Is the Apple Watch Killing the Swiss Watch Industry?

Size: px

Start display at page:

Download "Is the Apple Watch Killing the Swiss Watch Industry?"

Walter Harrell
6 years ago
Views:

1 Is the Apple Watch Killing the Swiss Watch Industry? BROCK UNIVERSITY CASE ONE GSB Consul ng Group Afra, Mithra, Hanna, Karan Present to: Mr. Nick Hayek and management team of Swatch Case 1; Is the Apple Watch killing the Swiss watch industry? The Apple Watch a threat or an opportunity for the Swatch group ltd? is based on IMD Case: IMD available from the case centre at copyright 2017 by IMD, Lausanne, Switzerland (

2 Agenda Current Situations Problem identification Recommendation Analysis Decision Criteria Alternatives and Evaluation Financial Analysis Implementation, Contingency Key Take Away

3 Current Situation Apple Watch has been successfully taken a piece of cake from the watch market from Smart watch is gaining more and more attentions. Swatch Group s sales in 2015 declined by 3% (0.9% of selling, 2.1% of currency situation) The targeted segmentation of Swatch Group is somehow different from smartwatch firms.

4 Problem Identification Immediate problems Is smartwatch a threat or opportunity? Should Swatch compete in this market and how? Long-term problems What s Swatch s sustainable growth strategy giving the interruptive technology?

5 Recommendation Swatch should catch the opportunity from smart watch market, Invest in product development and produce luxury smart watch, Keep positioning the new product under the luxury brand umbrella.

6 External Analysis - PEST Political factor: Support from Swiss government Economic factors: Exchange rate fluctuation Social factors: 1) Awareness trend in watches is increasing; 2) Clear distinguishing between mechanical and smart watches Technologies factors: Disruptive technology from smart watches

7 External Analysis Porter s Five Forces Smartwatch market Consumer Barging Power Competition among rivals Supplier Barging Power Threats from new entry Threats from Substitutes More choice Brand loyalty among luxury watch consumers Concentrated competitor group Apple s dominance Limited amount of technical suppliers Many start-up technical firms High initial investment Different types of wearable devices High Medium High Low High The competition in smartwatch market is intensive.

8 Consumer Analysis Emotional preference: Hedonic vs Functionality Pleasurable aspects of luxury watch Status symbol in the society Appreciation of craftsmanship and timelessness Superior design features Loyalty: 27% of luxury watch consumers preferred Apple Watch 15% considered apple Watch as a potential substitute

9 Competitive Analysis Apple 1) Superior technology 2) Market leader in smart watches 3) Innovativeness Swatch 1) Leader in luxury watch markets 2) Technological expertise in mechanical watches 3) Value proposition to consumer Core competency of Swatch lies in the luxury segment.

10 Ansoff s Matrix New markets Market development Diversification Existing markets Market penetration Product development Existing product New product

11 SWOT Matrix Opportunities: 1> Growth in smartwatch market 2> Potential growth in US mechanical watch market Threat: 1> Emerging substitutes 2> Economic fluctuation Strength: 1> Current top player in luxury watch 2> Capable to over come crisis 3> High brand equity 4> Operational efficiency SO: Product Development Positioning luxury smart watches ST: Market Penetration Heavy marketing investment in mechanical watch market Weakness: 1> Traditional function in designs 2> Lack of technology capability WO: Diversification Diversity into smart watch category WT: Market Development Focusing on US mechanical watch market development

12 Decision Criteria Leveraging core competency Profitability Risk Growth Sustainability

13 Alternatives - A SO: Product Development Positioning luxury smart watches Pros Cons Leverage our core competency in luxury market Add new value in brand awareness to get sustainability growth High risk in investing new technology

14 Alternatives - B WO: Diversification Diversity into smart watch category Pros Cons Product category diversity Improve the defense ability of market fluctuation Lack of leveraging core competency High risk in entering new market

15 Alternatives - C ST: Market Penetration Heavy marketing investment in mechanical watch market Pros Cons Lower investment requirement Easy to using existing product Limited space to growth

16 Alternatives - D WT: Market Development Focusing on US mechanical watch market development Pros Cons Easy to get profit with existing product cetology Highly depend on the market change Limited space to growth

17 Alternatives Evaluation Criteria A - SO B - WO C - ST D - WT Leveraging core competency(30%) Profitability(30%) Risk(20%) Growth Sustainability(20%)

18 Status Quo 20.00% 15.00% 10.00% Percentage change in Net Sales 5.00% 0.00% % 0.00% -2.00% -4.00% -6.00% -8.00% % % % % Projected Percentage change in Net Sales

19 Financial Analysis Forecasting Demand for smartwatches Total forecasted units Apple will sell in 2016: 23.8 million units Percentage of market share: 66.6% Total number of units: 35.7 million units Growth rate for 2016: 70% Total number of units based on the industry growth rate: 60.7 million units

20 Financial Analysis Projected luxury smart watches sale Annual Demand (In million units) Percentage of luxury smart watches 10% 10% 10% 10% 10% Total Annual demand Total Percentage Share 7.50% 12.50% 20.00% 27.50% 35.00% Total sales (in million units) Total Sales ($million)

21 Cost and NPV Analysis Total Cost ($million) Discounting factor PVCI PVCO Discounted cash flows NPV

22 Cost Breakdown Initial Investment: $120 million Licencing cost Marketing and promotion Independent app developers Research of Design & Deveopment

23 Financial Analysis Assumptions: 1) Annual demand for smart watches will grow by more than 40% 2) Price of a luxury smart watch: $1250 3) Market share will grow at an increasing rate 4) Cost of capital is assumed to be 10%

24 Recommendation Swatch should catch the opportunity from smart watch market, Invest in product development and produce luxury smart watch, Keep positioning the new product under the luxury brand umbrella.

25 Implementations First 6 months >Partnering with Google >Build up the team for new product >Ready for production >Marketing planning: 6 months to 2 years >Trigger the production >Launch the new product into market >Intensive promotion to extend the brand association 2-5 years >Focus on R&D and innovation of products

26 Implementations First 6 months >Partnering with Google >Build up the team for new product >Ready for production >Marketing planning: 6 months to 2 years >Trigger the production >Launch the new product into market >Intensive promotion to extend the brand association 2-5 years >Focus on R&D and innovation of products

27 Implementations First 6 months >Partnering with Google >Build up the team for new product >Ready for production >Marketing planning: 6 months to 2 years >Trigger the production >Launch the new product into market >Intensive promotion to extend the brand association 2-5 years >Focus on R&D and innovation of products

28 Risks and Contingency Risk: Apple s unpredictable initiatives into the smartwatch market, giving the company is really innovative! We will trigger our contingency plan at stage 2 (6 months to 2 years) if we didn t meet our target revenue at $M 132 if Apple take over much more markets. Contingency plan: Focus on US with mechanical watches market.

29 Key Take Away Leveraging our core competency Seizing new opportunity in smart watch Partnering with technical giant to win the battle! With 120 $M investment we are going to generate more than $2 Billion in 5 year!

30 Thank You!

Swatch. University of Toronto Rotman School of Management

Swatch. University of Toronto Rotman School of Management Swatch University of Toronto Rotman School of Management Agenda Challenge Recommendation Analysis Strategy Implementation Risks and Mitigations Summary What is the problem that Swatch is facing? New Competitors