SMART WATCH TECHNOLOGICAL DISRUPTION University of Alberta Innovation
PROBLEM STATEMENT What is the best path forward for the Swatch Group in the smart watch segment?
SOLUTION Expand into the Smart Watch Segment Innovation Simplicity Quality Fashion / Luxury
CURRENT SITUATION Among top 3 in luxury segment Multiple brands in all price segments Design and sell watches, jewelry, components, movements Swatch TOUCH Zero One Smart watch for active users Swatch Bellamy Smart Watch for payment
COMPETITIVE SITUATION Changing market landscape Apple introduced 3 types of smart watches for multiple segments Apple Watch 2 coming soon In the current market: 27% prefer Apple Watch 15% consider Apple Watch a substitute Increasing sales of Swatch luxury among young people 16% 18+ own a wearable device and use it once per month
COMPETITOR MAP LUXURY TISSOT Smart-Touch WATCH Edition TAG HEUR Connected WATCH Hermes MASS MARKET fitbit SWATCH Touch Zero One Fitbit Surge& Charge MULTIPLES: Moto, Watch Sport, LG Watch LOW ADVANCED KEY TAKE AWAY: Swatch is present in the market but not competing in the same segments
ANALYSIS Strengths - Brand (established) - Patents - Components - Craftsmanship Opportunities - Luxury market - Component sales / B2B - Partnerships SWOT Weaknesses - Slow to make changes - Brand loyalty Threats - Smart Watches - Technological disruption KEY TAKE AWAY: Apple Watch is a serious threat
10 TYPES OF INNOVATION Apple (watch brand) Swatch (watch brand) Configuration Well known, luxury Luxury, Craftsmanship Offering Apple Watch All segments Experience Standardized Standardized Service Channel Retail Stores Retail Stores Brand Cust. Exp. Familiar Familiar Product Performance Apple ecosystem Missing Product System Standard Standard Profit Standard Standard Network Standard Standard Structure Standard Standard Process Standard Vertically integrated KEY TAKE AWAY: Swatch can improve their process and specifically the product system
PORTERS 5 FORCES SUBSTITUTES 6 / 10 SUPPLIERS 1 / 10 RIVALV RY 7 / 10 BUYERS 5 / 10 NEW ENTRANTS 6 / 10 KEY TAKE AWAY: Threat of substitutes must be mitigated
CUSTOMER EXPERIENCE Luxury brand Timeless Craftsmanship Limited THINK AND FEEL Smart watches not a threat Apple Watch vs. Swatch H E A R S E E Beautiful Fashion / Jewelry Smart Watches Increase prevalence DO AND SAY Purchase for status Brand Reputation Attract Younger Gen.
CUSTOMER EXPERIENCE Smart Watch Convenient High Price THINK AND FEEL Cool, High Tech Functionality H E A R S E E Increasing use Paired with smartphones DO AND SAY Purchase and use daily Charge every day KEY TAKE AWAY: Smart Watch creates Blue Ocean segments
Financial Snapshot and Forecast Net operating profit 1.45 B Operating margin 17.2%
Financial Snapshot and Forecast 2,500 Net Income CHF Million 2,000 1,500 1,000 500-2013 2014 2015 2016 2017
Financial Snapshot and Forecast 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 Net Sales CHF Million 2012 2013 2014 2015 2016 2017
Financial Snapshot and Forecast 14.00 Unit Sales (Millions) 12.00 10.00 8.00 6.00 4.00 2.00 0.00 2012 2013 2014 2015 2016 2017
ALTERNATIVES Option Cost Profitability Growth Competitive Value Alignment 1. Focus on luxury watches only 2. Components and B2B 3. Partner with Apple 4. Expand into the Smart Watch Segment
ALTERNATIVE 1 LUXURY WATCHES ONLY PROS - Focus on core competencies - Reduces IT and software demand - Use existing resources CONS - Low Profitability - Disruptive technologies - Exiting a potentially profitable market
ALTERNATIVE 2 COMPONENTS AND B2B PROS - Widens consumer base and customer segments - Uses core competencies and existing innovation resources CONS - Cuts out consumers from the luxury watch market - Would create high costs in the short term
