion both of which were
strikingly at odds with the prevailing wisdom about how companies should compete in the
new economy especially in fashion industry3.

The Hayek Report: SSIH was a company that had Swiss French origin , which had Omega
as crown jewel. ASUAG was Swiss German origin which had RADO and Longines, but
its heart and soul was an operation called Ebauches S.A. In addition to brands and
movements ASUAG also had at the time, lots of little companies that made components
and were not doing well. ASUAG , around 1982 owned more than 100 companies – some
big some small some backward some modern and most of them were marketing their own
R&D , marketing and assembly – quite complex phenomenon. SSIH had Omega brand ,
quite a successful but the company manufactured too many Omega watches and sold them
at low prices , the name got diluted. There were no clear strategy ; it has its own distribution
in Germany and France, in other countries it worked through agents and even let some
contract with outside manufacturers to build their own Omega models.

After taking over SMH Hayek started working with the product , its positioning in the world
market. A comprehensive study was made , report was written in German language , known
as Hayek Report . The report was controversial got lot of attention.. It showed world market
for watches were 500 million units per year with three segments . In the low end segment
where prices were up to $75 or so ,represented 450 million units. The middle layer with
price up to $400 represented about 42 million units. The high end segment where prices
ranged between $400 to millions of dollars were 8 million units. The Swiss share in the
bottom layer, 450 million watches was zero; in the middle layer it was 3% and in the top
layer were 97%. The Swiss watch industry had spent much of their time of the ’70s reacting
to quartz. Hayek found there would be no end to retreat from the market for Swiss watches
if it continues to react to cheap cost and does not create value. .

3
See note at the end about another story of Fashion Product.

2
The Swatch Group Today :The Swatch Group, with its 18 brands, generated net sales of
CHF 9219 million in 2014 compared to CHF 8709 million an year earlier. In 2014, the
Group’s operating profit reached CHF 1752 million, reflecting an operating margin of
20.1%. Swatch Group has four main business vertical today: Watches & Jewelry; Production;
Electronic Systems.

Products Profile of the Company: Collectively, the Swatch Group’s eighteen watch brands
address all segments of the market.

Prestige and Luxury High Range Middle Range Basic Range

Range
Watches Breguet Longines Tissot Swatch
Harry Winston RADO Balmain Flik Flak
Blancpain Union Certina
Glashutte
Glashutte Original Hamilton
Jaquet Droz Mido
Leon Hatot Calvin Klein Watches
+ Jewellery
Omega
Retailing Tourbillion Hour Passion
Production ETA Comadur Universo Membrez
Meco Rubattel et Manufacture Ruedin Novi
Francois Golay Weyerman Lascor Swatch Group
Assembly
Nwarox FAR MOM Le Simon Et Dress Your
Prelet Body(DYB)
Electronics EM Microelectronic Renata Micro Crystal Swiss Timing and ST
Systems Sports Service

Production: The Swatch Group occupies a major position in the production and supply of
watches, movements and components. With 156 production centers, it is the world’s largest
watch producer. Not only does it manufacture and assemble all the models sold by its 18
brands and its two multi-brand retail companies; it also supplies parts and components
commonly known as movements to the entire watchmaking industry. The Swatch Group’s
strength lies in the fact that, taken together, its production companies supply virtually all the
components for the Group's timepieces, from design right through to assembly. This ensures
the integrity of the vertical manufacturing structure; it also guarantees the strength and
credibility of each of the Group's brands, and of the products sold in the Tourbillon and
Hour Passion boutiques.

Swatch Group : Landmark: The development of the Swatch Group is marked by numerous
exceptional sites that illustrate the stages in its evolution. All around the world, Swatch
Group buildings are seen as icons of outstanding architecture dedicated to the art of
watchmaking and the promotion of the arts in general.
The renovated Omega Museum, the oldest museum in Switzerland dedicated to a single
watch brand, features items representing the brand's entire history. Located at one of
Geneva’s most prestigious addresses, La Cité du Temps is an iconic landmark of
watchmaking history, as is the extraordinary Nicolas G. Hayek Center inaugurated in
Tokyo’s Ginza district in 2007. Then there is the former Glashütte watchmaking

3
school which, with funding from the Swatch Group, has been transformed into
a museum devoted to the history of watchmaking. These are now joined by the Swatch Art
Peace Hotel which is housed in Shanghai’s legendary Peace Hotel.

Graph -1:Net Sales of the company between 1989 and 2014.

