The introduction of the Swatch watch is not simply a single-company success; it revolutionizes the whole Swiss watch industry. It is a brand name associated with style and fashion that has sold over 200 million units within a decade obtaining strong presence in all big markets.
By 1998 the watch industry is shifting to the mature phase of its life cycle, bringing new challenges to Swatch and the other watch manufacturers. Swatch management team is facing the necessity to reconsider strategy, pressed by several major developments:
By 1998 the watch market is reaching its maturity phase. What is typical for the maturity stage in an industry is decreasing sales growth and tougher competition (Thompson, 1996). Persuasive promotion and strong brand identity are key success factors for market leaders and this is one of Swatch's competitive advantages that can be used to counteract competitive pressures.
Increased competition in the maturity stage of the life cycle means more companies adopting the Swatch strategy in terms of pricing and brand positioning, competing on the same market segment. Swatch's major competitors are The Timex Corporation with a number of watch brands positioned differently to cover different market segments; Guess, already part of The Timex Corporation; Fossil, and Casio.
There are several factors that influence the intensity of competition (Porter, Competitive Strategy, pp. 17-21). In the watch industry intense rivalry is fuelled by the slow market growth, due to life-cycle maturity stage; and an increasing number of companies competing with equal offers on a market that is limited and decreasing in size. The high volume mass market segment is likely to attract further market entrants - other low cost manufacturers from Far Eastern countries. Additionally, on the low-price mass market segment product and brand switching is very easy, especially for fashion-driven products. According to Figures 3 and 5 in the case study, the players in the watch industry can be put in several categories.
Cheap Hong Kong brands - low priced product associated with low prestige and no design exclusivity.
Up-market segment dominated by watches like Rolex, Rado in the high prestige, high-priced category. Because of the specific market niche, these watches are sold in smaller quantities and have high profit margins.
Medium prestige, medium price category between the two market extremes - dominated by companies like Seiko and Citizen.
Swatch's strategy is in the low-price but strongly branded category, competing with brands like Benetton, J. Boxer, Timberland, Kickers etc.
1.4. Changing consumer base
The power of customers is one of the five competitive forces, as identified by Porter (Porter Competitive Strategy, 1980). The changes in the consumer base are caused by demographic and fashion developments.
The watch market is strongly influenced by changing lifestyle and fashion. Preference to more durable metal watches makes the standard Swatch plastic watch less attractive. To respond to this change, the company has introduced the Irony brand that is in line with new trends.
Another pressing factor is changing demographics that will lead to decrease in customer base over the next decade. This means that Swatch will have to compete for fewer customers in the present market