ALTERNATIVE 3 PARTNER WITH APPLE PROS - Wider reach with Apple and increased number of consumers - Does not tarnish brand - Increase capability and uses Apple s tech reputation - Diversify offerings - Uses Apple s brand CONS - Brand history not accounted for - No alignment with vision - Hard to implement - Not easily achieved with Apple brand
ALTERNATIVE 4 SMART WATCH SEGMENT PROS - Brand alignment would be high - Growth potential is high - Can leverage existing reputation and quality - Can use market position luxury - Less maneuverability for competitors CONS - Not core competency - Need to do Research and Development - Could potentially self-cannibalize
RECOMMENDATION THE SMART SWATCH PLAN Growth Quality Innovation
IMPLEMENTATION Increase marketing Organize for growth Research and Development Launch Smart Touch 2 Research and Development Launch Swatch Diamond Evaluate and Continue Development 12 months 24 months 36 months
IMPLEMENTATION SHORT TERM Action Timeline Cost KPI Increase marketing for Swatch Tissot Smart Touch Organize for growth Research and development 1-6 months $ 4 million Increase sales by 10% 2-8 months $3.3 million Hire 20 developers Hire 10 sales Hire 3 support 3-12 months $10.7 million Increased functionality Luxury design
IMPLEMENTATION MEDIUM TERM Action Timeline Cost KPI Launch Tissot Smart Touch 2 Research and development 12-24 months $4.6 million Net income increase by 5% 16-24 months $9.1 million Incorporate more technology Luxury design
IMPLEMENTATION LONG TERM Action Timeline Cost KPI Launch Swatch Diamond Evaluate and continue R&D 36 months + $ 5 million Net income increase by 5% 36 months +
COMPETITOR MAP LUXURY TISSOT Smart- Touch SWATCH Diamond TISSOT Smart- Touch 2 WATCH Edition TAG HEUR Connected WATCH Hermes MASS MARKET fitbit SWATCH Touch Zero One Fitbit Surge& Charge MULTIPLES: Moto, Watch Sport, LG Watch LOW ADVANCED
IMPLEMENTATION VRIO VALUABLE RARITY IMITABILITY ORGANIZED Brand value Long history Quality Owns the segment Patents Simple IP Positioned for growth
SmartSwatch Plan Investment 12000000 10000000 8000000 6000000 4000000 2000000 0 2015 2016 2017 2018 HR R&D Marketing
Past Finance 2,500 Net Income CHF Million 2,000 1,500 1,000 500-2013 2014 2015 2016 2017
Financial Result of SmartSwatch 2,500 Net Income CHF Million 2,000 1,500 1,000 500-2013 2014 2015 2016 2017
OBSTACLES 12 11 Impact on Swatch 10 9 8 7 6 5 4 3 2 1 APPLE EXPANSION PRODUCT FAILURE COMPETITOR ACTIONS 0 0 1 2 3 4 5 6 7 8 9 10 11 Probability
OBSTACLE Apple Expansion Apple can move into the same space and imitate MITIGATION: Simplify products and make them practical to consumer needs
OBSTACLE Product Failure The product launch could be a failure MITIGATION: Prior to manufacturing and launch, conduct extensive polls of consumers, use R&D core competency to provide innovative products reflecting the consumer needs
OBSTACLE Competitor Actions The competitors can take the same path or even some of the presented alternatives MITIGATION: For the smart watch segment, use multiple brands in the luxury, low segment so that dependence on one brand is low If competitors partner with Apple, leverage quality and luxury brands in the marketing approach If competitors focus on watches only, maintain current operations and use marketing plans to separate the luxury watch brands from the smart watch products.
SUMMARY First Mover Quality Diversify Blue Ocean Strategy
APPENDIX BUSINESS CANVAS RESOURCES - Patents - Brand - Innovation PARTNERS VALUE PROPOSITION Provide luxury, handmade, innovative products CUST. RELATIONS - Known for quality - Maintain relations CHANNELS - B2B - Retail - Online ACTIVITIES SEGMENTS - Sports - Techies - High earners - Traditionalist COSTS - Normal costs REVENUE - Dropping revenues due to decreased sales
APPENDIX 66.71 Market Growth 70 60 50 40 30.32 50.4 30.15 34.97 44.1 21.02 23.98 26.92 30 20 10 0 Smart Watches Wristband Sports Watch 2015 2016 2017