Net Sales million CHF

10000

9000

8000

7000

6000

5000
Net Sales million CHF
4000

3000

2000

1000

0
1985 1990 1995 2000 2005 2010 2015 2020

Graph -2 :Return on Equity (%) of the company between 1989 and 2014.

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 ROE
30.00

25.00

20.00

15.00
ROE
10.00

5.00

0.00
1985 1990 1995 2000 2005 2010 2015 2020

Graph -3 :Total Assets and Equity in the company between 1989 and 2014.

14000

12000

10000

8000
Asset million CHF
6000 Equity million CHF

4000

2000

0
1985 1990 1995 2000 2005 2010 2015 2020

Graph -4 :Market Capitalization of the company between 1989 and 2014.

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 Market Capitalization in million CHF
35000

30000

25000

20000
Market Capitalization in
15000 million CHF

10000

5000

0
1985 1990 1995 2000 2005 2010 2015 2020

Hayek’s entrepreneurial way

Hayek started implementing his ideas. His mental make up was entrepreneurial ; he was
imaginative and innovative – with highly developed communication skills, curious about
new ideas, able to reflect critically on his ideas . This mentality helped him developing
imagination and courage to take on obstacles he overcame. In fact, the only obstacles which
cannot be overcome, he felt , or avoided, are death and taxes.
Nicholas Hayek had studied business designs of many companies and in some cases whole
industries as engineering and industrial consultant , but he never run any company other
than his own consultancy firm and his father-in-law’s foundry. In 1980 he was invited by the
world of Swiss watch making , which was by that time was devastated by competition from
Japanese . Swiss watch industry at that time was not in a shape to innovate or rebuild but
wanted to be efficient and streamlined. Hayek felt that Swiss industry was not looking for
innovation, it looked like a dead end. He was not from this industry – he started looking at
the problem through a fresh pair of eyes and radical entrepreneurial mind set - he thought
there must be an opening , an alleyway that would lead to a large scale opportunity.
His analysis of the Swiss watch making industry’s past success was driven by craftsmanship
,technology, production, assets, distributor relationship on the one hand, and objective reality
of customer behavior, customer preferences, customer emotion, on the other. It’s not pure
technology but mix of various things , it was about craft , name, elite image, expectations,
association confidence in selecting right gift and certainty about its being perceived in the
right way. Having prospered under these rules for many years , the Swiss held very strong,
deep seated commitment to the old world of watch making. Craftsmanship was not , be all
and end all of prosperity of the industry; he found this approach is too limiting for modern
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world and competition. He felt it is possible to build high-quality, high-value , mass market
customer products in high wage countries at low costs.4

Permanent innovation – new products

In the 30-plus years since the first Swatch Watch caught the world by surprise, the Swiss
watchmaker has introduced an extraordinary series of innovative products; from the first
Originals to the POP Swatch, Irony, Skin, Scuba, Chrono Automatic, Big Classic, the
lightweight Irony Xlite, and Sistem 51. Its amazing mechanical movement has only 51 parts
and is the first ever to be assembled entirely by machines – a mechanical revolution! A
popular expression of the innovative Swatch spirit is also Swatch Touch, the colorful line of
trend-setting timekeepers with big LCD dials and a touch-sensitive zone in place of
pushbuttons. Swatch Touch brings streetwise trends to the wrist, showing inspiration from
urban rhythms and electric sounds, and from the sheer exuberance of sports. Swatch
innovation takes another surprising and entertaining twist with the new Swatch Touch Zero
One. Its 5 worlds in one -- Hit, Clap, Step, Coach and Time -- offer 18 new functions that
make Beach Volleyball and active lifestyle even more fun. The watch also connects to an
engaging and original smartphone App designed by Swatch to enhance the sports and fitness
experience for players and fans alike. Plastics, silicone, steel and aluminum continue to offer
designers a wealth of color, textures and techniques as they surprise and delight fans with
mind-boggling, endlessly entertaining ways to tell time - and more new materials remain to
be discovered.

Communicating Message

Hayek started spending long hours in listening to experts in marketing, studied hard and
constantly searching for empty spaces and what they meant. He found existing practice was
to provide to customers with functionality or with luxury and they focused in making watches
, and not marketing them. Hayek believed products are created , but brands are created in
mind. He analyzed that digital technology or low cost manufacturing system may not be road
to success but positioning watches as fashion and style , could address the shifting patterns
and styles of the customers. He started with customer issues and not with low cost
production. He was conceptualizing to know what customers look from a watch - Style,
Spirit? Fun? Or all of them? He perceived Swatch can build mass-market products in
Switzerland if one embraces the fantasy and imagination of his or her childhood and
youth. Everywhere children believe in dreams. And they ask the same question: Why? Why
does something work a certain way? Why do people behave in certain ways? At Swatch
he inspired people to ask themselves those questions every day.

