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Volume 9 Letter 2

Think you’re in turbulent times? The Swiss watch industry back in the 1970’s had poured millions into quartz technology only to have Japanese companies like Seiko and Casio exploit it. In 1982 alone Swiss watch sales dropped by 25% and overall the Swiss saw their global market share drop from over 45% to less than 10%. Brands like Omega, Longines, Tissot and many others were in bankruptcy. Swiss watch makers were panicking and ready to give up.

The Swiss banks hired Nicholas Hayek to help them sell off these failing assets; instead he reorganized the industry. Hayek quickly concluded that to save the high end market he had to defend the low end and a big part of the strategy was the Swatch watch. The Swatch was designed with 51 components or about 55% fewer parts than conventional watches and an automated production line pushed the unit cost down to about 80% less than other quartz watches (in a county with the highest labor costs in the world).

The state of the Swiss watch industry at the time of the introduction of the Swatch was dismal. The Swiss understood that it was not enough to offer a good watch – they had already done that. Instead the watches needed to be cheeky, racy, daring, have an attractive fun design and be well priced.

Swatch was aggressively marketed as a second watch – an affordable, fun, stylish fashion item. Initially sales stalled as the Swatch was priced too low. The Swatch needed to be cheap enough to be an emotional purchase yet expensive enough to have value and attachment. It wasn’t until they raised their price did things really take off.

Designers were brought to Milan to design their line of Swatch and then production was limited on those lines creating even higher demand. Suddenly, Swatch watches were everywhere, many becoming collectors’ items. With the fashion segment of the watch industry firmly in the hands of the Swiss, Hayek and his team turned their attention to rebuilding the high end jewlery segment of the market. The rest, as they say, went off like clockwock . As many businesses get turned on their heads during this global recession are there some lessons Swatch can teach us?

Winning when the chips are down:

  • Stabalize your business finanically : Stop the bleeding – it’s unlikely the Swiss banks or the government will come to your rescue.
  • Build your strategy: Hoping for the market to come back is not a strategy! Without a clear strategy the Swiss would have lost the watch market to the Japanese.
  • Invest in Innovation: Pick your best projects and accelerate them – put the marginal ones on hold. The Swiss invested in reducing parts by 55% and decreased costs to <$1.00 per unit while turning a boring watch into a must have fashion item.
  • Charge for your innovations: Swatch initially was priced too low for a fashion item – the Swiss needed to raise the price from 30 Sfr up to 50 Sfr then sales took off.

In tough economic times it is easy to shut down and wait for the markets to return but markets are changing and it is the companies who are preparing now who will win in the future! While everyone has the will to win, champions have the will to prepare1. The future champions are preparing now.

For more on Swatch see

1. Bobby Knight, basketball coach

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