Fashion and Designing and Emotion was in Focus

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Swatch gave importance to fashion. The people in Swatch Lab at Milan and many other
places were doing beautiful work. The artists who developed Swatch special collections-
Souvenirs made wonderful watches. But it was not fashion alone - the company planned
to offer its customer a message. Fashion is about image. Emotional products are about
message—a strong, exciting, distinct, authentic message that tells people who you are and
why you do what you do. To Hayek it appeared each person creates his and her version
of brand. There are many elements that make up the Swatch message. High quality - Low
cost – Provocative - Joy of life. But the most important element of the Swatch message
was the hardest for others to copy. Swatch was not just offering watches – it was offering
it’s personal culture.
So Hayek started his campaign to emotionalize the watch, to make it not only high quality
product but also zestful, entertaining fashion accessory. It would make wearer of watch a
convention defying uniqueness. If the company was selling fun or variety - the consumer
would have more pieces. The end result of the entire process was a unique product with a
unique message to customer - high quality, low cost , provocation and joy of life.
Made in Switzerland
The Swiss business design had not changed for more than half a century. It targeted
conservative, well to do customers who paid premium prices for a product whose most
important distinguishing feature was the small print that read Made in Switzerland. In the
1980s the value migrated away from traditional Swiss business model of 1970s , to new
business designs owned by Timex, Citizen, Seiko and Casio. Employment tumbled along
with erosion in value. The common explanation going round did not satisfy Hayek – he
felt that it was not digital technology through which Japanese companies like Seiko,
Casio and Citizen devastated Swiss watch industry, but the mind set of Swiss managers ,
has caused the casthastrope. It was the traditional industry leaders inability to modernize
their antique business design - to create a different version and structure , and to move to
the next generation business in their industry.
As Seiko, Casio and Citizen stared at the strategic landscape of the global watch industry
, they saw this under sensitivity to innovation as their greatest asset . But they also did not
make mistake of moving slowly and altered several levels in their business designs.
Simultaneously focused on manufacturing; ( extraordinarily low cost); distribution
(creating ubiquity ) and marketing(creating universal awareness)

The Shift in Business Design

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 Business Design :Swiss vs Citizen
Swiss Business Design Citizen Business Design
Customer Selection Upper Income Buyers Low to moderate income
buyer
Value Capture Price/Watch Price/Watch
Differentiation/Strategic Traditional Swiss Digital lowest cost position
Control
Scope Full Range Full line –Short of High end
Manufacturing Craftsmanship Modern ,Lowest possible
cost
Go-To-Market Specialty Dealers Universal
Communication Investment Low (1%) Intense (10%)

Value from Processes:

Swatch used to organize various – mainly product development work shop – employees
for a discussion in which Hayek would convince them of their ability and creativity. He
could use his efforts to arouse craftsmen’s innovative powers, their dormant imagination
and would encourage them to set themselves unusual objectives and go their ways in perhaps
unexpected directions. The company started used to work with renowned research
institutions , also would look for new and unusual routes to achieve, what on the face of it,
are seemingly impossible objectives and products.
Brainstorming session with watchmakers, engineers and product developers were
encouraged and at the end participants would put together real ideas – not new designs,
optically new models or new colors ,genuinely new technical innovations – these were put
into practice for several years. This effort was rewarding - not so much because it was though
he felt particularly innovative but because it was a wonderful experience to see how his staff
members developed products – some were more innovative than him he felt.

Hayek’s Focus on Global Branding

The company did not have enough fund to go after sustained campaign , hence campaign
for new product launch was ruled out. Effort was to maximize outreach with moderate costs.
It was all the more critical because the product which was to be launched was to be
differentiated on the basis of image and message. What Hayek’s team designed was a huge
Swatch watch 500 feet long , displaying the basic message:
SWATCH
Swiss
DM 60
It was hung from head quarters of Commerzbank, the highest sky scrapper in Frankfurt, and
created an immediate sensation. A second enormous Swatch was hung in Tokyo, in the
Ginza. By the end of the year returns were in – Swatch was go.
Swatchmania started and Hayek deftly handled it .Brand succeeded and he wanted to
develop relationship and loyalty. The company started selling membership of Swatch – the
Club. Club members started receiving Swatch Watch Journal ,color tabloid, guide to all

9
things Swatch. Swatch started changing styles of watches, demolishing perception of company
running out of ideas.
Hayek started realizing the company undoubtedly selling watches , but for a customer
Swatch watch is a Souvenir, a piece of history and a work of art. Hayek realized what
customers like and would like. He felt it is not fad for Swatch watches – he did not take
customer for granted, but became customer centric, captured customer and then
consistently refreshed the fashion watch concept.

Value from customer communication

Second watch when acquired by a person it was never just a watch. It was always a way to
communicate, a ‘talking piece’ designed to let the wearers show just who they are, identity
and how they feel- the emotion. It’s no surprise, then, that Swatch places great importance
on communication with its customers. Today, creative retail is the name of the game, and
Swatch has mono-brand Swatch stores, megastores, shop-in-shops and kiosks all over the
world. Today Swatch points of sale make use of highly modular environments to provide a
clean, simple setting in which the watches, their colours and creative design are the centre of
attention, allowing them to speak for themselves. The concept can be seen in New York City
at the prestigious Times Square megastore, in Shanghai at The Swatch Art Peace Hotel, in
Paris at the Champs-Elysées megastore, in Beijing in Wang Fu Jing Street and in Hong Kong
in the Luk Hoi Tong Tower. These locations have set the stage for more openings at
prestigious locations on all five continents. In 2013 Swatch celebrated its 30th anniversary at
the annual watch fair in Basel, Switzerland. The spacious Baselworld booth became Planet
Swatch, which evolved each day to reveal the rich diversity of the brand and served as the
launch platform for the newly developed mechanical watch, Sistem51. The prototype on
display attracted enormous attention from the general press and from the industry. Sistem51
has demonstrated the innovative strengths of Swatch and Swatch Group, and thrown down
the gauntlet to the mechanical watch industry: innovate, differentiate, take advantage of
advanced technologies to refresh a proud Swiss made tradition.5

Events came as Tool for Promotion

The company found sports event as great opportunity to increase its outreach. Limited
edition box sets appeared for special events such as Summer Olympics Games in Atlanta
and in Christmas.50th anniversary of United Nations was also celebrated by Swatch launching
a watch. The most far out was Swatch Access to Space a batch of 100 watches that actually
circled the earth aboard in the US Space Shuttle Columbia on 22 February ,1996 with Swiss
Astronaut Claude Nicollier. Swatch Timing became official timekeeper responsible for
timekeeping and scoring in 1996 Olympic Games. Hayek developed brand to an art form
– he made Swatch watch unique and ubiquitous, which was otherwise very difficult to do.

Picture : 1996 Atlanta Olympic –Swatch watch was the Timekeeper.

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For 1996 Centennial Olympiad ,however, Hayek sought the spotlight assignment for Swatch.
Determined to exploit every opportunity for image building – Hayek began the march on
Atlanta a year earlier , commissioning and subsequently erecting 12 Swatch O’Clocks -artsy
Olympics time towers – in a dozen world capitals. Even bolder ,on July 18 1996 Hayek
himself was one of the last runners carrying the Olympic Torch to Atlanta. At Atlanta the
Global Positioning System (GPS) was one of 20 innovations that SWATCH brought to the
1996 Summer Olympic Games as Official Timekeeper. GPS was used in the sailing regattas
in Savannah to plot the position of every individual boat in time and space in a simple and
comprehensible way. GPS establishes the position of any object, based on triangulation from
radio antennae which emit radio waves. Hayek’s gamble paid off ,more than $350000 worth
of watches were sold daily in a 25-square-foot-point-of-sale kiosk at the Swatch pavilion at
Centennial Olympic Park. The Swatch Irony Victory Ceremony Series - a set of three gold,
silver, and bronze watches made in the same quantities as the number of gold medals won
- as well as the Olympic Legend series – featuring Mark Spitz, Nadia Comaneci, Katarina
Witt, Sebastian Coe and others registered sell outs.6

How the Business Design Undergone Shift

With the changes Hayek brought in the process of running business Swatch Business Design
undergone changes. Increasing focus was on movements

1985… 1990…

6
Adrian J Slywotzky &David J Morrison :Profit Zone – How Strategic Business Design will Lead you to
Tomorrow’s Profits .Page 125-126.

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 Customer Selection Style Buyers Style Buyers
Collectors
Luxury Buyers
Value Capture Watch Price Multiple purchases
Movements Repeat Buyers
Movements
Luxury Brands
Differentiation/Strategic Emotionalize the Proliferate the Product
Control Product Style
Style Affinity
Own the Low end Olympic Sponsorship
Own the customer relationship
Scope Full Price Range Full Price Range
Sell Components Sell Components
Brand Extensions
Product Design Streamline Design Continuous Style Innovation
Few Components Maximum Variety

What Hayek’s Approach Communicates

Should industry players accept customers priorities or focus on its capability to manufacture
products. Should industry respond to customers choice and preferences? How as an industry
person we can offer something different to customer. Hayek tried to answer these questions
and developed his company’s offerings. Second issue Hayek thought whether we can get
more out of our existing assets. This led to the thinking of leveraging competencies – to
create more value – hence Hayek moved beyond watch making.

Will Apple Watch Kill demand of Traditional Watch

Apple introduced three models of its smartwatch in April, with prices ranging from $349 for
the most basic version to $17,000 for an 18-karat gold model. The company said June 22
revenue in the unit containing its timepiece rose by about $950 million in the three months
through June compared with the first three months of the year. That would suggest the
company may have sold at least 1.9 million watches, assuming the Apple Watch had an
average selling price of $499. Elmar Mock, one of the inventors of the Swatch,said that Apple
may cause an “ice age” for the four-century-old industry. The computer maker has already
shaken up the music market with its iTunes software, while its iPhone supplanted Nokia
dominance.
Producers such as Swatch Group AG, the maker of Omega, have maintained that Apple’s
entry isn’t a threat and will spur sales of traditional timepieces in the long term by getting
young people in the habit of wearing a watch. U.S. watch data estimates sales of about 70
brands from Timex to Harry Winston through department stores, national chains and
independent jewellers. DLG does not expect the gold version of the Apple Watch to directly
threaten the Swiss luxury watch industry. While being similarly priced, it addresses
consumers who are willing to spend money on a watch that will become outdated within 2
years, whereas Swiss luxury watches are designed to last over time. The Apple Watch

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generates a lot of buzz but does not meet the values and requirements of the Swiss luxury
watch buyers: it is perishable, it is not certified and it does not act as a standalone device.

Table -17 : Swatch Watch Group’s relevant financial data

( in million CHF )
Year Net Optg. Net Equity Total Mkt Avg Dividend
Sales Profit Profit Assets Cap Emp.(No’s) (%)
1989 2056 175 892 1723 1665 11785 11
1991 2304 296 252 1262 2260 2187 14246 14
1993 2770 496 441 1932 2948 7176 15039 20
1995 2562 272 273 2348 3351 4767 17082 17
1997 2970 408 329 2804 3633 5878 17729 20
1999 3518 511 441 2859 4478 11508 17719 24
2001 4048 644 504 3261 4660 9747 19665 58.3
2003 3845 594 593 4006 5615 9019 20700 61.7
2005 4292 735 621 4603 6588 11809 20730 103.6
2007 5646 1236 1015 5329 7447 19367 22505 174.3
2009 5142 903 763 5981 7706 14205 23562 178.1
2011 6764 1614 1276 8071 9805 18605 28028 248.2
2013 8456 2314 1928 9574 11639 30634 33590 325.9
2015 8709 1752 1416 10674 12747 24367 35623 333.9
2016 7553 805 593 11073 13106 17489 35360 322.4
2017 7960 1002 755 11289 13479 21497 35705 285.6
2018 4266 1154 867 11274 13661 37000
Note :2018 results is for half year.

Figure -1:Movement of Share Prices of the Swatch Group

7
Data organized from various Annual Reports of the company.

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Post Script
 Record half-year sales in the history of the Swatch Group.
 Group net sales increased by 14.7% to CHF 4 266 million at current exchange rates,
respectively by 12.6% at constant rates.
 Operating result increases 69.5% to CHF 629 million. Operating margin improved
from 10.0% in the previous year to 14.7%.
 Net income increases by 66.5% to CHF 468 million, with a net margin of 11.0%,
compared to the previous year with 7.6%.
 Growth in all regions, led by Asia and America.
 Massive gains in market share in all price segments and regions.
 Strong product demand by its own brands has already created bottlenecks in certain
production areas.
 The second half of 2018 promises further growth.

OUTLOOK SECOND HALF-YEAR 2018:

The month of July continues the very positive trend. The second half of the year offers excellent
opportunities for continued strong growth and further expansion of market share.
Consumer demand, particularly from millennials, for authentic innovative brand products is greatly
increasing on a worldwide scale, regardless of region or price segment. Consumers want real values,
not only materially but also emotionally. This can be seen worldwide as a clear countertrend
to total “commodity consumerism” (where everything is interchangeable and quickly loses
its value). Increasing interest in pre-owned and vintage products favors strong, innovative and
authentic brands. This is an immense opportunity for the 18 Swatch Group brands.
The Swatch Group, with its legendary brands such as Breguet, Harry Winston, Blancpain,
Omega, Longines and also Tissot – a number of which are over 250 years old – is in an
excellent position, with digital archives and brand museums which reflect this unique cultural
heritage and the substance of the individual brands.Consumers worldwide want to know
more about the production and provenance of products (Swiss Made), not only with regard
to sustainability, but also with respect to the uniqueness of the product and therefore its
credibility. Besides its history, this includes technology such as the movement, new materials,
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design and esthetic and naturally, precision, such as, for example, in the case of the Omega
Master Chronometer or the Longines Quartz V.H.P.This confirms the Swatch Group
strategy: verticalization of production ;presence in all segments strong separate identity for
each brand, not only in marketing but in movement concept and production; production
facilities of the individual brands are made accessible to the consumer in an attractive
manner.In this way, each brand remains unique through its special characteristics and
technical features, its distinct market strategies and its positioning in the market.

Annexure -I

Quotes of Hayek from Annual Report 2006

After our results for 2006 were published, analysts and the media were full of praise, with
headlines such as: «There’s no stopping the Swatch Group». Some wondered how long it
could go on for; after all, «not everything turns to gold». It reminded me of the year 1985
when I was about to invest some of my assets in the Swatch Group and many wondered
whether there was a sufficiently large clientele around to secure adequate growth for our
industry. It is at moments like these that I am overcome with the desire to take a step back

15
just so I can leap such little bit further forward, or as the French say, «reculer pour mieux
sauter».
And, as you have all seen for many years now, the Swatch Group is indeed moving forward
at a rapid pace. Going back in this case, however, means casting our minds back to the year
1986. It was with great curiosity and a certain amount of emotion that I re-read my first ever
«Message from the Chairman» in my capacity as Chairman of the Board of Directors, written
in early 1987. It struck me that the Annual Report as a whole was significantly slimmer back
then than this year’s edition, in terms of both content and volume. And after looking back, I
was all the more delighted with the astonishing way in which our company has grown over
the past twenty years. I would like to quote a couple of excerpts from that Report, not so
much out of nostalgia for the good old days, but simply to note just how accurate our future
strategies for the Swatch Group had been in 1986 and early 1987, for good or bad. 1986 was
the year in which the Swatch brand broke through and flourished. It was the beginning of
our consumers’ run on Swatch all over the world. It lasted right up until the 1990s. 1986 also
saw the start of the spectacular re-emergence of the Omega brand, followed in later years by
Longines, Rado and Tissot. At the time Swatch was the mainspring of the young’s company
watch department, a company which in 1986 was comprised of nine brands.

Leading Swiss Brands

Nescafe Roche Novartis Nestle Rolex

Swisscom Credit Swiss UBS Zurich Insurance Omega
Group
Adecco Banquets Nespresso Lindt Davidoff
Cantonales
Schindler Julias Baer Patek Philippe Vontobel Chopard
Brequet Longines Audemers Piguet Swatch Tissot
TAG Heuer Vancheron IWC Jaeger-Le Coultre Hublot
Constantine
Breitling Rado

What is an In-House Movement

An in-house movement is developed and manufactured by a watch company for their watch
production. Many well-known watch companies do not produce their own movements, but
rather, outsource and design a watch around a movement. Orient, however, develops and
assembles their mechanical movements strictly for their own production. True watchmaking
starts with the development of a movement. A movement is simply the mechanism that works
the watch.

Brands Make Their Own Movements Brands Do Not Make Their Own
Movements
Audemars Piguet Girard Perregaux Ball Watch Co

Citizen Grovana Revue Breguet

Thommne
Glashütte Jaeger-LeCoultre IWC

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 Orient Prim Panerai
Patek Philippe Rolex Breitling
Sea Gull Seiko Chopard
Vacheron & Constantin Vulcain Omega
Vostak Wempe Tag
Zenith

An Overview of Japanese Watch Companies

Japanese watches are known for their efficient designs and high functionality at a low cost.
Japan’s 3 major watch companies include (biggest to smallest): Seiko, Citizen, and Orient.
Though Seiko is the oldest, largest, and perhaps most popular of the 3, each of these
companies has their own niche.
SEIKO: Seiko’s niche is the use of kinetic movements, or automatic quartz movements.
Seiko first unveiled this type of movement at Baselworld in 1986. But what does it actually
mean? Kinetic, or automatic quartz, movements combine a self-winding rotor (just like in a
mechanical watch movement), which generates electricity using a quartz crystal as the timing
element. Essentially, the kinetic is a perfect combination of quartz and mechanical, offering
many of the benefits of both worlds while eliminating the need for watch batteries.
Seiko watches that utilize this technology include Sportura and some Pulsar and Lorus
models. To date, Seiko has sold more than 8 million kinetic timepieces.
CITIZEN:Citizen’s niche is its eco-drive technology ,which means ,Eco-drive watches are
solar-powered, and Citizen first introduced this type of watch in 1995. Of course, solar-
powered timepieces existed before this time, but Citizen’s eco-drive technology included a
solar panel inconspicuously located under the dial. Before this time, solar cells were located
on the dial, making for an aesthetically unpleasing look that watch designers and consumers
avoided. But with a hidden solar cell, the possibilities for designing great looking solar
watches became a reality. In fact, today Citizen offers more than 320 different watch models
that are equipped with eco-drive technology, which is more than 80% of the brand’s product
line. And, as the name suggests, eco-drive watches are eco-friendly since they rely strictly on
solar power rather than batteries.
ORIENT :Orient’s niche is its mechanical watches. Mechanical watches, as many of us know,
utilize the original watchmaking craft that dates back to the 17th century, and is based off of
spring-powered clock technology, which originated in the 15th century. Orient continues this
watchmaking tradition by maintaining in house, hand-built movement production, and some
super classic watches.
It is not necessary to go into detail about what exactly a mechanical movement is, let’s take
a quick look at the 5 essential parts that make up a mechanical as narrated by the company
itself: Mainspring: The mainspring stores energy to power the watch. Gear Train: The gear
train transmits the energy in the mainspring to the balance wheel, and then calculates the
swings of the balance wheel to measure hours, minutes, and seconds. The keyless work of
the gear train is the part that allows the wearer to set the time. Balance Wheel: The balance
wheel swings back and forth, and is the timekeeping element. Escapement: The escapement
keeps the balance wheel swinging, and allows the gears to advance by a set amount of time
with each swing. Dial: Well this is sort of obvious, but the dial is the watch face, which displays
a readable time.

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 Table : Financials of Seiko
(million ¥)
2010 2011 2012 2013 2014
Net Sales 331881 296937 283790 308286 293472
Cost of Sales 217242 206742 196737 204745 189206
Gross Profit 96638 90195 87053 103540 104266
Operating Income 11656 6733 5523 14014 11667
PAT 6585 1280 3243 10165 12373
Total Net Assets 400457 386128 355308 366753 333701
Total Net 225802 211035 198440 208384 168799
Assets(Equity)

Table : Financials of Citizen

(million ¥)
2010 2011 2012 2013 2014
Net Sales 252502 284964 279786 272050 309994
Cost of Sales 169959 188603 180977 176598 190618
Watch & Clock Sales 123613 137396 139369 139508 162061
Operating Income 7230 16702 16528 11549 23706
PAT 3527 5123 7698 (8855) 17434
Total Net Assets 352462 330321 338025 354670 383920
Total Net 186362 184133 188853 192409 217412
Assets(Equity)

References:
Website: www.fragrantica.com accessed on 2/1/2017
www.swatch.com accessed on 12/8/2015
www.swatch.com/en/explore/history accessed on 14/1/2017

Annual Reports:
1. Annual Report -
2015,2014,2013,2012,2012,2011,2010,2010,2009,2008,2007,2006,2005,2004,2003.
2. William C Taylor :Message and Muscle :An interview with Swatch Titan Nicolas Hayek
,Harvard Business Review , March April 1993 .
3. Preston Bottger –Management Lesson from Swatch ;Management Issues -10 Jan
2010.
4. Economist : 13 January 2014.
5. Business Branding - Bringing Strategy to Life – Mc Kinsey Marketing and Sales Practice.

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 6. The essentials of branding from the Big Book of Marketing ,Mc Graw Hill 2010.
7. Adrian J. Slywotzky & David J. Morrison -Nicholas G Hayek : Product Pyramid Business
Design ;Profit Zone- How Strategic Business Design will lead you to tomorrow’s profits;
Three Rivers Press New York (2012).

Notes:
8
1. The origin legend of Chanel No. 5 usually begins with Chanel meeting French-Russian perfumer
Ernest Beaux in 1920 and challenging him to create a scent that would make its wearer "smell like a
woman, and not like a rose." Apparently, Chanel thought women smelled like a mixture of 80 natural
and synthetic ingredients, because that’s what she chose when Beaux presented her with a numbered
series of perfume samples to choose from. As legend goes, Chanel picked the fifth sample, declaring,
I show my collections on the fifth of May, the fifth month of the year, so let's leave the number it
bears, and this number five will bring it good luck. The chosen formula, which debuted in 1921, was
9

an olfactory bouquet of notes that include jasmine, ylang-ylang, may rose and sandalwood, along with
a generous dosage of aldehydes that give the perfume its distinctive "clean" scent, reminiscent of fresh
laundry. Traditionally, respectable women wore perfumes that smelled like singular flowers while
courtesans and other racy ladies stuck to more brazen smells such as musk or jasmine to attract men.
By choosing a scent that blended the sensual allure of jasmine and musk with indefinable flowers and
aldehydes, Chanel made a scent that questioned the notion of perfume indicating social standing,
helping to demonstrate the paradox — voilà! — that women could be simultaneously "sexy" and
"pure." Additionally, it's no secret that Mademoiselle Chanel was once a kept women who used money
from her lovers to help fund her business ventures. Considering that, her opinions on sexuality and
female empowerment were considered unconventional at the time, which make the characteristics of
Chanel No. 5 seem all the more fitting. The perfume's strong percentage of aldehydes allowed the
fragrance to linger on the wearer's skin for an extended period of time, making it more suitable for
"modern" women with busy lives and complex tastes. Surprisingly enough, the early success and
meteoric rise of Chanel No. 5 had little to do with marketing, despite the fact that the perfume was
later featured in some of the most memorable advertising campaigns of the past century.
Perhaps the best publicity that Chanel No. 5 ever received was not an advertisement at all. Who can
forget the legendary Marilyn Monroe response when a reporter asked her what she wore to bed?
From that moment on, nothing could be sexier than the idea of a woman wearing just a few drops of
Chanel No. 5 to bed. The brand decided to reuse this iconic line in 2013 when they based a new

8
Coco Chanel, byname of Gabrielle Bonheur Chanel, French fashion designer who ruled over Parisian haute
couture for almost six decades. Her elegantly casual designs inspired women of fashion to abandon the
complicated, uncomfortable clothes—such as petticoats and corsets—that were prevalent in 19th-century dress.
Among her now-classic innovations were the Chanel suit, the quilted purse, costume jewellery, and the “little
black dress.” Chanel was born into poverty in the French countryside; her mother died, and her father
abandoned her to an orphanage. After a brief stint as a shop girl, Chanel worked for a few years as a café singer.
She later became associated with a series of wealthy men and in 1913, with financial assistance from one of
them, Arthur (“Boy”) Capel, opened a tiny millinery shop in Deauville, France, where she also sold simple
sportswear, such as jersey sweaters. Within five years her original use of jersey fabric to create a “poor girl” look
had attracted the attention of influential wealthy women seeking relief from the prevalent corseted styles.
Faithful to her maxim that “luxury must be comfortable, otherwise it is not luxury,” Chanel’s designs stressed
simplicity and comfort and revolutionized the fashion industry. By the late 1920s the Chanel industries were
reportedly worth millions and employed more than 2,000 people, not only in her couture house but also
in perfume laboratory, a textile mill, and a jewellery workshop. (www.britannica.com)

9
Mazzeo, Tilar. The Secret of Chanel No. 5: The Intimate History of the World's Most Famous
Perfume. New York: HarperCollins, 2010.

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 campaign around the sound clip and classic images of the starlet holding the perfume bottle
provocatively by her chest.(https://fashionista.com/2016/11/chanel-perfume-no.5-history.)

2. William Taylor, former HBR associate editor, conducted the interview at the Zurich headquarters of
Hayek Engineering and at SMH headquarters in Biel.

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